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How to Build a Two-sided Marketplace Strategically?

You are working from home, and there is a power outage due to some sort of electrical issue.

Now, what will you do? You go to an app like TaskRabbit or Thumbtack to find a suitable person for repairing. 

But, to your wonder, the app itself suggests some of the best repairmen in your area who can meet your needs. 

You select the intelligent match and hire the professional. Simultaneously, the marketplace is also helping the service provider with business; this is called a two-sided marketplace

A two-sided online marketplace provides value to both sides of a marketplace buyer and seller. Many marketplaces even deploy innovative technologies like Artificial Intelligence and Machine Learning to match the sellers and buyers. 

Simultaneously, some marketplace offers product listings for sellers to list their products on the platform. 

Steps to build a two-sided marketplace

Online marketplace platforms have been quite successful, and the sales of 1.97 trillion in the year 2019 prove this success. The top 100 marketplaces including Amazon, eBay, Airbnb, and others, account for 95% of the market.  

So, if you are also thinking of following the giants’ footsteps and want to know how to build a two-sided marketplace, here is the way. 

Business Model for Marketplace

How to Build a Two-Sided Marketplace

The idea behind building a two-sided marketplace is to create a platform that acts as a facilitator of the transaction between buyer and seller. The platform will be a reliable medium where both the user groups(buyers and sellers) can find a suitable match and exchange value. 

So, if you are wondering how to build a two-sided marketplace, the first step will be to create a well-planned business model.

Two-Sided Marketplace For Buyers

How to Create a Two-Sided Marketplace

One of the most important aspects of any business is understanding the buyer persona and targeting them for growth. According to a survey by BigCommerce.com, 58% of consumers shy away from an eCommerce business due to shipping costs, while the same amount of customers need to try a product before buying it. 34% of customers expect faster deliveries and don’t like to wait for their orders. 

With a two-sided marketplace, you can offer more product options with competitive prices, which can minimize the effect of shipping costs on the total amount to be paid. 

Apart from that, marketplaces can use smart delivery solutions to reduce delivery delays and even reduce shipping costs by offering localized listings. It helps customers to have cheaper options compared to the higher prices of transportation with non-local products. 

Two-Sided Marketplace For Sellers

Building a two-sided marketplace

Sharing economy is booming, and according to a report by PWC, it will reach around $15 billion in revenues by 2025. Two-sided marketplace startups can leverage the sharing economy model for their business growth. One of the most popular two-sided marketplace examples is Uber, which works on the sharing economy. 

The two-sided marketplace helps users to hail rides instantly, and at the same time, offers taxi drivers a platform to connect with customers. Attracting users or customers depends on the service you offer, but sellers come to your platform based on the marketplace’s value. 

Higher user base and traffic of consumers on your platform ensures that sellers can have better reach. So, it is quintessential to offer better value propositions and tools to your sellers to attract them. 

Two-Sided Marketplace For Startups

two-sided marketplace framework

As a startup or entrepreneur, a two-sided marketplace is like a wine that tastes great as it gets old!

Here, the most interesting factor to consider when you seek out answers for how to build a two-sided marketplace is the “Network Effect.

It is a concept that explores the increase in value as more buyers use your marketplace. Take an example of Airbnb, which leverages Network Effect to attract more sellers. It works on a simple principle of adding, serving more consumers, and at the same, attracting more property owners to offer spaces for rent on the two-sided marketplace.

A Network Effect can also help solve the chicken-egg problem. It is the issue that most two-sided marketplace face with confusion over whom to target first; consumers or sellers. 

Source of Revenue

creating a two-sided marketplace

When it comes to a two-sided online marketplace, the revenue streams come from both sides. So, if you are thinking of how to build a two-sided marketplace with reliable source revenues, there are many options. You can charge sellers for commission fees and ask users for a subscription fee. But that’s not all, and there are many other streams to consider.

  • Commission Fee – Explore the concept of charging a fee from sellers on each transaction they execute on the marketplace.
  • Subscription Fee – Charge users with subscription fees for using the platform with special offers and even free shipping.
  • Product Listing Charge – Ask your sellers to pay a fixed amount for each listing of their products on the platform.
  • Cross-Advertising – Leverage ads from other brands and businesses for revenues (applicable to a marketplace with a larger user base).

Exploring the Niche

what is a two-sided marketplace

Finding your audience is an essential to the business, as it will put your efforts in the right direction. Selling peanuts to a person with an allergy does not make sense; that is the reason niche discovery becomes essential. 

Here you can leverage a community-based approach to find the right niche. Promote the standard solution among a community, and you will have the audience. Take the example of Uber, the eCommerce giant, created an on-demand solution for people to book a ride faster and cheaper. 

Raising Funds

How can one build a two-sided marketplace

There are several ways to raise funds for your two-sided online marketplace. You can bootstrap the business or look for an angel investor, especially if you like to go solo. But, if you want to create a larger marketplace, the need for capital will be huge, and here a venture capitalist firm can help.

Apart from these sources, you can try crowdfunding by asking people to invest in your two-sided marketplace startup. Another way is to join the incubator programs like Y-combinator or SeedRocket. 

Now that you have an idea about the business model, revenue streams, and raising funds, the next step on how to build a two-sided marketplace is to create an MVP.

Creating An MVP

two-sided marketplace building strategies

An MVP or Minimum Viable Product is like a “shippable” version of your product. This version may or may not have all the features. But, it helps in testing a beta version and iterate further to reach the full-fledged version. Here, a technical partner can help you with MVP and incremental development of the technical stack. 

The MVP version can have all the necessary features. Once you are confident about the marketplace, you can iterate new versions, including buyers’ and sellers’ feedback. The final version will have all the features with an official launch of the two-sided marketplace

The Bottom Line

A two-sided marketplace can be a double-edged sword if the planning is not right.

So, planning your marketplace startup and executing it through an agile approach can be great for incremental growth. It can also help create a reliable marketplace for buyers and sellers with effective features. 

From business model to revenue streams, and creating an MVP, we hope this article answered the most important question- how to build a two-sided marketplace?

March 6, 2021
Author

Aashish Sharma

An enthusiastic content writer and marketer who loves to write on the latest trends and updates of the digital world. Always looking forward to creating and sharing quality content that can withstand the competition.

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