According to Forbes, the e-commerce market will reach $6.3 trillion in 2023. Experts also anticipate its continuous growth, expecting it to surpass $8.1 trillion by 2026.
This means that entrepreneurs planning to establish their own online marketplace have an excellent opportunity to take their business to a new level of profitability. The main focus here should be on developing an online platform and choosing the appropriate monetization strategy.
The experts at Lampa Software are ready to share their knowledge about technologies and development stages and strategies for promoting and popularizing marketplaces. In this article, we will also discuss various monetization options for online trading platforms. We will delve into different revenue-generating ways and provide examples of well-known successful solutions.
Types of Online Marketplaces
When planning the development of your own marketplace, you must determine what type is right for your business goals. Based on this, it is much easier to choose a monetization option.
Let's look at common types of Internet platforms:
E-commerce marketplaces. The most popular type of trading platform is created for retail and wholesale sales. The key feature is the ability to place many product categories from different sellers on the platform. This provides a wide range of products, which attracts many consumers. Also, such a platform greatly facilitates cooperation between sellers and buyers from different countries.
Among the world-famous representatives of e-commerce marketplaces: Amazon, eBay, Etsy, AliExpress, Rakuten.
Service marketplaces. Similar to the first platform type, where various services are offered instead of physical goods. Individuals, companies, freelancers, and others can post their ads here.
The brightest representatives of the online marketplace of services: Fiverr, Upwork, and Thumbtack.
Sharing economy marketplaces. A marketplace that helps people save money on purchasing goods or services through sharing. Home exchanges, transportation, resales, peer-to-peer lending, and more.
Popular shared marketplace economies include Airbnb, Uber, Couchsurfing, and WeWork.
Crowdfunding platforms. A marketplace that brings together entrepreneurs and investors. It is designed to expand traditional financing options (relatives, friends, venture capitalists) for start-ups and creative projects.
The most famous examples of crowdfunding platforms are Indiegogo, Patreon, Mightycause, and GoFundMe.
Social marketplaces. An online platform offering rapid communication services. These can be platforms for connecting businesses and influencers or media platforms (Facebook, Instagram, YouTube). They are also used to connect buyers with businesses and consumers with other consumers.
Representatives of social marketplaces: Famebit, Reelio, Grin, Grapevine.
B2B marketplaces. Online platforms that help establish cooperation between suppliers and buyers. Suitable both for the development of small businesses and for the expansion of sales channels of large manufacturers.
Examples of B2B marketplaces: Handshake, Amazon Business, Faire, and Tundra.
Where Does the Development of a Marketplace Begin?
Once you have determined the type of marketplace you want to create, it's time to delve into the key aspects of effective project planning. The process of building a reliable online platform is complex and multi-stage. We have divided it into several steps to provide you with a comprehensive understanding of how the development of a digital e-commerce solution unfolds.
Planning and Research
Before ordering digital solutions from developers, it is crucial to conduct preparatory work. Consider the following factors when determining the most suitable market niche:
Demand: Analyze the market's need for the products or services you plan to offer customers. Also, explore market trends and growth forecasts.
Competition: Evaluate the number of existing marketplaces operating in your chosen field and analyze their offerings. You can formulate a unique value proposition based on your findings and stand out from competitors.
Attracting Sellers and Buyers: It is worth talking to potential suppliers to understand their interest in working with the new marketplace. Additionally, analyze buyers' needs to shape a unique value proposition for them.
Legal Aspects: Analyze the legal regulations to understand what documents are required to trade on a marketplace. Depending on the product category, you may need permits or licenses for trade.
Technical Considerations: Explore the technologies used for developing the desired type of marketplace, their costs, project duration, and other technical details.
Doing so will give you a comprehensive understanding of the chosen market and formulate the right project development strategy. You can also accurately calculate the budget and set realistic timelines for the developers to complete the project.
Technology and Platform Selection
You have two options: building a marketplace using ready-made solutions or custom development from scratch. In the first case, you can turn to popular platforms like:
WooCommerce WCFM. It's a popular plugin for WordPress CMS that allows you to create small stores with limited traffic and product categories. It provides features for managing orders, and products, configuring seller fees, generating reports, creating vendor/buyer groups, setting product attributes, and more.
X-Cart Multi-Vendor. This professional platform offers flexibility and user-friendly settings for marketplace development. Its key features include seller profile management, order customization, product catalogs, integration with over 140 payment methods, automated analytics, and reporting.
Tamaranga. It's a ready-made platform that offers integrations with local services to enhance the capabilities of your marketplace. It enables you to manage relationships with suppliers and sellers, configure various monetization methods, integrate necessary payment tools, and more.
However, template solutions may not be effective if you want to create a truly unique marketplace. Building from scratch is more resource-intensive since each component will be manually developed. Nevertheless, a custom-built product can be tailored to your requirements and preferences. Additionally, custom development allows you to achieve the following advantages:
Scalability and continuous growth
Customization based on your needs.
Higher level of security.
Various technologies are used in marketplace development, so let's briefly discuss the key ones:
Web technologies: Essential for building the frontend interface, these tools include HTML, JavaScript, and CSS.
Frameworks: They simplify the development process and reduce the time to launch. Popular technologies for frontend development include React, Vue.js, and Angular, while backend development can leverage frameworks like Laravel, Django, and Node.js.
Databases: MySQL and PostgreSQL are necessary for storing user information, platform activities, transactions, and more.
APIs and payment systems: APIs facilitate integration with other services/systems and enable data exchange. Payment systems such as PayPal, Payeer, and Stripe, among others, can be used for implementing payment functionality.
Cloud technologies: Cloud computing platforms like Microsoft Azure, Amazon Web Services, Google Cloud, and others help create a scalable marketplace that can adapt to new product categories.
Define the key goals of your marketplace and create a development business plan accordingly. Choose the technologies that will fulfill all your requirements based on these goals. This way, you can rapidly and effortlessly grow and expand your digital product.
Marketplace Features and Functionality
Meeting the users' demands is important to popularize your trading platform and receive positive reviews. This requires careful consideration of the functionality. The necessary options may vary depending on the type of marketplace, but there are a few essential features for every solution:
User registration. This feature is needed for both buyers and sellers. Creating an account or personal profile helps track purchases and sales. A straightforward registration process facilitates interaction with your marketplace, increasing the chances of customers using it in the future.
Product listings. Categorizing products and configuring the assortment on the seller's page helps attract buyers. Product listings can also include a "top list" featuring the best offers from various sellers.
Search and filters. These make it easier for users to find the desired products on the platform. The more parameters the search filter has, the faster the buyer can find the product they're interested in.
Payment gateways. These are necessary to implement secure and convenient payment methods for buyers and facilitate smooth transactions between suppliers and the marketplace.
Ratings and reviews. This feature helps buyers in their product search and can also be used for rating sellers.
Order management. Enables consumers to create, edit, and track their purchases while sellers can manage the processes of order fulfillment, processing, and delivery.
Offer management. An essential option for suppliers, allowing them to create, edit, and publish their listings on the marketplace.
Furthermore, to launch a truly in-demand product, it's important to analyze the devices most frequently used by your target audience. Based on that, you can develop a web version of the marketplace for computers and laptops or a mobile app for smartphones and tablets. Also, consider cross-platform development, which enables your product to work on multiple operating systems simultaneously.
What Should Be Considered When Deploying a Marketplace?
The deployment process starts with defining goals and objectives, selecting testing tools, and adapting them to your business processes. At this stage, it is important to determine how to attract the target audience. The convenience of using the marketplace plays a special role here.
User interface and UX design
The first thing a new user notices is the appearance of the marketplace. A pleasant platform design, a clear navigation panel, and convenient placement of buttons and fields make working with the trading platform easier. To create an appealing user interface, it is worth following a few rules:
Simplify the design and reduce the number of navigation elements.
Create a clear and logical marketplace structure to facilitate the search for desired products, features, and more.
Add interactive elements to engage users (contact forms, reviews, comments, ratings).
Develop a design that adapts to different screen sizes on various mobile devices.
Following these recommendations can improve the user interaction experience with the marketplace, increasing their interest level. Additionally, by receiving customer feedback through reviews and comments, you understand which features need to be added, what can be improved, and what is not in demand.
Attracting customers
When the development of your digital solution is complete, it's time to focus on attracting the attention of potential users. Let's take a closer look at the strategies you can use to popularize your trading platform and onboarding process:
Develop a simple registration process and introductory screens for newcomers. The faster the user understands the interface and features of your product, the higher the likelihood that they will continue using it in the future. A quick registration process with minimal data entry fields also helps engage more customers.
Provide personalized recommendations. Analyze the customer's previous actions to tailor individual offers of products/services according to their interests.
Design a simple and user-friendly interface. Minimize the number of steps required to find desired products and place orders. Also, provide suppliers with easy settings for their listings, such as photo uploads, description editing, price management, and more.
Implement notification systems. Build friendly relationships with users through welcome messages. For newly registered sellers, sending instructions on using the marketplace is relevant. Personalized reminders about items in the shopping cart or new releases on the marketplace can help attract even more buyers.
Offer bonuses, promotions, and referral programs. Attractive offers with discounts on the first order or bulk purchases can pique the interest of your target audience. You can also launch a referral program with incentives for users who bring their friends to the platform.
Promote the marketplace on social media. Active advertising on social media platforms can make your brand more recognizable. Additionally, collaborating with influencers increases the chances of attracting new suppliers and buyers. You can also make your own account or chatbot on popular messaging apps to establish a reliable connection with your users.
Onboarding informs users about your product and keeps them from switching to other marketplaces. A carefully planned promotion and attraction strategy for potential users is an important component of a successful launch.
Platform security
Security is another important criterion that determines the success of an online trading platform. As an owner, it is necessary to establish trust between sellers and buyers. You can use the following strategies:
User verification procedures. Requesting identity verification helps reduce the risk of fraudulent use of the marketplace.
Implementation of seller and buyer ratings. Ratings encourage users to be honest with each other, which prevents collaboration with dishonest individuals.
Establishment of rules and policies. Develop clear and simple terms of use, privacy policies, return processes, and more for marketplace customers.
Utilization of advanced data protection technologies. Provide reliable protection for user information stored in the marketplace system, preventing unauthorized access. To increase trust, clearly explain how you collect, use, and store data in the privacy policy.
Setting up feedback channels. Provide convenient communication channels with customers and display customer support contacts on the marketplace, allowing users to seek assistance when needed.
It is crucial to establish trust with users to adhere to all security measures. A reliable marketplace becomes the preferred choice for consumers and suppliers, and a high level of security strengthens competitiveness while reducing legal risks associated with data breaches or cybercrime.
What Revenue Models Can Be Used on the Marketplace?
Choosing the optimal monetization strategy is important to make a trading platform popular and profitable. We've gathered several common methods of generating revenue that can be applied in different variations and tailored to specific business models.
To better understand which monetization method suits your marketplace best, let's explore its pros and cons.
Sales commission
The model is based on receiving a commission on each transaction made through the marketplace. Standard deductions range from 3-15% of the transaction amount. There are three payment options:
The commission is charged to the seller.
The commission is charged to the buyer.
Hybrid model, where both pay the commission.
The payment amount can be a fixed percentage or depend on the value of the goods sold. Also, both options can be combined.
Pros of the model:
Ideal for transactions with small amounts.
Allows you to maintain a stable level of income.
Gives confidence in the security of transactions for both parties.
Cons:
The model is not suitable for marketplaces with high-value products.
It takes time to attract buyers and sellers after launch.
Optimal fees need to be calculated so you don't scare away customers.
Sales commission is the most common monetization option. Market giants like Airbnb, eBay, Uber, and Fiverr use it.
Paid subscription
The model involves charging merchants for the opportunity to use your marketplace to make money. Subscriptions can be tiered. For example, a basic subscription will give newcomers access to only the most basic features, a professional will expand functionality, and a premium will allow special options in the marketplace.
Pros:
Suitable for marketplaces with expensive products.
Provides a stable income.
Optimal for earning in the long term.
Cons:
Difficulties may arise when attracting sellers, as they require assurances that they can earn on the online platform.
The model may not apply to certain specific business categories.
There is a risk of customer outflow due to the subscription's lack of profitability.
An example of the introduction of paid subscriptions is Amazon. It offers an Individual plan with a $0.99 charge and a Professional plan at $39.99 monthly for large retailers.
Earnings with a listing
A monetization option that involves taking a commission for the seller's product placement. It is most effective on online marketplaces with a wide audience. It is important to set loyal prices when using listings because the listing does not guarantee the seller a deal.
Pros:
Allows you to attract sellers due to low listing fees.
Provides income if your marketplace doesn't process transactions.
Great for making money on B2C platforms.
Cons:
There is a need to gather a critical number of customers to implement monetization through a listing.
Listing-based monetization requires a large volume of traffic on the marketplace.
The model is unsuitable for specific business sectors, such as healthcare, where only online consultations are provided.
On Etsy, there is a 20-cent commission per listing. However, the listing is only charged after the sale and depends on the number of items sold. Listings are also used on Avito and AliExpress.
Advertisement
You can also earn money by placing ads from other companies on your marketplace. This model is very popular among online marketplaces because it allows you to make regular profits.
Types of marketing integrations include mentions of the advertiser's products in the site's blog or news feed, banners on the main page, product listings, etc.
Pros:
Provides the marketplace with stable earnings.
Allows you to make the platform free for users, which increases their loyalty.
Helps increase the value of the marketplace by collecting analytical information for marketing campaigns.
Cons:
It is necessary to maintain high traffic to attract advertisers.
Advertising revenue is not a good fit for newly created online trading platforms.
Monetization through advertising is used on such marketplaces as Craigslist, Zillow, and others. For example, Uber Eats is offering to launch an advertising campaign for restaurant networks. Here a certain amount of payment is set, which is only withdrawn when the customer clicks on the ad.
Freemium and premium service sales
A revenue model that involves free interaction between the seller, buyer, and the online platform while charging a fee for additional options. For example, arranging fast delivery, buying insurance, etc.
The main goal is to create an appealing marketplace showcasing significant advantages. Such a solution should incentivize users to purchase premium features.
Pros:
Allows you to attract a critical mass of users easily.
Helps build a base of loyal sellers and buyers.
Cons:
There is a possible risk of reducing the model's effectiveness due to free access to the basic functions of the marketplace.
There is a need to motivate users to purchase paid features.
For example, the online stock photography platform Pixabay also uses this monetization model. It allows users to purchase high-quality photos for free while giving them the option of donating.
Hybrid model
This model is based on the use of several methods of monetization at once. It allows you to reach both sellers and buyers. The main thing here is to choose the right options to increase the attractiveness of your marketplace for both groups of users. Thus, you get more profit opportunities.
Pros:
Minimizes the risks associated with relying solely on one revenue model.
Increases profitability through multiple streams of income.
Applicable to marketplaces of any type.
Cons:
It is necessary to combine models in a way that evenly distributes them among sellers and buyers.
Providing users with convenient conditions for using the marketplace is crucial.
Technical difficulties may arise when implementing multiple monetization methods simultaneously.
Amazon operates on a hybrid model combining a subscription-based approach and charging a commission on each sale. A similar system is utilized by Etsy, where the service charges a fee for listing items and also takes a 5% commission on transactions.
Monetization Strategies for Different Types of Online Marketplaces
Consider what monetization strategies are used on online trading platforms depending on their types.
E-commerce marketplaces
Typically, these platforms implement a commission-based revenue model, where a certain percentage is charged on each sale. Amazon, eBay, and Alibaba utilize this revenue model. Additionally, e-commerce marketplaces may charge fees for additional services, such as promoting listings, providing analytics, transaction insurance, and more. It is quite common for such platforms also to use a hybrid monetization model.
Service marketplaces
Service-based marketplaces like Upwork, Fiverr, and TaskRabbit practice charging a percentage on each transaction conducted through their platform. Additionally, they may offer premium features or additional tools for users at a set fee.
Sharing economy marketplaces
In most cases, these platforms also utilize sales commissions or combine multiple options for collecting fees. Examples include Airbnb, Uber, and Lyft. Sharing economy marketplaces may offer paid services to users, such as insurance, data verification, secure transactions, and more.
Crowdfunding platforms
Marketplaces of this type primarily rely on sales commissions. For example, platforms like Kickstarter and Indiegogo utilize this model. Additionally, freemium and premium feature fees are suitable for crowdfunding platforms.
Social marketplaces
They often use advertising as a means of monetization. Prominent examples include Facebook Marketplace and Instagram Shopping, which generate revenue for their owners by placing marketing materials from advertisers. Additionally, on social marketplaces, payment models can be based on additional options such as enhanced listings or analytics tools.
B2B marketplaces
Subscription-based, freemium, and payment for enhanced functionality models are well-suited for B2B marketplaces. For instance, platforms like Alibaba.com and ThomasNet charge sellers for premium options such as attracting potential clients, marketing, and analytics.
When choosing a monetization approach for your own marketplace, it's crucial to analyze successful strategies other well-known trading platforms use. This way, you can gain insights into how a particular model operates.
Problems Faced by Marketplaces When Implementing Monetization
When trying to launch a marketplace and establish a profitable monetization model, some problems cannot be ruled out. To avoid failures, you need to familiarize yourself with common risks and think about possible options to minimize them:
An imbalance in service between vendors and customers. A marketplace must be equally convenient and beneficial for both parties involved. Keep this in mind when developing your product and choosing the type of monetization. This way, you can maintain a balance in serving all categories of customers and set loyal prices for using the platform.
Trust and security issues. The risk of encountering unreliable sellers and buyers is indeed significant. As the owner of an online marketplace, it is crucial for you to provide guarantees of safety and offer reliable payment gateways for transactions.
The need to gain a critical mass of users. A successful marketplace must have high attendance rates and a wide range of products. This requires a large-scale advertising campaign and a reputation as a reliable intermediary.
High competition. The constant emergence of similar platforms forces startup marketplaces to find new ways to attract users. Thus, it is necessary to introduce innovative methods. This also applies to the search for new monetization options.
The data monetization model, which involves collecting and sharing user information with third parties, is gaining momentum. Marketers, analysts, and research companies find this data valuable. You can implement this model through partnership programs or by selling anonymized data to research organizations.
Important. The implementation of data monetization must strictly comply with legislation on protecting personal data and consider users' rights to privacy and security.
Final Thoughts
Online marketplaces often face challenges when attempting to monetize their platform. However, with the right strategy and consistent implementation, these risks can be minimized, providing an opportunity to build a successful business.
Understanding the principles of developing, launching, and promoting a marketplace is key to its successful growth. The choice of platform type should be based on market analysis results and your business goals. Developing a digital product that aligns with user needs will bring popularity and high loyalty among sellers and buyers to your solution.
It's also important to establish transparent collaboration and trustworthy relationships with sellers and buyers, ensuring they clearly understand what they are paying for. These measures will help you grow your project and generate significant revenue.