What are the Most Common Challenges with Creating an Online Marketplace

When Jeff Bezos founded the internet marketplace platform Amazon in 1994, he was working at a desk which he made out of a wooden door, to avoid additional costs.

Much water has flown under the bridge within 24 years. Now, the virtual marketplace platform is showing 60.5 billion dollars revenue, with 1.86 billion in net income in the fourth quarter of 2017, and Jeff Bezos is the richest man in the world.

It shows that online marketplace as a business makes it possible to gain the fortune amount which would take tens and hundreds of years to make in many other industries.

What often remains behind the scenes though, are the challenges that you need to overcome to gain such a success.

The pledge of success with an online marketplace mall creation, is to find an idea that will be in-demand for the intended audience.

New online marketplaces are popping up every day, and many niches have been filled out already. To enter the market now, having just a great idea isn't enough.

There should be a complete understanding of why the intended audience would need a shopping mall:

• it is a new and useful service or concept that haven't existed before;

• it solves customers' existing problem;

• it enables a high frequency of transactions, and thus, high virtual marketplace liquidity.

Airbnb, for example, solved the real issue of its customers: travelers couldn't find a place to stay.

If they didn't want to use hotels, there were almost no other variants. It was hard to find listings, and those that were available had no apartment photos. No tools to ensure that it's secure to stay with a particular host—or invite a particular guest—existed.

By providing apartment photos of great quality, host and guest reviews, and identity verification, the online mall was able to solve all the problems that its audience had.

As the chart shows, even though the online marketplace mall was founded earlier, the exact moment when its photographers provided good quality pictures for listings was the tipping point for the shopping mall growth.

The chart of Airbnb traction gaining process (amount of users / years):

Great quality of pictures is still the one of the internet marketplace platform main characteristics:

Fril, a Japanese online flea ecommerce marketplace for women only (now is acquired by Rakuten), has leveraged the fact that Japanese women sell all their clothes when they go to a college, and when they graduate as well.

The virtual shopping mall matched the intended audience' needs, and since each customer was also a vendor, the founders acquired both sides of the marketplace simultaneously.

A high level of transaction frequency enables high marketplace liquidity, which is more important to a new online marketplace mall than getting the largest revenue per transaction.

Besides the fact that high liquidity enables more frequent financial income, it influences customers' behavior by turning an online mall into a go-to platform, for them to satisfy a particular need.

For example, Uber's transaction size is small, but its frequency is high; thus the marketplace was able to create a high level of liquidity.

Even if you have a good virtual marketplace concept in place, to gain traction, you need to embrace the intended audience successfully.

It's necessary to have a particular idea on how to create supply or demand artificially, in case if the organic approach doesn't work.

Airbnb initially targeted huge events in their area, to gain customers when surrounding hotels were completely booked.

To provide supply, they contacted all the suppliers who listed short-term rentals at Craigslist and invited them to list at their platform.

Besides, they integrated with Craigslist' platform to allow suppliers to easily create listings on Craigslist through Airbnb, what made Airbnb a go-to platform because of its convenient ecosystem.

To find customers, Uber leveraged the local characteristics of the San-Francisco area by offering free rides to tech people attending IT conferences, making word of mouth the marketplace biggest driver.

When running a marketplace, you will constantly have updated data on the price of products, the search terms that drive traffic, and other data which can help sellers match client expectations and increase the number of successful transactions.

By constantly analyzing customers organic search within a marketplace, you can extract some useful insights for your sellers.

When Etsy noticed many searches for owls, they'd informed their artisans for them to start producing more owl-related goods:

Having all the data about average costs and rates for goods and services on a marketplace, you can create updating guidelines for sellers to define the best pricing.

It'll help them prepare more relevant offers and increase the number of successful transactions.

Etsy offers analytics to improve vendors' sales:

The sellers' content (pictures and descriptions) will all be of a different quality and format. To provide a unified user experience and to create an efficient conversion funnel, help vendors adhere to unified listings policies, while staying unique. Etsy created an educational system to help vendors create listings, which are good photographs and copy:

Once the traction is gained, the next challenge is to ensure a stable marketplace development.

Boosting traffic through advertisement isn't a sustainable business model from a long-term perspective. Customers don't go to Internet marketplace platforms Etsy, Amazon, or AirBnB by clicking on advertising or paid search results.

An online marketplace mall long-term growth comes from clients' actions within a shopping mall, thus a convenient tool-set ecosystem is a must.

To have sustainable growth and to retain existing clients, an online mall can't afford being just a medium but should provide certain functions that clients need.

Besides, if you don't offer valuable tools and services to facilitate transactions, your virtual marketplace platform concept can be copied easily.

A multi vendor center ecosystem that is full of value-added tools makes it harder for someone to steal your supply or demand. That's the reason why many modern virtual marketplaces shift to being technology-first platforms.

An advanced online mall ecosystem embraces:

• payment tools

The competitive payment tools may include a bunch of features, but the best is to choose those that fit your marketplace needs. For example, if it is a service marketplace, payment tools should include escrow to provide trust for suppliers.

Tools to enable cross-border, multi-currency transactions, and various payment options should be in place:

Mode, one of New Zealand's largest online fashion malls, provides not only different payment variants as shown above, but also a pay-later option:

It's good if a payment tool helps to work with multiple sellers: allows to implement payouts through a large range of local and international options.

To fit buyers' needs, it's good to have customizable checkout pages, including a quick-shop option for customers to checkout in one-click:

• analytics capabilities, including advanced tools for price management and control, and integration with external monitoring and analyzing tools;

• a CRM system, with all the necessary integrations with sellers' databases, and real-time inventory updates—to avoid incorrect information about the products on the multi vendor center.

If this is a B2B virtual marketplace, special attention should be paid on integration.
B2B-sellers—organizations, that are running on their own order, sales, warehouse management systems, which should be integrated flawlessly into a web marketplace software.

• advanced design features—since items photos and descriptions are the part of the conversion funnel, it's necessary to provide sellers with tools to design and structure their listings.

Yumbles, an online marketplace mall that is connecting food lovers, provides an ecosystem that allows sellers design their mini-shops with unique details, still keeping the marketplace' unified design structure among all vendors:

The Cheese & deli category listing (with the additional photos of the listing)

One of the most efficient ways to support an Internet marketplace platform' sustainable growth is network effects.

Jonathan Golden, who was building a product at Airbnb for six years, highlights two types of a network effect. Both types can enable sustainable development, but the way to grow supply and demand for each type is different:

• global network effects

Jonathan Golden's global network effects infographic:

Airbnb is a bright example of the type. Every new listing brings the same value to all customers, regardlessly of their location. Travel is global, and a customer from any place can rent an apartment anywhere.

Global network effects grow organically. Airbnb listings appear from anywhere, and any traveler can use them.

• root density network effects

Jonathan Golden's root density network effects infographic:

In this case, each local market grows independently, so one local market's supply gains nothing from demand growth in another local market.

As an example—Uber's multivendor mobile app is intended for local usage. Also, if just one driver works on a market, it would provide no value to customers.

In this case, a network grows from being the first mover who is actively building supply in each local market independently.

The most efficient way to retain customers is following their needs and expectations, anticipating and satisfying them on the way.

Besides constant customer data analyzing, there are other pillars of users' retention—a customer service.
There are few main challenges an online marketplace encounters while building a customer service:

• enabling quick responses: over 80 percent of customers expect a response on social media within 24 hours, and within an hour—via email, according to the Spider Marketing survey;

• being constantly updated on each customer data: transaction and previous communication history and other information.

There are two main directions to overcome those challenges:

1. Build a special procedure for processing customer requests:
a) in the omnichannel context;
b) based on your customers' unique needs and characteristics;

2. Regular customer service team trainings.

As a result, multi vendor centers are gaining sustainable growth, and are becoming a default go-to place for customers like AirBnB, eBay, or Etsy.

There are few elements of e-commerce security a multi vendor center should enable.

Fraud can appear on a virtual marketplace platform in a different shape and form. Apart from the scams targeting customers credit card details and personal data, other fraud cases are popped up recently.

Airbnb legitimate listing had been stolen: the fraudsters changed its details and set up a fake homepage.

Later, the listing instructed the customer to email the owner directly to check their availability, and after that, the customer was provided via email with the fake links to make a payment.

Since the fraud had technically been held outside the online mall, there were not many options for the Internet marketplace to solve the situation.

Thus, in such cases, the best is to establish detailed guidelines on how to avoid such a fraud for customers in advance.

After a big wave of fraud—Amazon encountered new vendors, who were selling fake listings—the marketplace changed its policies. From allowing new vendors to post an unlimited amount of goods, the virtual marketplace platform now allows the posting of only small items amount until sellers prove themselves.

The measures helped to decrease the number of scam sellers very quickly.

The Amazon fraudulent sellers volume:

The multi vendor center has a chargeback program as well, that lets you refund the money to a buyer in case of fraud.

There are also other few points that should be covered to enable security:

• confidentiality—sensitive data, like buyers' credit card number, should be encrypted well;
  
• private information, like users' contacts, should be secured, and terms of private info usage should be in place for employees and users within an online mall;
  
• strong virtual marketplace data access control: multi-factor users and employees authentication and identity verification.
  
  

Mature Internet marketplaces face an additional challenge of circumvention, which can be countered in several ways:

• by providing trust: convenient payment tools that build trust between sellers and customers;
  

• by preventing clients from seeing each other's contacts until the deal is done;
  

• by ensuring convenience with value-added services.
  

For example, Airbnb platform' tools help a multi vendor center to provide trust and convenience by offering:

• identity verification and reviews;
  
• assurance to support customers in case of apartment damage;
  

• a payment feature ;
  
• a messaging tool to communicate easily.
  

The best approach to overcome all the challenges while creating a marketplace is based on the few components:

• going after customer needs: interact directly with users, and analyze and use a web marketplace customer data as a perpetual survey of your buyers—to build a multi vendor center that users enjoy being a part of, and would want to share with their friends;

• enabling sustainable growth through a wisely-built network effect and advanced tool-set ecosystem and infrastructure.

The Amazon Culture of Metrics—analyzing each detail of the marketplace performance to build an efficient ecosystem and the best experience for customers is a bright example of such an approach.

This approach is something that definitely helped the virtual marketplace platform to thrive, while the initial pledge of success—the Jeff Bezos' door-desk story, is slightly turning into a marketing legend with time.