An online marketplace business model is the structure that an Internet-based marketplace uses to attract buyers and sellers, maintain revenue, and remain competitive. It is similar to offline business models in some respects and different in others. There are overheads, e-commerce accounting tasks, e-commerce marketing strategies and target audiences. In both the B2C and B2B industries, markets have changed the way we shop online. They are flourishing in every vertical market today, from large-scale consumer markets to niche B2B sectors.
When it comes to creating a marketplace business model, there are several options available. The most popular revenue model for modern markets is to charge a commission for each transaction. When a customer pays a supplier, the platform facilitates payment and charges a percentage or a fixed fee. My recommendation is to use the commission model as the main source of income whenever possible. I expect more and more markets to adopt this revenue model in the future.
A membership fee can also be a good initial business model for B2C markets that eventually want to charge a commission but don't yet have the tools to facilitate transactions in their particular niche. Venuu, an Airbnb for event spaces, started with the membership model to earn revenue upfront, even before launching its site. Later, when they validated their business plan and had the resources to create a billing system, they moved to the commission model, a revenue model that was much more lucrative for them.
Sometimes it can be useful to use multiple business models in the same place. For example, Etsy is an example of a B2C marketplace that uses the commission model, but also charges a fee for running new ads. Etsy's reasoning is likely that its liquidity (the probability of a certain item being sold) varies greatly. While there are some very popular items on Etsy, most items will probably never receive a single sale because the total volume of Etsy ads is huge. By using both the commission model and the publishing fee model, Etsy earns revenue from popular and not-so-popular items.
A publishing fee is better than a membership fee in cases where vendors don't want an ongoing subscription and only want to sell certain items. This is the case of Mascus, a B2B classifieds site for expensive machinery.
The freemium model is another option for creating a marketplace business model. The logic behind this model is that the main offer is free, but after you hook your users, you offer paid features that add value. The challenge with this model is that these paid services must provide enough value to be tempting for a good part of their users. If only 1% of your users are interested in your premium offer and everyone else is using your site for free, it's probably not enough for a sustainable business model. Creating a premium service that is interesting to a wide enough audience can be very complicated.
Because of this, many platforms use premium services as additional revenue streams. For example, Mascus offers premium website services to its customers to complement its business model based on the payment of the quote. Etsy complements its model based on selling and transaction fees by offering premium services such as direct payment, listing promotion and shipping labels to its most important sellers, and has recently experienced strong growth in this revenue stream.
In some cases, a marketplace may start offering premium services as an add-on, but eventually change its entire business model to focus on paid services. Vayable started out as a purely peer-to-peer marketplace where individuals offered unique experiences to others, but after not getting enough traction, decided to switch to create a concierge service for a personalized vacation.
The downside to this approach is that premium services are usually a less scalable option compared to the pure commission model. This is often due to the number of staff needed to deliver premium services. Vayable only made the change because he couldn't make the commission model work well enough.
Modern markets employ many different business models. In general, the best revenue model for most is to own the transaction and charge a commission for all purchases made through the site. This approach is very scalable and often quite lucrative. However, in some cases, the commission model does not make sense, so alternative models are needed.
Testing several business models to find the best fit for your concept might be a good idea. At first, you should have only one source of income in use at a time to avoid diverting your attention. Over time, when your platform grows, it may make sense to combine multiple revenue streams to create a market business model that takes into account everything that happens on your site.
Are there 3 big players who dominate your market? What kind of competitive advantage do you have? What kind of pricing strategy will you use? These are all questions you should answer when creating your marketplace business plan.
When it comes time to raise capital or apply for grants for your market start-up, you'll need an executive summary as part of your business plan. This section should explain what problem you are trying to solve with your solution and compare it with how it adds value for potential customers.
Creating an online marketplace business model requires careful consideration of all aspects of your platform - from pricing strategies and competitive advantages to target audiences and e-commerce marketing strategies - in order to ensure success.
