What Are the Secrets Behind a Thriving Marketplace?
Before you start your Marketplace, there are some things you should know.
Before you start your Marketplace, there are some things you should know.

Over the last years, so many successful marketplaces were created, like Airbnb, Uber, BlaBlaCar, Etsy, and so on. Why are they so successful? Why is this business model so attractive? Can I create my Marketplace? Are there still unexplored opportunities?
Before we jump into what you should know about building a Marketplace, we must first understand what a Marketplace is.
An online marketplace is a website or app that facilitates shopping from many different sources. The operator of the marketplace does not own any inventory, their business is to present other people’s inventory to a user and facilitate a transaction. eBay is the ultimate example of an online marketplace, they sell everything to everybody. There are many other types.
— Richard Kestenbaum, What Are Online Marketplaces And What Is Their Future?
This business model has gotten the attention of so many companies and startups because of its vast benefits, like no inventory management, return handling and many other aspects. Therefore, many Marketplaces are emerging with different ideas from startups to big corporations.
Airbnb has provided millions of stays world wide without owning hotels or real state. Uber has provided millions of rides world wide without having vehicles at all.
Let’s take a look at some numbers from Airbnb.
There are over 14,000 tiny houses, over 4,900 castles, and over 2,400 tree houses listed on Airbnb.
500M. Airbnb guest arrivals all-time.
2M+ average number of people staying on Airbnb per night.
1K+ cities with Airbnb Experiences.
40K+ Experiences worldwide.
— AirBnB, Fast facts
Maybe you are interested in creating your Marketplace since it is so promising. But before you start, you better understand the details behind it, what should you know to start successfully? What are the feature that should get your attention?
Who comes the first customers or sellers?
Who is the target audience?
How can you avoid direct transactions between sellers and customers?
Which are the revenue streams?
How should you start?
Who comes the first customer or Seller?
That is the dilemma “who came first the egg or the chicken?”. That’s the tricky part of a Marketplace since there are two different audiences:
Sellers: who is willing to offer a service or sell a product;
End customers: who is searching for a service or a product.
In a new Marketplace, we face a dilemma, why would the sellers sell on a marketplace if there’re no customers? Why would the customers come to a Marketplace without offers? Then I ask, how can we solve this puzzle? In short, one of the sides needs to get essential benefits and advantages.
Generally, the sellers are the best choice; they should receive essential benefits from being the first; some candidates of benefits would be: exclusivity, no fee, lower commission, and so on. It is also possible to offer benefits to the customers as well, for example, free experience, discounts and so on.
If new Marketplaces don’t offer benefits and advantages to one of the sides, then sellers and customers will not put effort into coming to the Marketplace. So be creative and give your target audience relevant benefits.
To get their first drivers, Travis cold called black car drivers and offered to pay them an hourly rate while they tried out the platform. Three of the first 10 drivers that he called, agreed to give it a try.
Then, to incentivize passengers, they offered free rides at local events in the tech savy San Francisco community and worked hard to make each experience the best it could be. According to Kalanick, word of mouth was the biggest driver of sales and Uber spent next to nothing on traditional marketing.
— Serene Chen, Launch Lessons: How Tinder, Reddit, Airbnb, Etsy and Uber got their first users

In the case of an established business, it will be for sure different. Some examples are online shopping who decides to open a Marketplace. In this case, there’s already a set of customers, which is attractive for the possible sellers. Therefore sellers will have plenty of advantages of advertising their products.
Who is the target audience?
The audience is one of the essential parts you need to address as well as one of the hardest because a marketplace has two audiences, the sellers and customers.
You better start with the customer; you need to understand how you can best serve them, what are their interests? You need to find a way of providing services or products that they value. Thus, you must empathize with them so that the opportunities will become visible.
Once you have understood your customers, who should your sellers be? Also, you need to define how they should join the Marketplace. The most important part is to ensure the quality of the offers, the Marketplace will become a reliable platform once it has attractive offers from trustworthy sellers. It is a vital part of establishing a process of validating the sellers.
Airbnb started from a simple idea, and the founders played the role of the sellers; in this case, they were the hosts, so they understood the target audience from the very beginning.
AirBed & Breakfast was born when Brian Chesky and Joe Gebbia rented out three air mattresses in their living room to attendees of a massive local design conference. All the hotels in the area had been completely booked and their three air mattresses went quickly. Their guests ended up loving the experience. An added bonus was that none of their guests came from the young and hip demographic the two friends were expecting.
— Serene Chen, Launch Lessons: How Tinder, Reddit, Airbnb, Etsy and Uber got their first users

How can you avoid direct transactions between suppliers and customers?
One of the hardest parts of the Marketplace business model is to ensure that the customers will not do business directly with the sellers. Why would they do that? In theory, it would be a cost-saving for both by skipping the Marketplace. Don’t underestimate that, this can be the death of your Marketplace.
Customers will use the system once they get advantages by doing so. The Marketplace should provide an excellent experience, meaning that the customer will not even bother by checking how they can buy directly from the Seller. What kind of advantages could prevent this problem?
Insurance: Ensure that the customer will get the money back in case the service or product didn’t match the expectation;
Customer-centered: providing service focused on customer satisfaction, the customer will always be happy;
A single place to manage orders: the customer can manage all his/her orders in an only place, meaning that refunds, cancellation, and re-order is possible;
Loyalty program: implementing a loyalty program where the customer gets benefits by staying in the platform will discourage him or her from flying away.
Two variables seem correlated with customer centricity or lack thereof: 1) Loyalty: for whom is value built? 2) Scale: how big is the business? When loyalty shifts away from customers and scale abstracts their individual value, companies begin accumulating systemic and existential risk.
— Kyle Tibbitts, Why customer first companies ultimately wins
Suppliers will only consider skipping the Marketplace if there’s no overwhelming advantage, thus why should they be loyal to it? Some benefits can be:
Customers management: the Marketplace provides customer service;
Fraud detection: the Marketplace is fully responsible for identifying frauds and being accountable for it;
Payment: the Marketplace handles the payment and invoicing process;
Productivity: for autonomous professionals, the Marketplace provides tools to manage the schedule, appointments, and so on.
These are only some examples, and there are many more. The main point is: a prosperous marketplace is much more than a bridge between supplier and customer, meaning that it provides an excellent service to both sides.
Which are the revenue streams?
There are a couple of ways of creating revenue from a marketplace; it will vary from what you want to achieve. You can consider the following models:
Fixed commission per transaction: this is simple, the Marketplace keeps a percentage of each sale;
Fixed Monthly fee: each Seller pays a fixed monthly payment to the Marketplace regardless of the number of transactions;
Monthly fee per transaction ranges: the Seller will pay a fixed fee based on sales quantity, e.g., from 0 to 100, the Seller pays 100.00 USD and so on;
Setup fee: the Seller pays a one-time fee for the initial setup;
Ads: the Seller can pay for ads, banners, first list positioning. Generally, this happens only once the Marketplace is already being competitive among its sellers.
The secret is to keep it as simple as possible; being a fixed commission per transaction is the way for that. Why? Because the sellers will not be worried about paying something if no sale happens, thus the expectations are set. Airbnb, Uber, and Amazon use that as well. The other models, though they can work, the sellers are generally discouraged from committing with payment without being sure that relevant sales will happen.
In short, you should remove doubts from your possible sellers, the easiest to join the Marketplace, the better.
How should you start?
You should start with small steps. First, you need to find the opportunity, meaning that there might be a market niche not yet explored or not yet attended the customers’ expectations.
Be careful, be as precise as possible, if you are considering building a marketplace to compete against Airbnb, Amazon, or Uber, you are going on a bloody battle with well established big businesses. Instead, you ought to be a sniper, shot precisely, and run from the fierce battle.
You can (and you should) copy Airbnb, Uber, and other successful marketplaces, however, within a more focused approach. Let’s look at Airbnb value proposition:
“Airbnb exists to create a world where anyone can belong anywhere, providing healthy travel that is local, authentic, diverse, inclusive and sustainable.”
It is comprehensive, that means that they are more generalists in terms of the service they offer, but you could, for example, build a marketplace could be focused on:
Airbnb for beach lovers;
Airbnb for ski and snowboard lovers;
Airbnb for the hidden beauties of your home country.

If you are as precise as possible, you can focus on providing a unique experience that generalist marketplaces cannot offer. Also, you can find a niche market. You can find a great opportunity if you are willing to search for that and be as precise as possible. Copy success that is fine!
By being a sniper and aiming for an exact market, you solve one psychological problem, people like choices, but not too much. So you should present only an appropriate amount of offers.
In a study conducted at Columbia University, a team set up a booth of jam samples. Every few hours they would switch from a selection of 24 jams to only six jams.
When there were 24 jams, 60% of customers would stop to get a sample, and 3% of these customers would buy a jar. When there were six jams on display, only 40% stopped. But here’s the interesting part — 30% of these people bought jam.
— Jennifer, Clinehens, 5 psychological principles that will improve your customer experience
Getting the first audience
One of the secrets is focusing on the innovators because they will be willing to test a new platform; they generally accept some issues in the experience since they are eager to be the first. Gaining this audience will help you gain traction after recommendations and testimonials. Simon Sinek gave a great explanation of why you should do that in this video.
Innovators (2.5%) — Innovators are the first individuals to adopt an innovation. Innovators are willing to take risks, youngest in age, have the highest social class, have great financial lucidity, very social and have closest contact to scientific sources and interaction with other innovators. Risk tolerance has them adopting technologies which may ultimately fail. Financial resources help absorb these failures. (Rogers 1962 5th ed, p. 282)
Reviews and testimonials will be incredibly valuable, and this will be the way that early adopters and early majority will start using your Marketplace. Without social approval, people will be reluctant about starting.
Enable customers to put their trust in the crowd: One of the most effective ways you can use Social Proof is by including product reviews and testimonials. According to Mintel research, more than 70% of Americans ask others for their opinions before making a purchase.
— Jennifer, Clinehens, 5 psychological principles that will improve your customer experience
Building the Marketplace
The building approach is crucial for the success of the Marketplace; it won’t be successful at the beginning; you must accept that. You need to prioritize how fast you can learn, how can you do that? By building a Minimum Viable Product, launching, testing, getting feedback, learning, and iterating over that. There is a framework for that, which is called the Lean Startup from Eric Ries.
Minimum Viable Products are optimized for learning, not scaling. This is one of the hardest things to convey to people who’ve spent their lives building to build, not building to learn. These are people who’ve been burned in the past and told to release a half baked prototype to thousands of customers. These directives come from management who thought that if you throw enough people at the prototype, then everything would be fine. So be patient when people aren’t eager to adopt the MVP concept right way. This is the main reason I start with Learn in the Build Measure Learn loop. What do you need to learn about the customer? The market? The problem? When you start with learn, it helps soften the blow.
— David Bland, 7 Things I’ve Learned About Lean Startup
Wrapping up
Building a marketplace won’t be easy. However, it is possible if you:
Define clearly your target audience; customers and sellers;
Understand which problem your customers are facing;
Be a sniper, find a particular niche market;
Understand how you can bring the sellers and customers to the Marketplace;
Address which benefits you need to offer, so that customers and sellers won’t do transactions out of the Marketplace;
Focus on a small but relevant quantity of offers;
Build to learn, accept failure, be relentless.