While going through eCommerce articles, you have probably come across such a term as a two sided marketplace. In this article, we look at the concept of a two sided online marketplace, its difference from a one-sided site, and also consider a plan for opening your business and its most tricky moments.
What is a two sided marketplace?
A two sided marketplace business model is a marketplace in its most familiar form: there are sellers and buyers, and neither side can change its status to the opposite. This type is characterized by B2B and B2C business models.
What is the difference between a one sided and a two sided marketplaces?
In any case, there are two sides in business: a seller and a buyer. There is a division as to who takes over the roles: one sided and two sided marketplace.
A two sided marketplace platform is a multi vendor website where the roles of the buyer and seller are predetermined. The one-sided marketplace is a mixture of these roles. This means that buyers and sellers can switch roles. A one-sided marketplace is a synonym for a peer-to-peer marketplace. Most often, a one-way marketplace refers to the C2C model.
This explanation may be a bit confusing, so let’s turn to the two sided marketplace examples and compare it with the one sided ones.
What are two-sided marketplace examples?
Two-sided marketplace companies are AliExpress, Amazon, eBay, but only when we are talking about a transaction like: the seller put the goods from his store to a marketplace and the individual purchased them.
However, some authors classify the platforms from the example as C2C platforms. Does it mean that they are one-sided platforms after all? Partially, for example, eBay was created for online auctions, where any seller, not an entrepreneur, could put up an auction for any item, just as they could also buy something there, as a result to become a buyer. This is an example of how a one-sided marketplace platform works. Today, the relevant marketplace platforms of the latter type are platforms for loans and money transactions.
Benefits of creating a two sided marketplace
Since there are two managing parties involved in the marketplace, these are an administrator and sellers, each has its own positive aspects and interests.
Why marketplaces are beneficial for owners:
There are several different advantages that prove that a marketplace is a profitable business for its owner, administrator.
- No need to deal with contractors, which is part of the responsibility of the sellers
- Compared to a regular website, the marketplace has a lot more buyers
- The product range of goods expands the opportunities for cross- and up-marketing
- Today, marketplaces are not just a trading platform, but also a way to interact with clients. Marketplaces are easy to promote because they attract customers by first-hand experience reviews, easy comparison of products, and a large assortment.
Benefits for sellers:
- Additional traffic channel of potential customers
- You can expand the geography of sales
- Optimize advertising costs
- Quick launch of a store on the marketplace
- There is no need to promote the store based on the marketplace
How to build a two sided marketplace?
In this block, we will briefly analyze the plan of the marketplace as a business, dwell on the most tricky moments that take place in the process of creating a marketplace. There is a certain strategy that includes 5 initial steps and 1 optional:
- Create the concept—this is a concept creation process. It is important to study building a marketplace from a theoretical side: draw up a financial model, identify marketing methods, highlight suitable traffic channels, and put forward hypotheses that you will consider later.
- Test MVP (minimum viable product)—you need to open a prototype marketplace. It should allow for placing goods and making orders, everything else can be processed manually.
- Attract sellers—the timing of attracting users to your platform is highly dependent on the type of platform you have. Often this stage comes after the creation of a prototype of the platform, but before the active promotion of the platform. It is also common to find different types of users like sellers and buyers in parallel.
- Start marketing strategy—you studied marketing strategies at the stage of creating an idea and theoretical research. Now you can apply some well-known ways to promote the platform and also test several hypotheses that you formed at the initial stage.
- Optimize business processes—optimization means avoiding manual labor. You can choose a suitable and reliable platform for creating a marketplace, introduce several automation systems, and concentrate on improving customer services. It is high time to choose two sided marketplace software. Check one of the best platforms on the market for such business CS-Cart Multi-Vendor.
- Scaling—This is the latest process that is not always and not relevant for everyone. Some entrepreneurs prefer to stick to local, highly specialized marketplaces in order to maintain the quality of service and product.
It is a short version of a plan, read the complete instructions on how to create any type of a marketplace here.
The plan looks simple enough, and we propose to dwell on the most important and difficult points that entrepreneurs face.
Where can I find funding for a startup?
There are several resources to find money for your project:
- Grants and competitions
- Administrative loan or any other type of loan
- University or study opportunities
- Among your friends and relatives
- Platforms for finding an investor
What types of investors exist?
Most often, this is an accomplished businessman who has money and experience. This investor is looking for new interesting projects that will be profitable but will not become the main source of his income. More often an angel investor influences decisions within the company and business development. This type of investor usually lends money to well-prepared and promising startups. Within the digital space, this is one of the most common ways to support your startup. For example, Amazon launched its startup marketplace with the money of an angel investor.
Venture capitalists are investors who do not invest their own money, but use the money of other investors who invest it in special funds. Typically, venture capitalists lend money to already established businesses that are looking for new ways to grow. This development can be questionable or even risky. Investments in this type of investment are much higher in comparison with the lended budget of angel investors. Venture capitalists will also have the right to vote, own shares of the company and influence its development.
What are investors looking for?
This is where the business plan comes into play. A business plan helps not only to draw up a project for an investor, but also to organize the stages of the project development and its characteristics more clearly for entrepreneurs themselves. It is very important that the business plan is simple, clear and concise. It should be from 15 to 50 pages and take up to 1 hour to read. It should consists of:
- Project description
- The project team
- Market analysis
- Marketing plan
- Production plan
- Investment plan
- Financial plan
Where to find investors?
For two-sided marketplace companies related to investments have much to offer. There are some platforms to find different types of support for your two sided online marketplace:
- AngelList—is a platform for searching for an investor for a startup. The mission of this company is to increase the number of successful startups in the world.
- Angel Capital Association—this is a platform specialized on angel investments. It is the world's largest company in the sphere of angel investments.
- Seed invest—it is all in one: they attract different types of investors like high-net-worth individuals, family offices and venture capital firms.
- Kickstarter—is a crowdfunding platform focused on creative people and unique creative projects.
- Indiegogo—another crowdfunding platform which allows for placing projects from charity to commercial ideas.
How to advertise a marketplace?
There are several recommendations to promote your two sided online marketplace.
- Social networks. Social networks today play an important role in people's lives around the world. There they spend a significant part of their lives using them and that is why advertising on platforms such as Facebook and Instagram has become an integral part of the business.
- Banner ads on websites. Advertising tailored to the specific needs of a certain client is a very good tool for promoting the marketplace. When a person sees an ad with a relevant product on a side of the website, there is a good chance that they will click on them and go to your platform.
- Application creation. The application can be considered as one of the marketing tools for marketplaces. The loyalty system and big discounts can all be made available to people in the application.
- Crowd marketing. This type of marketing is communication with potential customers on forums in social networks and thematic chats related to your products or directly to the marketplace. In the course of communication, you need to add unobtrusive advertising.
- SEO marketing. SEO increases the site in the search results. SEO is a complex process that requires constant monitoring and improvement. Usually, for these purposes, a special person or a whole team is hired.
It is worth looking at how competitors are promoting their marketplaces, perhaps there are some specific methods that are suitable exclusively for your marketplace and products, these methods should not be ruled out.
Where to find vendors?To find marketplace vendors, you need to:
- See who your competitors are partnering with. Some marketplaces hide the names of their vendor partners, but this is not always the case. You can find them online or offline and make a commercial offer for cooperation.
- You can search for sellers at thematic meetings and forums.
- Search for sellers directly through their online sites and brick-and-mortar stores.
We answered a question “what is a two sided marketplace?”, went through the two sided marketplace examples and found differences with one sided one.
Marketplaces open up a lot of new possibilities. Do not miss a chance to start a lucrative business!