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How to Build a Two-Sided Marketplace: Benefits, Challenges, Costs and Solution

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The eCommerce landscape is expanding rapidly. According to Statista, retail sales will reach $8+ trillion by achieving a new height in 2028. However, a significant percentage of online sales comes from two-sided marketplaces contributing to the global economy in good numbers. Today, two-sided marketplaces are driving growth and revolution in the eCommerce space.

In addition, the prediction says that eCommerce platforms will be the largest and fastest-growing retail channels to conduct online sales in the upcoming years worldwide. 

Undoubtedly, two-sided marketplaces have the potential to lead the retail industry. On the other hand, there are a few challenges that can be cobblestone. Therefore, if you are an entrepreneur or a business owner who wants to build a two-sided marketplace, you need to think of all the aspects. 

Of course, launching a two-sided marketplace won’t be enough. You have to be informed about what problem you are solving for buyers and sellers that others are not tackling. In addition, you will require unique ideas, innovation, strategy technology and much more to transform a common two-sided marketplace into a successful eCommerce platform. 

In this blog, you will get detailed information on building a two-sided eCommerce marketplace including: What is a two-sided marketplace, benefits, challenges, costs of building a two-sided eCommerce platform and more. Let’s begin with the understanding of the two-sided marketplace with examples. 

What is a Two-Sided Marketplace?

As the name suggests, a two-sided marketplace is an online platform where sellers and buyers come together to sell or buy goods and services. It connects two individual groups by allowing them to find, interact and proceed to checkout. 

Let’s make it more clear for you.

In other words, two-sided marketplaces are multi-vendor marketplaces, online eCommerce platforms or multi-vendor websites where people from diverse industries meet online to buy or sell solutions according to their requirements and demands. 

However, these marketplaces can operate with B2C, B2B or C2C audiences in order to sell their products or services. In addition, one can also launch rental marketplaces as well. 

In addition, technological advancements, innovation, unique business ideas and marketing strategies are the key factors of two-sided marketplace growth. Below are examples of popular two-sided marketplaces offering their users the best possible services. 

  • Popular examples of product-based marketplaces: Amazon and eBay
  • Popular examples of service-based marketplaces: Uber and Zomato
  • Popular examples of rental marketplaces: Airbnb and Vrbo

Launch Your Two-Sided Marketplace like Amazon, Uber or Airbnb

How Does a Two-Way Marketplace Make Money?

Monetization is an important consideration of any business it helps businesses to sustain and make profits. In the same way, monetization of a two-way marketplace also helps the marketplace sustain, generate revenue, make profits and drive growth. However, there are ways to monetize a marketplace. Let’s explore the 5 popular revenue models through which two-sided marketplaces make money: 

  1. Listing Fees 
  2. Commission on Sale/Transaction
  3. Subscription Fees
  4. Advertising 
  5. PPC and Features Listings
  • Listing Fees: Marketplaces charge listing fees from the sellers and service providers to list their products or services on the platform. This allows marketplace owners to generate revenue quickly. 

However, most of the marketplaces do not charge for a certain number of listings which is good to attract more listings. On the other hand, free listing may also reduce the number of quality listings. 

  • Commission on Sale: This revenue model is widely used on two-sided marketplaces. In this revenue model, the marketplace charges a fixed fee or a certain percentage of the total amount initiated. The commission may vary depending on the items sold or services chosen. However, the commission percentage on services is always high compared to products. 
  • Subscription Fees: A subscription or membership fee is a recurring revenue model that a marketplace charges monthly or yearly to provide access to unique value, products or services. Streaming platforms, dating websites, recruiting platforms and more like this are a few examples of marketplaces where the subscription model suits the best. 
  • Advertising: In this revenue model, third-party advertisers pay a certain amount in order to promote their products or services on the platform by targeting their user base. Third-party advertisers publish ads to promote their products or services through banners, images, video, graphics and text. 

However, there is a high chance of customer distraction in this revenue model. Marketplace may lose potential customers and can bypass marketplace products and redirect to the advertiser’s platform. 

  • PPC and Featured Listings: Featured listing is another significant revenue generation model for a marketplace. It allows sellers or service providers to run ad campaigns to get more visibility for their listings to buyers on the platform. By running ad campaigns vendors can get good ranking and search results visibility on the top first pages. 

What are the Benefits of creating a Two-sided Marketplace?

Building a marketplace is always advantageous to all its associated parties. Primarily, three types of users who benefit from two-side marketplaces include buyers, sellers and admin or marketplace owner. 

Let’s explore the benefits of building a two-sided eCommerce marketplace platform below according to the user types: 

Benefits of Marketplace for Buyers: 

Buyers are people or customers who visit the marketplace to buy goods or book services on the platform. 

  • Easy to Find Products or Services: Being a buyer, you do not need to visit multiple offline stores to buy something. Today, online marketplaces are offering almost everything that you need. You can easily find the products you are looking for. In addition, there are a number of services also available that you can book online. 
  • Wide Product Options: On an eCommerce marketplace there are a large number of listed products or services. This gives buyers an opportunity to choose products or services from a wide range of available options according to their preferred choices.
  • Competitive pricing: Competition on marketplaces is high and prices are transparent. Therefore, vendors offer products or services at the best possible pricing. This leverages buyers to get products or services at an affordable rate.  
  • Quality Products: Quality always matters. It attracts buyers the most. In a marketplace, there are many sellers for the same product or service category and every detail is transparent. What sets them apart is their quality offerings. Therefore, businesses offer quality products or services to the customers and this is how buyers get access to quality. 

Benefits of Marketplace for Sellers

Sellers or service providers are the business owners who list their products or services in order to sell them on the online marketplace platform. 

  • Wide Customer Base: By listing products or services on the marketplace, sellers or service providers get access to the wide customer base that a marketplace has already. 
  • Potential Buyers: Marketplaces let buyers save their time and effort by allowing them to find and purchase products from multiple sellers within a single platform. On the other hand, multiple sellers also attract potential buyers on the platform. 
  • Build Trust and Community: Marketplaces help sellers build trust and increase their brand visibility by providing access to a large pool of audiences. It allows sellers to offer convenient shopping experiences to their buyers and build community by catering to their preferences. 
  • Easy to Manage: Selling products or services on the marketplace is easier compared to selling products on the offline store. There are several advanced tools, features, functionalities and technological support that help them manage their businesses effortlessly. 
  • Cost Effectiveness: You don’t need to set up an offline store when selling products online. By selling products online, sellers can reduce the overhead cost as they leverage the existing marketplace infrastructure. In addition, marketplaces can help sellers reduce marketing and transaction costs as well. 

Benefits of the Marketplace for Marketplace Owners

The marketplace owner is the person who holds the ownership of the marketplace platform. 

  • Lower Initial Cost: Launching an online marketplace is more cost-saving than launching an offline marketplace. It needs lower initial costs to manage, maintain, operate and grow an online eCommerce platform compared to offline. 
  • No Need to Manage Inventory: Another significant advantage of building a two-sided marketplace is you no longer have to manage inventory. You just need to onboard sellers on the platform. They will list their products and manage inventories themselves. 
  • Multiple Revenue Streams: Unlike offline or single vendor stores, at online two-sided marketplaces, multiple revenue streams are there that allow marketplace owners to generate revenue and gain profits. 
  • Easy to Scale: You don’t need to worry about scaling your platform. An online marketplace allows marketplace owners to scale their platforms easily. The only requirement is to have some technical expertise to implement back-end and front-end coding. In addition, you also don’t need to relocate or develop infrastructure to scale your marketplace like an offline store. 
  • Diverse Business Models: A two-sided marketplace is not just limited to selling products but multiple business models can be implemented. Apart from just selling products, the marketplace can facilitate services-based, subscription-based and other business models to generate more revenue. 
  • Increased Marketplace Visibility: Increased visibility, trust and brand loyalty are other significant advantages of building an online two-sided marketplace. Whether you are operating an offline store or an online store, a two-sided multi-vendor eCommerce marketplace will always gain more popularity. 

Build a Profitable Business by Launching an Online Marketplace

Two-sided Online Marketplace Challenges and Their Solutions 

Building an online two-sided marketplace is always an exciting adventure. But at the same time, you face a few challenges in building a marketplace. Here we will discuss the challenges and their solutions to help you overcome this situation. 

Let’s explore a few challenges and solutions that you can face while launching,  operating and growing your two-sided eCommerce marketplace platform: 

Challenge: How to Validate the Marketplace Idea? 

  • Initially, marketplace idea validation is the biggest challenge. However, idea validation doesn’t mean asking people whether your idea is good or not. 

Suppose, if you ask the people to build a marketplace they will always encourage you. Because people love marketplaces. On the other hand, many people will disagree or will say your idea will not work. 

But for you, their predictions should not be the deciding factor. Of course, you can take suggestions and think of it. But saying your idea is good or bad doesn’t determine whether it can be successful or fail.  

Solution: 

  • Idea validation is something you need to research, analyze and discover. You can do market research to find marketplace ideas. Also, you can analyze competitors to find a gap or solution that you can offer on your platform.

However, the best way to validate your marketplace idea is to build and launch your marketplace MVP (Minimum Viable Product). An MVP is the most preferred method to validate your marketplace idea. It lets you gather feedback from the early adopters and understand the market acceptance. 

Challenge: The Marketplace Chicken-Egg-Problem: Whom to Attract First, Seller or Buyer?

  • Another big challenge of a two-sided marketplace is whom to attract first, sellers or buyers? 

It is not easy to onboard sellers until you have a wide pool of buyers. On the other hand, it is difficult to attract a good number of buyers until you have not a large number of listed products on the platform. 

Solution: 

  • The solution of whom to attract first is to attract “Sellers First”

Let’s understand the scenario through an example: 

Suppose, you are opening an offline store. 

Should you wait for the buyers before you open your store and fill your store’s shelf with goods? Or, you should open your store, fulfill the supply chain and wait for the customers to visit your store. 

Result: Being a business owner, you have to wait for the customers. The customer will not wait for you. If they do not find what they are looking for, they will definitely visit your competitor’s stores to fulfill their demands immediately. 

Conclusion: The conclusion of the chicken-egg problem means whom to attract first is to attract sellers and fill the supply chain. Sellers look for long-term relationships and can wait for the customers but customers don’t. 

Challenge: How to Beat Marketplace Competition?

  • Competition is a spark that motivates you to keep changing. It encourages marketplace owners to be innovative, updated with emerging trends, offering the best possible product or services and much more because no one wants to be left behind. Competition forces you to plan better marketing strategies, different ways to serve your customers and offer quality products or services. As a result, all your efforts help you stand out from the competition. 

Solution: 

  • There are thousands of marketplaces competing across the eCommerce landscape but to transform an average marketplace into a great and trusted platform requires strategies and efforts to beat the competition. There are several ways to lead the industry in the eCommerce space.
  • Know your customers: An average of 80% of the companies failed to plan their marketing strategies due to a lack of data. Therefore, keep working on customer’s data and their interests. 
  • Competitor Analysis: It gives you another angle of understanding marketplace business. Also, let you know what your competitors have failed to do and how further you can implement them. 
  • Highlight Your USPs: Your unique value proposition is your key to beat competitors. Always highlight them through various marketing strategies.  
  • Follow Emerging Trends: If you don’t want to be left behind by the competition, follow the marketplace trends. The eCommerce trends and innovations help you keep up with the times. 
  • Focus on Customer Relationships: Try to provide the best customer services in order to engage and retain customers with each interaction. 

5 Steps Essential Steps to Launch a Two-Sided Marketplace

Building a two-sided eCommerce marketplace involves several steps to execute such as defining your marketplace idea, deciding a business model, deciding features and functionalities, launching an MVP and at the final launching a full-fledged two-sided marketplace platform. Let’s go through the five essential steps to launch a two-sided marketplace below: 

1. Define Marketplace Idea 

2. Decide Business Model

3. Decide Features and Functionalities

4. Build an MVP

5. Launch and Grow Your Platform

1. Define Marketplace Idea: 

The idea is the core concept of your marketplace. It is a kind of solution that you are going to provide the sellers and buyers on the platform. Therefore, it should be unique, because unique offerings and selling propositions will set you apart. 

Conduct proper market research and do competitor analysis to identify gaps that you can fill and customer needs that are not in notice. This initial research and analysis will help you find the best idea for your marketplace.

2. Decide Business Model: 

In the next and second steps, you need to work on your business and revenue model. This may include deciding your target audiences such as B2B (business to business), B2C (business to customer), or C2C (customer to customer) and revenue channels such as listing fees,  transaction fees, commission on each sale, subscription charges, or a combination of these.  Most importantly, don’t forget to consider competitors while selecting your revenue model. 

3. Decide Features and Functionalities: 

Features and functionalities are the basic needs of a marketplace. They profoundly influence your marketplace success. The goal of developing features and functionalities is to align the platform with the user’s needs and industry-specific requirements. In final words, user experience matters the most. So, always decide your marketplace features and functionalities to provide an enhanced user experience.  

4. Build an MVP: 

MVP (Minimum Viable Product) is a cost-effective way to test and validate your marketplace idea. It is a basic version of your marketplace that launched with essential features and functionalities to understand the user experience and validate their marketplace acceptance.

Launching an MVP is a chance to improve by getting user’s feedback before launching the final product. It saves time and money. There is always an option to come back and improve by launching a marketplace MVP.  

Launch Your Marketplace MVP (Minimum Viable Product)

5. Launch and Grow Your Marketplace: 

Once you are happy and satisfied with your marketplace MVP results and market acceptance, the final step is to develop and launch your full-fledged two-sided eCommerce platform

Tips to Grow Your Marketplace After Launch: 

  • Use various marketing strategies to attract sellers and buyers to the platform. 
  • Use marketing tools and channels to promote your marketplace such as SEO tools, email marketing, content marketing, social media and more. 
  • Work on feedback to continually improve your marketplace platform. 
  • Keep updating features and functionalities to improve user experience.
  • Follow the latest market trends and implement them. 
  • Collaborate with influencers and encourage them to create and share content about your marketplace with their audience

How Much Does it Cost to Build a Two-Sided Marketplace?

The cost of building a two-sided marketplace can vary significantly based on marketplace complexity, the number of features required, marketplace performance, the technology stack, development approaches you choose, the number of experts needed for the development and more. Moreover, developing a two-sided marketplace can cost you from $10,000 to $50,000 or even more depending on your requirements. 

If you want to know how to build a two-sided eCommerce marketplace platform. There are three ways to launch your marketplace that can also determine your marketplace development cost: 

  • Developing a marketplace from scratch: With this development approach, you can build a marketplace platform from scratch. It requires 6-12 months or more to develop a full-fledged marketplace. To develop a marketplace from scratch you can hire an in-house development team, hire freelancers, or give contracts to an IT company. 

This is an expansive and time-consuming development approach. 

  • SaaS-Based Marketplace Solution: Another way to launch is SaaS (Software as a Service). These are premade platforms with built features and functionalities. SaaS-based solutions can help businesses who want to launch their marketplace platform quickly. On the other hand, there are some limitations in SaaS-based solutions such as features, functionalities and more. Also, they do not provide much freedom for customization and scalability. 

In this approach, marketplace owners pay monthly or yearly subscriptions which may vary depending on requirements. 

  • Readymade eCommerce Software: One of the popular ways to launch your two-way eCommerce marketplace is a readymade software solution. This type of software helps entrepreneurs and business owners launch their eCommerce platforms quickly and easily. They offer complete flexibility to customize and scale your marketplace platform. Readymade marketplace software comes with all the essential features and functionalities and gives you the option to add or remove features according to your business’s requirements. 

It is a cost-saving way to launch your marketplace platform in the long run. Also, this type of readymade software is available at a one-time payment.  

Launch Your Two-Sided Marketplace Quickly with Yo!Kart

Yo!Kart is a readymade eCommerce marketplace solution that helps you launch your two-sided marketplace quickly and easily. By launching your marketplace with Yo!kart, you don’t just get access to the feature-rich marketplace software that helps you operate and manage your platform efficiently but it also offers complete control and flexibility. 

However, there are a number of advantages of choosing Yo!Kart as your marketplace solution but the cost-effectiveness is one of the most significant advantages. It allows you to launch your two-sided marketplace starting at $499 which is a much lower amount compared to building a platform from scratch and choosing a SaaS-based solution in the long run. Let’s explore more such advantages of Yo!Kart:

1. Self-hosted Software: You can host your two-sided eCommerce marketplace on your preferred server.

2. White-label Solution: The solution allows you to establish your brand’s identity by launching your platform under your brand. 

3. Lifetime License: Yo!Kart gives lifetime access to the solution by offering a lifetime license. 

4. Source Code Ownership: The software allows you to own the marketplace source code providing you complete access to the software. 

5. Customizable Solution: It lets you align your eCommerce marketplace website with your brand’s tone allowing you to offer personalized user experiences. 

6. Fully Scalable: With Yo!Kart you get an option to scale your marketplace in order to meet your platform’s growing demands. 

7. Technical Support: Yo!Kart provides one year of free technical support to help you deal with your queries and concerns. 

Launch Your Two-Sided Marketplace with Yo!Kart

Final Thought

Two-sided marketplaces are encouraging entrepreneurs and business owners to build their online eCommerce platforms. Especially, the success of popular marketplace platforms including Amazon, eBay, Etsy, Airbnb and Uber is becoming their inspiration. 

If you are also one of the entrepreneurs or business owners who want to build the next Amazon, Etsy, or Uber, don’t wait for the right time. Because of the way the eCommerce industry has been growing and will grow in the upcoming years, every second is the right time to launch your eCommerce marketplace. 

There is a huge opportunity, just what you need to have is an amazing idea and a feature-rich platform. With a combination of both you can become the leader of the market. Therefore, if you have that idea then you can easily launch your own feature-rich eCommerce platform with Yo!Kart. 

FAQs

Q 1. What are examples of two-sided marketplaces?

Ans. Two-sided marketplaces act as an intermediary between two groups (sellers and customers). There are a number of two-sided marketplaces: 

  • Amazon is known for connecting buyers and sellers to sell or purchase products. 
  • Airbnb is popular for short-term housing rental services. 
  • Uber is famous as a ride-sharing marketplace that connects passengers with drivers. 

There are a large number of two-sided marketplaces targeting different niches and industries. 

Q 2. Is a two-sided marketplace different from a multi-vendor marketplace?

Ans. If we can simply put the answer, we can say that two-sided marketplaces are the same as multi-vendor marketplaces. In other words, two-sided marketplaces connect two groups of people and multi-vendors connect more than two groups. But the final conclusion is that both are the same. 

Q 3. Is Amazon a two-sided marketplace?

Ans. Of course, Amazon is an ideal example of a two-sided marketplace. At the same time, it is also called a multi-vendor marketplace. 

Q 4. Is Yo!Kart an ideal solution to launch a two-sided marketplace?

Ans. Yes, YoKart is one of the best solutions that can help you launch your two-sided eCommerce marketplace platform. Moreover, Yo!Kart has empowered thousands of worldwide businesses by launching their two-sided eCommerce platforms. 

Q 5. Does Yo!kart Provide a mobile app for the marketplace?Ans. Yes, Yo!Kart helps you launch a buyer mobile app (Android and iOS) for your marketplace.

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