Create an Online Marketplace: 10 Tips for Creating an Online Marketplace

Many people visit the most frequented online marketplaces such as Amazon or Etsy every week because they find the widest range of products at affordable prices. That is why many buyers wonder why they should go to a brick-and-mortar store when they can order the same goods faster, easier, and cheaper online – with delivery right to their doorstep.

Marketplace providers like Amazon, eBay, or Etsy are extremely flexible and deliver products from most continents. Their scaling factors enable these marketplace providers to offer lower prices than the competition. Their enormous reach also makes it attractive for small online shop operators to set up their own shop on Amazon or eBay and benefit from the numerous visitors instead of establishing their own domain and brand from scratch.

This is one of the reasons why these marketplace providers are so popular and have achieved global success. It is possible to create your own online marketplace in order to eventually become self-employed. In this article you will be presented with Top 10 tips for creating your very own online marketplace.

The Essentials at a Glance

What Is an Online Marketplace?

An online marketplace is a mediation platform that connects sellers and buyers, thereby bringing supply and demand together. Unlike an online shop, the operator of the online marketplace is not responsible for the inventory or shipping of the products – they merely facilitate the connection between the parties and receive a fee on each sale and/or charge fees for using the marketplace in the form of subscription plans. Thus, marketplaces are to be understood as P2P (peer-to-peer) business models.

Marketplaces can list both products (Amazon, eBay, Etsy) and services (Airbnb, Udemy).

How Do You Create an Online Marketplace?

When creating an online marketplace there are several aspects to consider. The first decision is always to choose the appropriate technology for the technical development – whether it be a CMS system, a ready-made solution, or a custom development. This decision is influenced by the desired functionality and scalability.

Technologies

The technology selection for developing your own online marketplace is quite broad. It includes a long list of different online shop and CMS systems. The right choice can even put an experienced web developer in a bind when building it. Nevertheless, operators of online marketplaces can rely on a range of online shop systems such as Magento, Shopware, WooCommerce, or Shopify.

One of the providers, for example, is WooCommerce with its numerous functionalities or many extensions to create your own online marketplace – albeit only to a limited extent. WooCommerce is, however, a low-budget solution and can hardly achieve consistently good results over the long term, as the system is quite limited in terms of performance, scalability, and functionality. What WooCommerce does enable, however, is the cost-effective development of an MVP (or prototype) for an online marketplace. If you are in the early stages, have a limited budget, and do not yet have an overview of the demand for products on your marketplace, you can try out a first version of your marketplace with WooCommerce. However, this is also not recommended because later on you will still have to migrate your marketplace to a scalable and high-performance system.

If you want to create an advanced online marketplace that offers a wide range of products and expects a lot of traffic, you should be prepared to invest more and opt for a scalable online shop system like Magento or Shopware – or alternatively, a completely custom development using a programming language and frameworks. A complex website like an online marketplace should have a high standard of performance. Therefore, operators should use technologies that allow for stable operation under high load. The PHP programming language is one of the most popular programming languages in the world. For example, using PHP, Laravel, Linux is one way to build a large project with high resilience. This approach allows functionalities to be added with minimal effort, and the marketplace can subsequently be expanded and scaled flexibly.

FlipKart, one of the world’s most successful online marketplaces, was completely custom programmed.

Working on large-scale projects requires complex tasks involving various programming languages as well as databases. When projects become overloaded, several server-side programming languages such as PHP, Node.js, or Python are needed to achieve optimal results. The loading time of a page should not exceed 2 seconds. Due to potential hacker attacks, the security of customer data must be extremely high, and the latest encryption technology should be used accordingly.

There are also some “in-between solutions” such as Sharetribe, a platform specifically developed for the creation of online marketplaces and auction websites like eBay. Sharetribe offers a good balance between usability and performance, but it can only be used for small and simple marketplaces. However, using the platform requires a subscription that must be paid annually.

The importance of targeting and choosing a niche has already been emphasized. Many attempts are necessary when creating in order to optimize the outcome. As discussed earlier, contrary to popular belief, WordPress is not at all suitable for implementing an online marketplace. Other options should be calculated very carefully, as the price for an online marketplace with a typical design amounts to a five-figure sum. If an operator uses a unique graphic design, additional costs will be incurred – and that is only the lower limit.

The Classic Example – Amazon

According to Similarweb, Amazon receives 3 billion visitors every month and ships up to 4 million packages daily. Linux servers ensure a smooth operation and Amazon owns the largest database in the world. To achieve this, Amazon uses behavioral analysis and collects data on every user to better meet buyer preferences. A cloud-based infrastructure was developed for this purpose. However, Amazon is more than just a buying and selling platform – it provides digital space for rent to every online shop operator. The AWS (Amazon Web Services) are very popular and generated €2.6 billion for the company in 2016.

Before you start creating a marketplace platform like Amazon, you must ensure the stable operation of the website and that it is adaptable. The website structure should include a high level of security, high speed, and scalability. The high level of security is intended to strengthen users’ trust in transactions. All credit card data and personal information of users must be stored and transmitted in an encrypted form.

The marketplace should be protected against potential hacker attacks. For this, an SQL injection protection is needed. A high website speed directly influences the revenue of the online marketplace.

The new project should be adaptable so that new functionalities or modules can be added at any time. This works best with proven technology.

Amazon is the most well-known marketplace in the world.

How Can I Monetize My Marketplace?

There are several options when it comes to monetizing the online marketplace.

• Registration Fees: These are charged during the registration process on the marketplace. Generally, this is not a good idea for a new marketplace, as securing critical mass is crucial in the early phases.
• Subscriptions: Subscription plans give users access to certain functionalities of the marketplace. Some marketplaces require a subscription plan just to access the site. This option is also not very suitable for new marketplaces – there must be at least one free version of the marketplace that is not overly restrictive.
• Listing Fees: These are charged by sellers when they want to list a product.
• Sales Fees: Sales fees are charged as a percentage on every sale. This is the best option for new marketplaces since the risk for sellers is lower – they only pay when they make a successful sale.

The Planning

This is what the planning of an online marketplace looks like – planning that must be carried out before the development begins:

Examine the Business Model: Make sure that the business model has good prospects for success. This includes target group analysis, competitor analysis, the conception of monetization, and ultimately the definition of the planned functionalities.

Create a First Version (Mock-Ups): Create a rough sketch that outlines the design and processes of the online marketplace. This also includes the user experience (UX), which must be as intuitive as possible.

Hosting: Choose a professional hosting service such as Amazon AWS.

Select a Payment System: Choose a payment provider that will automatically process payments. Make sure that the provider offers the necessary integration options via APIs and supports the desired payment methods.

Create a Specifications Document: Define all functionalities in detail.

Define the Technical Infrastructure: The choice of technical infrastructure depends on the planned scope of functionality, long-term goals, and the budget.

Clarify Legal Issues: Consult a lawyer to determine whether your marketplace is feasible in this form and whether there are any legal barriers (for example, some products or services may not be freely sold online).

Tip 1: Identify the Needs of the Buyers

The marketplace should, like intermediary companies, balance the needs of its users. As exemplified by Airbnb, the marketplace connects a traveler looking for affordable accommodation with a homeowner offering vacation rentals or separate rooms for guests. The customer must be able to check both positive and negative reviews, view photos of the space, and know that the service providers will honor the contract.

On the other hand, providers advertise their services. When a contract is concluded, both buyers and sellers pay a fee to the marketplace, which has enabled secure and reputable contact. This commission model is used by some of the most successful online marketplaces such as Booking, eBay, and Etsy. Other marketplaces like Craigslist and OLX charge a fee for premium listings. Anticipating the needs of both parties means offering a functional website or mobile app.

Tip 2: Fill a Niche

For success, a marketplace needs a specific niche or a focused range of products that makes the marketplace unique for the customer. This creates an e-commerce-supported marketplace that is stored in the cloud. If you try to appeal to too many customers, you will ultimately reach none. The greatest success is promised by a niche that the operator knows well and can identify with.

An operator should not try to go from zero to one hundred, as they typically only have one chance to get it right. Experience shows that a marketplace should start small and then grow, which is also more cost-effective. Most companies need several attempts and begin small within their own niche before expanding. However, the specific niche should not be so narrow that there is no room for growth. This could be handmade products like those on Etsy or documents created by academics that allow them to earn some money.

If a marketplace does not restrict its offerings to a specific area, it proves to be hardly more useful than a search engine. The marketplace must prove useful to the customer so that it stands out and can be offered exclusively. Customers have some concrete expectations: they want to save time, not be taken advantage of, and know that their problem will be efficiently solved. The operator also wants to save time by attracting customers through the platform and building trust through reviews and seals of approval.

ReBuy fills the niche for buying and selling second-hand goods.

Tip 3: Secure the “Critical Mass” for Your Online Marketplace

The business model of an online marketplace works just like most online platforms. Imagine an online shop where the buyers (the visitors) purchase products from the provider (the online shop operator). In a two-sided marketplace that connects buyers and sellers, you must attract both user groups to your online marketplace. This task is much more challenging than in the case of an online shop.

This is all about securing the so-called “critical mass” – the marketplace operator faces the difficult task of satisfying the initial demand from both target groups so that the marketplace can function at all.

Achieving critical mass is perhaps the most important task of a marketplace. Here are a few strategies you can implement:

• Ideally, you will fill a niche that has not yet been exploited by anyone else. If that is the case, providers and buyers should come to you on their own. However, that does not mean that marketing expenses will be low.
• Start as a one-sided marketplace (just like an online shop) so that you can at least reach one of the two target groups. Later, you can gradually narrow your focus and offer sellers an incentive to register on your marketplace.
• The “Piggy-Back” strategy: try to cooperate with other marketplaces.
• Negotiate with large retailers/providers/online shops so that you can quickly fill the provider niche. For this, you may need to offer the first providers very favorable conditions since you would still have no users. Set your commission very low, even if it does not seem profitable for you.

It is important for every marketplace operator to understand that the online marketplace will likely not make a profit in the first few months or even years. Persistence is key – you should not be discouraged and must work hard to grow the critical mass. The saying “you reap what you sow” could not be more accurate in this case – your efforts will definitely be rewarded in the long term.

Tip 4: The Right Functionalities for the Online Marketplace

Anyone who wants to launch an online marketplace should consider the necessary functionalities in advance. The functionalities are determined by the marketplace’s business model, its goals, and the budget. Especially before the start of the marketplace development, it is essential to create a specifications document that describes the necessary functions.

Here are the most important functions for a successful online marketplace:

• Registration/Login: Ideally, users should be able to register quickly and easily – even directly with their Google accounts.
• Seller Verification: This step is optional, but it also offers a high level of security for buyers.
• User Profiles (for both providers and buyers): Self-explanatory – users must be able to edit their own profiles. Secure storage of data must be ensured.
• User Dashboard (including all subpages): An extensive, easy-to-use dashboard is crucial for the user experience on the online marketplace.
• Advanced Search Interface (with multiple variables, filters, and complex algorithms): The search interface can, for example, deliver the best recommendations based on user preferences, feature auto-complete functionality, smart filtering, and many other functions.
• Product Management: Sellers need several options for managing their products and should be able to quickly view and edit their current products so that they can adapt them to meet customer expectations.
• Shipping and Logistics Management: Sellers must be able to quickly and easily view and update the status of their sales, and this should be easily traceable for the buyer as well. The more reliable and intuitive the shipping and logistics management is for users, the higher the chance they will remain on the marketplace in the long term.
• Product Detail Page: A product detail page with extensive information and design options allows sellers to present their products as effectively as possible. This increases the chances of a sale and improves user satisfaction.
• Chat Function: Smooth communication between seller and buyer is indispensable.
• Selecting Payment Providers: In order to receive funds automatically, sellers must be able to connect with a payment provider. Examples include PayPal or Stripe.
• Order and Payment Processing: The processing of orders, including a dedicated dashboard, as well as offering multiple payment options, is crucial for marketplaces. A faulty process in order or payment handling can quickly ruin the reputation of the online marketplace. Sellers and buyers must be able to monitor the order status at any time and quickly get in touch with the other party.
• Favorites: Users must have the option to save favorites.
• Reviews: This is a fundamental functionality that should be provided on every marketplace.
• Invoices: The automatic creation of invoices as PDFs and their storage in the user dashboard is very important for many sellers today.
• Personalized Offers and Recommendations: The leading marketplaces provide personalized product offers to users based on their past purchases. This can significantly increase revenue on the marketplace.
• Seller Statistics
• Product Statistics
• Buyer Statistics
• Email Notifications: Email notifications help bring users back to the marketplace.
• Customer Service: The marketplace operator must ensure that users have a quick and easy way to access support. In addition, a system should be integrated to enable dispute resolution – ideally, this should also be automated.
• Returns: The marketplace must support the process for handling returns and complaints. It must also ensure that both buyers and sellers can manage returns. Ideally, the marketplace even offers buyer protection through the selected payment provider (e.g., PayPal).

These are only some of the basic functionalities of a successful online marketplace.

Development of an Online Marketplace

Tip 5: Start with a Marketplace MVP

The marketplace is now ready for its first customers. But before launching, it is time to create an initial test for the marketplace: Can transactions between your customers and suppliers take place? A private test may still reveal some design pain points. Can your customers find what they are looking for? Perhaps the transaction flow requires a redesign or a detail needs to be adjusted.

As previously discussed, you can use WordPress to create a first version of your online marketplace and measure the results. If you recognize the potential for success, you can migrate to a scalable technical infrastructure in good time. The plugins for this are called Marketify, Easy Digital Downloads (only for digital products), and WC Vendors Pro (only for WooCommerce).

Other solutions that could also be used are Sharetribe, Near Me, Marketplacer, Arcadier, Mirakl, and Cocorico, with the last provider being focused solely on services. These are somewhat more complex but offer a better range of features. Magento with its marketplace extension is also an option; however, it is very similar to custom programming since Magento is generally complex and can be customized arbitrarily.

MVP marketplace development takes between 4 and 8 weeks. Consequently, you can expect to see the first seller registrations, initial revenue, and a growing sense of enthusiasm.

Tip 6: User Friendliness on the Online Marketplace

On a marketplace, users should be able to easily find what they need. The search matrix should therefore have many filters to enable precise searches. In addition, the marketplace can provide further ideas related to topics – just as in interior design where home renovations might be a complementary theme. Bloggers or other interesting websites can be linked for this purpose. This way, the user is given a long list of options to choose from. Moreover, the website as well as the app should always contain a clear call-to-action.

Amazon is the role model for user friendliness – for both providers and buyers. The online marketplace also offers personalized offers and recommendations.

Tip 7: Build Your Own Brand

Every marketplace should, at the same time as its creation, have its own brand identity in order to be clearly identified and to establish itself as an institution with its own reputation and esteem. This is how marketplace operators create platforms with specific characteristics that make them indispensable to users. In addition, everyone should know what the operators allow or prohibit.

Tip 8: Build a Community

Some people believe that the era of marketplaces is over and that brand loyalty is taking over. Customers prefer products whose value they have been convinced of through experience and advertising. Accordingly, especially strong brands evolve that form their own community through their followers. This can generate loyal customers with a high degree of commitment and a tendency to participate in the community.

eBay is the perfect example of the positive effects of a community. They have a separate page where members can exchange experiences and information.

Tip 9: Marketing

Cyclical growth is key to the expansion of a marketplace, stemming from high-quality customer service that, through its excellence and good reputation, spreads continuously. However, marketplaces usually grow slower than comparable online shops, primarily because they must engage both buyers and sellers, which takes considerably more time (remember the critical mass). In addition, a comprehensive marketing strategy is needed, even though all methods work more or less well.

In addition to the strategies we discussed earlier, there are also general marketing measures for your online marketplace that you should not neglect:

• SEO: A continuous and professional SEO optimization will deliver a positive ROI for your online marketplace in the long term. SEO includes both on-page and off-page optimization for your online marketplace.
• Content Strategy: Naturally, you will also start a blog and create a content strategy. With high-quality content that addresses the most common questions and problems of your users, your visitors can be converted into loyal customers. Provide free materials such as eBooks, buying guides, comparisons, and other resources, and incorporate opt-in forms to capture the email addresses of interested parties. This way, you will also secure a solid foundation for a later email marketing campaign for your online marketplace. Pay attention to both the quality of your content and SEO optimization (on-page optimization, including article structure and keyword research).
• Advertising: Paid advertising on Google, Facebook, and other networks can be expensive. However, if you have the budget and experienced online marketing experts on your team, paid advertising should not be neglected. Many online businesses use these channels with excellent results – your online marketplace can benefit as well.
• PR: Create a press release to promote to online media. Also include media outlets that report on the industry of your online marketplace – the readers of these media are your potential customers.
• Email Marketing: Email marketing offers the best ROI and can be used effectively by online marketplaces.

Assuming that you have already reached the critical mass, that in no way means that you can stop marketing. On the contrary, you must become even more creative if you want to make your marketplace even more successful.

Tip 10: Observe > Build > Learn

How can one tell if a marketplace is successful? Merely observing the growth of the user base and transactions is not enough – the operator must know where the customers are coming from and why they choose to buy. For this, the operator must establish several key performance indicators (KPIs) that need to be monitored. This way, the operator can identify areas that still need improvement.

Conclusion

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