What is the Best Strategy to Start a Service-Focused Online Marketplace

Identifying and developing your virtual service marketplace game plan

Bloomberg reports that the service industry is growing at a rapid pace—much more of the economy is based on services. This is a perfect time and climate for service-focused marketplaces to thrive.

A Deloitte survey infographic shows that many startups have already been able to leverage this opportunity.

Uber's bookings have increased by a whopping 51% since last year, which has led to an increase of over 60% in quarterly sales.

Airbnb made almost $100 million in pure profit, from $2.6 billion in revenue.

These two online ecommerce platforms are different—customers, business model, and a marketplace type. What unites them is that these platforms succeed because they were able to find their marketplace concept, define its benefits and challenges, and establish a strategy accordingly.

This format is delivering an optimum experience by incorporating value-added services. Specifically, reputation tools such as reviews, grades, and guarantees help to regulate the quality of service.

For example, Opendoor, apart from the main service—to instantly sell your home—provides a free assessment of homes:

Value-added services creation means operational complexity. Also, most of the processes in a managed web marketplace are vertical-specific, so a shopping mall should either remain in the chosen niche or find out a way to add value in a new way if it wishes to expand into a different vertical.

"Full commitment marketplaces" are shopping malls that set the price and the offer, and create the whole experience, with suppliers acting as contractors in this case.

Uber is an obvious example of that concept. Despite the large amount of suppliers (drivers), it owns the online marketplace offer and defines customer experience:

Fiverr, the freelancers' marketplace, sets up the pricing for all its suppliers on its own, allowing to sell any service for five dollars:

Despite the attractive concept for buyers, its main issue is to attract and retain experienced suppliers with such a low rate. This is probably why the multi vendor platform has increased the rates to 500 dollars for services that are moving up the ladder in some categories.

This concept is a combination of product and service web marketplaces. Amazon, a physical goods shopping mall, offers its customers services as well, such as home services, so that they can find professionals to help service their home.

The service added-value for customers is workers' background checking, while the multi vendor marketplace enables the following additional benefits for suppliers:

This concept is hard to promote, unless the marketplace is a world leader with tremendous traction, which, of course, is the case with Amazon.

This concept is a part of a shared economy model. Such multi vendor shopping malls are intended to turn underused assets into revenue. This means that the user monetizes their home, bed, car or other assets.

Blablacar, a virtual marketplace which service lets you to "go literally anywhere from anywhere" as a consumer while offering a shared ride as a supplier, and which is built using this concept:

This concept should be supported by powerful added-value services. That enables trust between suppliers and customers, since the Internet shopping mall offers not just city rides, but traveling between cities. Obviously, safety is a serious concern.

The online marketplace ensures trust by utilizing various safety features:

Besides, it offers other security options:

These multi vendor marketplaces are intended for people not to rent out their assets, as with the previous concept, but their spare time—for a side or full-time work, whether it involves doing home chores and/or running errands for customers.

The TaskRabbit marketplace is an example of such concept:

It is hard to build a solid community of scrupulous suppliers for that concept, which is necessary since often a service should be delivered at a customer's home. To overcome this issue, besides collaborating with an independent workforce in a usual way, like Handy; online shopping malls of this type use a full-time employee strategy to enable a better customer experience—like MyClean.

In this case, people rent out their expertise, professional skills, and experience.

This marketplace concept is tailored for high-quality independent professionals, or freelancers—and is a part of an "on-demand talent" economy model.

There are many different multi vendor marketplaces which work with that concept, from Upwork with many professional categories to niche-platforms like Clarify, that helps startups to get advice from experts in any category you can think of, whether it is copywriting, software development, or countless other niches.

It's hard to scale with this concept, and scalability is crucial to both investors and management, usually.

Since the main value here is the supplier's vast and quality expertise—most often, all of the suppliers should be selected and evaluated carefully.

Business model elements are also an important part of a service marketplace strategy.

Start by looking at each stage of your multi vendor marketplace conversion funnel and focus on where user activity drops off. These are clearly the points that should be addressed and polished.

Another element that is an important part of the virtual service-focused marketplace business model is how urgently a service you provide on your online shopping mall should, and could be delivered. This speaks to how convenient your service is, which will influence your scalability.

Uber is a perfect example of an urgent "on-demand "service marketplace:

The vast amount of available drivers is the core element of the Internet shopping center success. Otherwise, consumer demand wouldn't be satisfied on a large scale.

This, however, creates a large barrier for new players to enter the market, since a new competitor needs to launch with many suppliers at the beginning already.

If services can be delivered with more flexible timing, which is the case with cleaning, plumbing, or legal advice, it's easier to succeed with fewer suppliers.

Monetization with many of the virtual service marketplaces presents a unique challenge.

Most service shopping malls cannot make a transaction before the buyer and supplier agree on the terms of the service, and the service is delivered.

Thus, the party that is charged is naturally motivated to abandon the multi vendor platform and conduct the transaction off-platform. To avoid that, the workflow should create additional value for both sides.

For example, Upwork clients and freelancers can speak via built-in tools.

Freelancers can evaluate clients based on the history of job feedback, and how much money a client has spent hiring on the marketplace platform:

Another way to avoid leakage is to play with the monetization model itself.

While most multi vendor shopping malls extract a fee from their sellers, there are several that charge subscription fees to their buyers.

On Care.com customers pay a subscription fee to message a caregiver through the multi vendor ecommerce platform.

Until you pay, identities are masked:

If your Internet shopping center is operating in the offline services field, paying for leads can be an ideal option. Of course, the quality of the leads is the inevitable variable that can determine whether it is a smart investment for customers or not.

Thumbtack is a multi vendor platform that helps people find photographers, painters, home contractors, movers, etc.

The suppliers on Thumbtack provide services that can be implemented only offline, so it's hard to track when the service was performed and for how much.

Thumbtack is charging suppliers to contact customers. The online vendors can view all the details for a particular job, and pay to be introduced, and then proceed to compete for the job.

The lead-based model only works with new connections. It is ineffective in those cases where there are a lot of repeat purchases from the same vendor.

According to Accenture's Survey, on-demand services are growing significantly:

A modern smartphone has been quickly turning into a remote control to access anything you want from a ride, to home cleaning, to almost any service that one can consider.

It is therefore crucial for on-demand service online marketplaces to enable a flawless mobile experience for both suppliers and customers.

Some service-focused multi vendor shopping malls success—like Uber—is completely based on a mobile app flawless experience for all virtual marketplace users.

Thus, while it can be argued that some goods-oriented ecommerce platforms may be able to thrive in a desktop format, It is increasingly obvious that for service online marketplaces, having a mobile app is imperative.

Many failed online shopping malls chose to showcase services that have a low transaction frequency, which prevented any real growth in the market.

For example, Beepi was a peer-to-peer marketplace for buying, selling, and leasing used cars. The reason why multi vendor marketplace failed was the lack of transactions that occurred.

While it was possible to find a person who is selling a used car, finding two people who would like to implement a selling/buying deal with the same car is much harder, and, as a result, it's almost impossible to scale such a concept. A lot of cars stay unsold, which means that the multi vendor platform remains stagnant.

Another pitfall with transactions frequency is services where customers prefer a monogamous relationship—like with babysitters, for example. It is easy to see that users would prefer not to hire a new babysitter constantly, as there are issues with trust and safety when it comes to one's own family.

Thus, it's better to run a multi vendor mall for a service with high purchase frequency and regular usage.

Uber, for example, matches both conditions. The demand and transaction frequency is constant since people require and ride taxis on a daily basis.

Consumers then rely on the web marketplace as an everyday utility and continue using the same service as long as they're satisfied.

Airbnb is a great example of risk management.

Negative incidents within the virtual marketplace are sporadic. After one of them took place back in 2011, the multi vendor platform introduced Airbnb Social Connections, which leverages a Facebook connection—so guests more often stay with someone through their social circle, like a friend of a friend, for example, rather than complete strangers.

Besides this, Airbnb also created a dedicated Trust and Safety team that is available for the Internet shopping mall customers 24/7.

Later, the multi vendor ecommerce platform established a Host Guarantee program, to be able to compensate the host for damage when it is necessary.

Of course, this necessitates that the shopping mall platform of the service-based marketplace communicate these precautions, and layout a specific protocol and procedure when it comes to these emergency situations.

Outstanding service online shopping malls don't just aggregate a market; they offer a service and user experience that simply didn't exist before.

Upwork, currently one of the world's largest freelance marketplaces, was relaunched in 2015.

They put together customer needs and the multi vendor marketplace service constant development and made it their strategy for success, implemented through the advanced ecommerce platform tools for customers and suppliers.

They focused on shared workspace creation and a better team collaboration experience for both freelancers and clients.

They enabled a flawless messaging experience within mobile and desktop.

Also, they provided freelancers with new effective tools to boost hiring, and customers—with instruments to interview and select workers that match their needs the most.

In 2017, they reported 14 million users in 180 countries with $1B in annual freelancer billings.

It shows that whatever virtual marketplace concept you choose, constant service development together with the customer-centric approach is the winning strategy for a service shopping center.