How to Create an Online Marketplace like Etsy

The reason behind your decision to create your own marketplace website can be very different.

Robert Kalin, the Etsy's founder, wanted an eCommerce platform to sell a wood-encased computer that he crafted. He came up with the marketplace name while watching Fellini's 8 ½, and coined it from Italian "eh, si".

Jeff Bezos was totally rational while establishing Amazon with his "regret minimization framework"—a decision he made in order not to miss the e-commerce boom. Though initially, he named his eCommerce marketplace "Cadabra", as in "abra cadabra". This name went into extinction immediately after his lawyer mistakenly heard "cadaver".

Driven by different reasons, entrepreneurs created many thriving multi seller marketplaces and have made the physical product e-commerce industry a highly competitive market for newcomers to step into.

What they probably have in common is the painful 'things I wish I knew before starting my marketplace' learning.

This is your advantage in such a competitive environment—you can build your own marketplace successfully by learning from the industry trailblazers experience.

To compete with the industry leaders, you need to establish a detailed picture of what positively differentiates you from them—what is the unique value of your web marketplace?

Define your sellers and buyers' expectations, research the industry you are interested in and check if your idea fits the market.

Survey the audience you are interested in, to understand their expectations better and narrow or segment it later on. Try to embrace all: professional and inexperienced vendors, B2B, B2C, and C2C sellers within the industry that you defined.

Detailed understanding of wider audience expectations will help you narrow and segment your audience later, and to adjust your value proposition.

There are some typical sellers' expectations that you can fit with your virtual marketplace value:

• additional promotion and extension of their habitual market;

• costs reduction—ability to use your marketplace infrastructure, functionality, and tools instead of establishing their own platform;

• reduction or improvement of their existing distribution chain (fewer intermediaries);

• for professional sellers—a new potential immense sales channel;

• for newcomers—an opportunity to make the first step, to start their business and gain a wide customer audience;

• the fastest way to reach new customer segments;

• efficient functionality to sell online—in case your online shopping mall provides that: separate online stores for each vendor, search bar for each vendor's store, and so on.
  
  

The following benefits could attract customers to your multi vendor marketplace:

• confidence and security for online purchases;

• a broad range of products and prices at one place;

• flawless buying experience—smooth payment and delivery processes, convenient goods searching;

• time saved—thanks to the centralization of products and a single shopping cart (if your marketplace provides that);

• expenditure savings.
  
  

The chance is great that someone else is already working on the same idea.

There is nothing wrong with that since the execution can turn a similar idea into a completely different marketplace model.

Research the market and track your competitors' performance to calibrate your idea and upgrade your value accordingly.

You can use the following checklist to assess your value-market fit:

• Is there an unmet need in your target market?

• What are the problem that your idea solves?

• Whose problem does it solve—who is your target audience?

• How does it solve the problem?

• How is the problem being solved currently?

• Why is your solution better—what value are you going to add?

• Is your target audience already looking for an eCommerce solution to solve that problem?

• Which similar problems are the target audience facing and where do they find a solution?

To fill out the checklist, you can conduct a market research, surveys, or one-on-one interviews—what's important is to define and address a right target audience.

With your clients' expectations' data, results of the market research and understanding of your idea-market fit, you can document two value propositions for both buyers and sellers for later use.

Everything from user experience policies and commission model, to the overall multi store eCommerce platform functionality and tools are based on your marketplace business model.

Narrow down or segment sellers to customize your value proposition:

• Business To Consumer vendors (B2C);
  
• Consumer To Consumer sellers (C2C);
  
• Non-professional sellers (craftsmen, artisans);
  
• Professional sellers (traders, suppliers).
  

There are plenty amount of revenue models that best fit a physical product marketplace.

Commission—a rate per transaction. For a physical product shopping mall with a wide goods' selection, commission is usually small. For a specific vertical marketplace, it can be higher.

Subscription—a paid subscription for different sellers' categories established on the basis of their sales volume and other criteria. Subscription gives vendors particular benefits—promoted listings or free advertising within an eCommerce marketplace.

Promoted listings on Etsy:

Freemium—revenue flow comes from additional services and value-added features for sellers: advertising, shipping labels, ability to send special offers to shoppers, and many others.

Listing Fee—the best fit for vendors who sell only a part of their catalog, and is active at some particular time of the year.

Etsy uses this fee option as an affordable model to encourage new sellers:

In case your seller crowd is a very diverse one, you can establish different commission models that are suitable for each segment.

Etsy adopted this approach by mixing existing fee types and creating new ones:

A content management system is one of the most crucial marketplace elements.

Your daily operations and transactions, speed of work, amount and variety of tools available for vendors and customers fully depend on cms.

A good multi store ecommerce platform can provide all the functionality you need to attract even well-established sellers and customers to your marketplace—from various payment options, to the ability to set up a separate online shop for each vendor.

Research functionality and price.

Usually, you need to add a huge part of functionality and tools to a marketplace long after it starts working.

That's why you should define which tools and features you'll need when the number of items, customers, and sellers' expectations will increase. Then compare cms different prices and functionality in that context.

Free solutions will enable only limited functionality, which needs to be expanded soon, and often, it'll cost much more than the initial package of a chargeable cms.

Heather Noss, a seller from Etsy, is a good example of how you can lose the best vendor due to a limited multi vendor ecommerce platform functionality.

She created a shop on the marketplace, but due to her business growth, she needed tools that weren't present at the shopping mall. She set up another channel, and now, 80 percent of her revenue comes to her directly, and only 20 percent—through Etsy.

Thus, a good move is to make some investments upfront, to save on the long-run and get a quality ecommerce solution intended to satisfy all the needs of your sellers.

From the other hand, you shouldn't pay just for a well-established brand.

The best way to avoid that is by running a trial period. Find multi store platforms that offer full functionality during a free trial period, try it yourself and make an informed conclusion.

Test the initial marketplace version with early adopters—a small segment of your target audience.

After a short period of usage, they'll provide a feedback about the necessary improvements that you need to polish for a bigger crowd to come.

There are two things to concentrate on for further development:

• the value communication

• the tools and features proposed to sellers and buyers
  

The value communication. Communicate your value through design and wording to attract customers at a large scale and create a community of like-minded evangelists around your virtual shopping mall.

Etsy's site is to create a feeling of trust between online vendors and customers and fits customers' lifestyle while the wording highlights the value proposition:

CleverLittleMonkey, a "parents to parents" online marketplace that sells baby furniture is a great example of value communication:

Everything including the colors and stunning pictures reflects the ecommerce marketplace and its audience shared-values—comfortable furniture and design for kids:

For a shopping mall with various sellers that want to communicate a unique product idea, the best way would be to provide each vendor with its own store.

If your ecommerce cms allows you to do that together with other tools to help sellers to establish their own brand and build a strong connection with their customers, then this would be a strong argument for them to come at your online shopping mall and stay for long.

The tools and marketplace website features proposed to sellers and buyers. To convince well-established sellers to stay in your marketplace by just offering them a personalized shop window isn't enough.

Give strong tools in their hands to show how they can boost income in your online shopping mall.

A great example of that is Mode, an online fashion marketplace with the products from New Zealand based fashion boutiques.

To acquire and retain vendors, the online marketplace provides separate web stores for each seller:

Moreover, they help vendors raise their sales by providing them an advanced search system. Sellers have not only product filters, but their own search engine to help customers find items at each vendor's shop.

This enables a flawless discovery process for customers as well:

Start acquiring the first sellers to build an attractive offer for your Internet marketplace buyers when they come.

Existing sellers—contact vendors that are already active in similar web marketplaces and other relevant online platforms like social media and communities.

Potential sellers—use online and offline resources to connect with them: business directories and aggregators, hobby clubs, networking groups, trade associations, online forums, offline stores and workshops.

To find customers, collect email addresses of potential buyers before a marketplace launch, using pre-launch campaigns and landing pages.

Understand who your potential early adopter customers are, and where they hang out online and offline:

• existing communities—join the group and participate in the discussions, mentioning your marketplace platform model and asking for feedback;

• major community influencers—convince well-known bloggers to advertise the shopping mall to their audiences;

• create your own community through a blog, social media or a forum, and host offline meetups or events.

Use a Bullseye Framework to pick and mix right strategies to get traction for your multi seller marketplace:

Сheck the practical ideas of how to mix customer acquisition techniques for shopping malls on our How to Promote an E-commerce Marketplace blog post.

The following priorities are the main drivers of your marketplace constant development on a long run.

Inexperienced sellers is a huge potential for your multi vendor marketplace. They gain their first success with your daily support, turning into your most dedicated advocates, that can bring you huge benefits.

For example, dedicated sellers of Etsy's marketplace initiated and implemented a campaign on Twitter that brought extra attention to the site.

To continue building such a community, Etsy holds various events and activities.

"Etsy Craft Entrepreneurship Workshops":

Besides, the marketplace has a workspace that provides equipment and materials for a shopping mall users to create items and attend workshops and events:

Etsy's constant priority is to boost repeat purchases.

This strategy is exactly what brought the virtual shopping center to the top. It's obvious from the marketplace S1 metric of Gross Merchandise Sales contribution by first-time buyers and repeat purchases:

The main hallmark of Amazon in the beginning was its obsession with customer service.

Keeping up with this approach helps Amazon stay on top.

The marketplace's Prime subscription, which contains a huge amount of benefits and perks for clients, brings customer service at the new level, and clients appreciate that—one out of every four homes uses this subscription:

In Etsy's first year, it attracted attention for adding new tools and functionality to help sellers gain exposure and traffic. This approach defined the success of the multi store marketplace.

Its plan for the next year shows that Etsy still adheres to this strategy: the company focuses on four things: search and discovery, trust and reliability, marketing capabilities, and seller tools.

The priorities chosen by the industry leaders are clear: constant focus on flawless customers experience enablement, and sellers education and support.

Concentration on the technical part of a marketplace—tools for vendors, and search engines enhancement shows that the next successful marketplace businesses will be brought to the top by their powerful ecommerce platform's technical tools and functionality.

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