Joining the sharing economy hype. How to build a successful online marketplace?

The rising number of modern online marketplaces cause rapid development of sharing economy. How to catch the hype and build a marketplace that will conquer the world? Find the answers in our article

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Have you ever felt that you own  too much stuff? A second car you barely drive, a set of garden tools you use only once a year, a room on the upper floor you enter just to wipe the dust. If you’ve already thought about selling or renting your unused property - you are a candidate for the sharing economy. If your idea was to create a project to enable the quick exchange of goods or services - congratulations! You can call yourself an entrepreneur.

The sharing economy has become a buzzword in just few years. Quite obviously, it means sharing the property you own, but temporarily don’t use, with people who may be in need of it.

Exchanging goods and services isn’t a new approach, but the digital evolution of the recent years has presented an elegant solution to make the sharing economy massive and international - online marketplaces - and the hype began.

In 2007 two young men moved to San Francisco with one aim - to become a part of a rapidly developing tech industry. They could hardly pay the rent and started to look for ideas how to earn money quickly. At that time the Industry Design Conference took place in SF. The men took a moment and decided to offer airbeds and breakfast to the participants who had not managed  to book a hotel. The first three customers came very quickly and proved that sharing free space in a flat or house may be a good way to earn extra money.

These two young men were Brian Chesky and Joe Gebbia, and their idea turned into one of the most successful startups of our time - Airbnb.

Online marketplaces bringing the sharing economy to a new level

Besides being one of the pioneers of sharing economy, Airbnb is a classic example of an online marketplace. What is it? What is the difference between a marketplace and an online shop?

An online marketplace is a website or app where third party providers can submit their goods and services, presenting them directly to potential customers. The key feature of a marketplace is the peer-to-peer approach. This means that everyone (not necessary a company) can be a distributor, as well as a buyer.

A marketplace is often confused with an online shop, where the manufacturer or distributor sells only his goods or services.

With an online marketplace, everyone has the opportunity to offer their property, goods or services to a wide audience without any limits. Potential clients, on the contrary, can choose from the variety of offers, and aren’t limited in their choice.

How to build an online marketplace? What is the potential of your idea?

One of the nice things about the sharing economy is the fact that literally anyone can enter the market with a marketplace idea, and become successful.

Take for example Airbnb; it started with solving a problem the founders themselves had, and this grew into a company which now operates in 99% of countries worldwide. So, having an idea is important, and here is how you can discover the potential of your idea.

Is there the pain point you are going to solve with your app?

Brian Chesky and Joe Gebbia were focusing on solving their own problem, and not on doing business. But suddenly it turned out that their pain point resonated with the problems of millions of people all around the globe; those who had unused spaces in their flats and houses, and  others who were looking for convenient and cheap accommodation during their trips.

The key to the success of their idea was simple - discovering the pain points of both sides (the service providers and the customers) and offering the best solution possible.

But unfortunately, not every idea can become a unicorn worth billions of dollars. 42% of startups fail due to lack of market need. In other words, there may be great ideas, but no one actually needs them.

So, to make sure the idea you are going to turn into a real product will have users - test it. Prepare a prototype of the product, get it into the hands of your potential users and listen carefully to what they say.

How to define your target audience?

Based on market research, you have to define your buyer personas. These are the semi-fictional characters that have the features of your ideal customer.

To describe your potential customer as precisely as possible, follow these points:

  • Age
  • Location
  • Occupation
  • Education level
  • Yearly income
  • Possible pain points

Online marketplaces are different because they target two completely different audiences at the same time: the service providers and the consumers, and, you should build buyer personas for both of them.

Depending on the type of marketplace you are going to build, add more questions to better understand the expectations of your potential customer.

For example, let’s say you are going to build a marketplace for dog walkers. In this case, the potential service provider, or the pet sitter, is a student without a permanent income, lives alone in a big city, had a dog when he lived with his parents and therefore loves dogs, is interested in a part-time job, and has at least 5 hours per week to walk other dogs.

The potential client of the dog walker might be a business lady aged 35 - 45 with a certain income, who lives alone in a big city, has two dogs, has a non-flexible working schedule, etc.

The more exact the buyer personas are, the better you can target potential customers with the right solution and the right advertising.

Is there a market for the idea?

The market volume is also important. By analyzing the market you can decide which part of it you will target. The market of ride-sharing, for example, is huge. All over the world people are driving their cars and would be glad to share the cost of fuel with a passenger. On the other hand, there are plenty of people, who would prefer to share a ride with someone instead of taking a bus or a train.

However, the market for a ride-sharing service isn’t the whole world. Firstly, there are regions with low standards of living (some countries in Asia, Africa or South America). Most people there don’t own cars, and most of them never leave their home town. There is no actual problem; therefore there is no need for a solution. Is it worth launching a ride-sharing service in these countries? Obviously, no.

Secondly, there are countries with specific traditions, values, and laws. The law in Saudi Arabia, for example, didn’t  allow women to drive cars until recently, and using public transport wasn’t an alternative as well. We don’t expect the situation to change dramatically in the nearest time, which means, women will still prefer using private cars with a driver. Would it be a good idea for a ridesharing service to expand to a country with strict Islamic traditions, like Saudi Arabia? Yes, it would, but it requires a specific approach.

Not every successful marketplace needs to start with a genius idea. Sometimes an existing idea will be successful, but just adapted to the needs of a particular market. Some online marketplace businesses may be afraid of entering specific markets, such as Arabic countries, because of big differences in lifestyle and laws. But if you are a resident of such a country and understand the market well, this could be a great opportunity. You can adapt the idea to the reality of the target audience and make it even more successful than the original one!

Who are the competitors?

In a perfect world you’d love to have your idea in a big blue ocean without any competitors. But the reality is different. Almost everything you can think of has already been invented. That’s why it is highly important to know your competition. This gives you a chance to beat them.

What advantages do your competitors have? What are their drawbacks? Can you offer your clients something better with your product? Can you predict how your competitors can improve their products in the near future? Will the competition increase in the near future?

How can you deliver more value than the competitor? Analyzing the competition allows you to be one step forward.

What are the possible monetization models?

Any project has to earn money to attract investors and become internationally successful. The marketplace is no exception. There are several ways of monetizing your online marketplace:

  • Commission
    The marketplace charges a percentage or a fixed fee for every successful transaction on the website;

  • Subscription
    The users pay a monthly/yearly fee to use the marketplace;

  • Listing fee
    The seller has to pay for every listing he/she adds to the marketplace;

  • Freemium
    Most features on the marketplace are free, the premium ones are paid;

  • Advertising
    The more users the marketplace has, the more it can earn for showing  advertisements. With this model, users usually don’t have to pay for using the service, the ads generate revenue for the service.

Couchsurfing, for example, makes money by displaying ads to its multimillion community. Airbnb, on the contrary, doesn’t have ads on its website. Its revenue comes from the commission the service receives from every successful transaction.

When choosing the monetization model, you should take into account the legal aspects of the particular market. The escrow payment, for example, is a popular solution for online marketplaces. This allows the marketplace itself to be a middleman that holds the money for its users.

Here is how escrow payments work: the marketplace charges the money from the consumer for the products or services ordered. The money remains in the marketplace account until the provider has fulfilled their obligations; only then is the provider paid. The marketplace, in this case, is the third party, that regulates and guarantees the financial relationship between providers and consumers.

In the USA, for example, escrow payments are regulated on a state level. This means that the business has to get a state license to deliver such a service to their customers. Some countries do not allow escrow payments at all.

It’s important to choose a monetization model that will correspond with the philosophy of the product, however, the legal regulations are a highly important aspect to consider.

How to start online marketplace development?

So, your idea seems to have real potential. It solves existing problems, there is a market for the idea, and even the possibility of earning money. But don’t hurry to approach investors. There are still some things to do before that.

Create a prototype and test the idea

First of all, you need to get the idea out of your head and make it visual. This can be done with a prototype, which is a sketch, a simplified model of what you are going to build.

You can start with a simple pen-and-paper prototype or build an interactive HTML prototype - this depends on your skills and the fidelity you are aiming for.

Here’s a small tip: the prototype will be helpful when you start the development of your product. So, it sometimes makes sense to hire a professional to create a high-quality product. If you decided to start prototyping by yourself - check out our article on this topic. The insights will be really helpful.

The prototype is the best way to present the idea to help convince a co-founder or first employees, generate interest from first users, and to attract early investments.

Prepare the project documentation

Though it seems to be a monotonous task, writing detailed project documentation will save you plenty of time and money in the development process. It doesn’t matter if you hire in-house developers or a dedicated team - the documentation will be the clear roadmap for them.

It helps to ensure that everyone correctly understands the goal and functionality of the product.

Develop the MVP

After preparing the prototype and the project documentation, you are now ready to start the development of the product, the minimum viable product, to be exact.

The minimum viable product, or the MVP, is the product with just enough features to attract early users. The main idea of the MVP is to get the product into the hands of the target audience as soon as possible. After releasing the minimum viable product, you will fully rely on user feedback, and must be ready to make steady improvements.

Sometimes the minimum viable product reveals the sad truth - the assumptions you made during the market analysis are false, and the idea wasn’t as brilliant as it first seemed. You now have a chance to change the direction slightly and adjust the idea to meet the real needs of the market - or  give up, in which case, failing early means failing cheaply.

Just take a look at how Airbnb started their web presence.

This simple website had one aim - to prove the assumption that the idea would attract people’s attention. Realizing the potential of such a service, the investors were unstoppable. In its 8-year history, Airbnb has raised $4,4 billion and is listed as one of the most successful startups of our time.

Of course, their website now looks much prettier and attracts millions of users. But the ugly minimum viable version of it did just what it needed to do - it proved the potential.

The initial idea of the MVP is to launch a product with just enough functionality to attract early adopters. A minimum viable product is not about offering extensive features and earning money. It’s about validating the idea, finding potential users, receiving feedback on your product, and constantly improving it.

Besides validating your assumptions concerning your marketplace idea, the minimum viable product will help you attract the first users and even the first payments. Having an MVP that is already showing some results also makes you attractive to initial  investors.

You will find the detailed information concerning MVP development in our article.

Looking for some inspiration?

The sharing economy seems to be a good branch to start. Moreover, literally any idea can take you to the top of the industry.

This is a list of some fascinating online marketplaces. These services will show you how an idea can become a successful business when you are totally passionate about what you do.

  • Collabary is an online service which connects brands with content creators, that share their content through social networks (Facebook, Twitter, YouTube, Instagram and other media channels). Their clients are brands looking for additional advertising possibilities and rely on the expertise and popularity of the content creator.

  • Science Exchange. Marketplaces can also serve science. This project connects scientists with laboratories and research institutes. Ordering experiments from the world’s best service providers is now much easier.

  • Are you taking a business trip and can’t leave your dog alone at home? DogVacay connects pet sitters with pet owners. A simple idea that solves the problems of thousands of dog lovers.

  • Your unused storage space can bring you money. Storage market allows renting free space in your garage or pantry to people in your neighborhood.

Wondering what the online marketplace development process looks like? Check out our case study for Toddy - the Australian startup that connects parents with babysitters.

Though the sharing economy isn’t a new concept, it has become more widespread in the digital era. Modern online marketplaces connect the goods and service providers with their clients worldwide in seconds, giving everyone great opportunities.

The examples of Airbnb, Couchsurfing, Uber, BlaBlaCar, Lyft and many more prove that the idea is what really matters. If the idea solves existing problems of potential users - it has a bright future. If the idea can stand out in a crowd of competitors - it can overcome them. If an idea has the potential for monetization by making people’s lives better - it is worth implementing.

Is your marketplace idea a potential market leader? Get in touch with us to discuss how it can be turned into reality.



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