How to Build an Online Marketplace: 4 Steps of Creating a Marketplace Website

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

The sharing economy has become a buzzword in recent years. Quite obviously, it means sharing 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 idea. However, the digital evolution presented an elegant solution that makes the sharing economy massive and international through 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 barely pay the rent, so they started to look for ideas to earn money quickly. During this period, the Industry Design Conference took place in SF. The men took a moment and decided to offer airbeds and breakfast to participants who had not managed to book a hotel. The first three customers came very quickly, proving 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.

In addition to being a pioneer of the sharing economy, Airbnb is a classic example of an online marketplace.

What is an online marketplace? It is a website or app where third-party providers can submit their goods and services to be presented directly to potential customers. The key feature of a marketplace like Airbnb is the peer-to-peer approach. This means that anyone (not necessarily a company) can be a distributor and a buyer.

Is this business model attractive to you? Great! This article is exactly what you need. Here, we will cover two major blocks of the marketplace development process: idea validation and app development. We also focus on possible cost to build a marketplace website. Don’t miss it!

Analyze online marketplace idea

Block 1. Before you start building a marketplace: What is the potential of your idea?

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

Take Airbnb for example. It began by solving a problem the founders themselves had and grew into a company that now operates in 99% of countries worldwide. So, having an idea is important, and below we’ll show you how to understand the potential of your idea.

Is there a pain point you are going to solve by building a marketplace?

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

The key to the success of their idea was simple. They discovered the pain points of service providers and customers and then built the best solution possible for both sides.

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, while there may be great ideas, no one actually needs them.

So, to make sure your idea will have users when it’s turned into a product - test it. Build a prototype of the product, get it into the hands of your potential users and listen carefully to what they say. Feedback is extremely important for small business, especially on the initial stage.

We’ll return to prototypes and user testing later in this article, so stay tuned.

How to define your target audience?

Based on market research, you need to define your buyer personas. These are 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

  • Family

  • Yearly income

  • Possible pain points

  • Fears

  • Inspiration sources

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

In the case of online marketplaces, there are several types of personas. These platforms generally target two completely different audiences at the same time: service providers and consumers. You should define buyer personas for both of them.

For example, let’s say you are going to build a marketplace website for dog walkers. In this case, the potential service provider, or the pet sitter, is a student without a permanent income. He lives alone or shares a flat with a friend 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 free hours per week to walk other dogs.

The potential dog walker client 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 precise the buyer personas are, the better you can target potential customers with the right solution and advertising.

How to build a marketplace app

Is there a market for your marketplace idea?

Market volume is also important. By analyzing the market, you can decide which part of it you will target. The ride-sharing market, for example, is huge. All over the world, people are driving their cars and would gladly 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 does not include the whole world. Firstly, there are regions with low standards of living (such as countries in Asia, Africa or South America). Most people in these regions don’t own cars, and most never leave their hometown. There is no actual problem, therefore, there is no need to build 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. We don’t expect the situation to change dramatically in the near future, which means that women will still prefer to use private cars with a driver. Would it be a good idea for a ridesharing service to expand into a country with strict Islamic traditions, like Saudi Arabia? Yes, it would, but it requires a more specific approach.

Not every successful marketplace needs to start with a genius idea. Sometimes an existing idea adapted to the needs of a particular market may be successful.

Some online marketplace businesses may be afraid to enter specific markets, such as Arabic countries, due to big differences in lifestyles and laws. But, if you’re a resident of one of these countries and understand the market well, this could be a great opportunity. You can adapt the idea to the reality of the target audience and build a product that is even more successful than the original one!

Who are the competitors of your online marketplace?

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’s highly important to understand your competition. This will give 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 will improve their products in the near future? Will competition increase in the near future?

How can you deliver more value than your competitor?

Analyzing the competition allows you to build a marketplace that is one step ahead.

What are the possible monetization models for marketplaces?

Before seeking the answer to “How to build a marketplace?” answer the question “How will I earn money with my product?”

All projects have to generate revenue in order to attract investors and become internationally successful. The marketplace is no exception. There are several ways to monetize your online marketplace:

  • Commission
    The marketplace charges a percentage or 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 they add to the marketplace.

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

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

Marketplaces like Couchsurfing, for example, make money by displaying ads to their multimillion community. Airbnb, on the contrary, doesn’t have ads on its website because its revenue comes from the service commission received from every successful transaction.

When choosing a monetization model, you should account for the legal aspects of your particular market.

Escrow payments, for example, are a popular solution for online marketplaces. This allows the marketplace itself to be a middleman that holds money for its users.

Here is how escrow payments work: the marketplace charges 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, which regulates and guarantees a financial relationship between provider and consumer.

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

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

Marketplace development process

Block 2. How to build a marketplace: 4 stages of the development process

So, your idea seems to have real potential. It solves existing problems, there is a market for it, and even the possibility of earning money. However, don’t hurry to approach investors yet. You first have to figure out how to launch a marketplace website.

1. Build a marketplace prototype and test the idea

First, 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 or a simplified model, of what you are going to build.

You can start online marketplace development 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: a prototype along with technical requirements will be useful when you start developing your product. So, it sometimes makes sense to hire a professional to create an online marketplace prototype of high-quality. However, you can also do this yourself. If you decided to do it by yourself, read our extensive guide on prototyping. It explains everything step-by-step, so that you can successfully build your own prototype, even if you have no relevant background.

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

2. Prepare the project documentation

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

This stage helps ensure that everyone correctly understands the goal and functionality of the product they build.

3. Build a marketplace website MVP

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

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

Sometimes the MVP reveals a sad truth – that the assumptions you made during the market analysis are false, and the idea wasn’t as brilliant as it first appeared. 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 the latter case, early failure means cheap failure.

Early failure means cheap failure.

Just take a look at how Airbnb started their web presence and how they look now, after years of analyzing their customer needs and preferences.

Airbnb MVP and current product

They initially decided to build a simple website which had one aim - to prove the assumption that the platform would attract people’s attention. Once they recognized the potential of such a service, the investors were unstoppable. According to Crunchbase, in its 11-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. 

Airbnb's ugly MVP version did just what it needed to do - it proved the idea’s potential.

The initial idea of an MVP is to start an online marketplace with just enough functionality to attract early adopters. An MVP is not about offering extensive features and earning money. It’s about validating the idea, finding potential users, receiving feedback on the product you build, and constantly improving it.

In addition to validating your assumptions about your marketplace idea, an MVP will help you attract your first users and even your first payments. Having an MVP that is already showing results also makes you attractive to initial investors.

Need help with defining the core functionality and building your first MVP?

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4. Grow your online marketplace user base

The dream scenario for each small business is that, upon releasing a marketplace app, you immediately gather thousands of users, both suppliers, and customers. Unfortunately, you can’t rely on such a happy coincidence. That’s why you should start growing your user base long before the online marketplace is built. This is how you can attract your most loyal customers.

How to attract sellers to your marketplace?

You may think that no one is interested in entering your marketplace until there is a strong buyer base. But the reality is quite different. Suppliers and service providers are constantly searching for new channels through which they can sell their products or skills. And if you manage to pitch them on the potential of selling on your platform, they will willingly register. Just make sure to present all the benefits and perks of your marketplace service.

Where to find potential sellers?

  • Scan your competitors and subjacent services
    If a contractor is already using a marketplace, they are potentially open to similar offers as well. In addition, they already have an active source of orders (your competitor’s platform), which means they won’t push you if they won't get immediate result.

  • Use search engines
    Look for active service providers in the region of your interest. Offer special conditions, such as subscription discounts or free access to premium features, to draw the attention of established businesses.

  • Use social networks
    Check out specific groups on Facebook, subscribe to industry-related hashtags, check reviews, etc. Along with finding a few potential users, you’ll have a handful of ideas about how to develop your marketplace further.

How to attract customers to your marketplace?

So, you managed to attract the first suppliers or contractors to your marketplace. Congratulations! But you’re not done yet. No marketplace is successful without a base of loyal users. So think carefully about how you can increase customer awareness of your service. Here are a few ideas:

  • Start your own blog or community
    But, please, don’t write about your service. Think about topics that are interesting to your potential buyers, give valuable advice, or share relevant stories. If your marketplace offers goods and services for pets, your blog should help pet owners. You could also share entertaining content like home videos with cats. If you bet on user-generated content, your chances to succeed increase.

  • Take part in discussions
    Facebook groups, forums, etc. are the best places to draw the attention of your potential audience.

  • Create a landing page and advertise it
    You can start gathering emails long before the platform itself is built. Just create an online marketplace landing page, share it on relevant channels, and launch ads targeting your audience.

  • Look for brand ambassadors
    Contact bloggers or local celebrities and try to make them your ambassadors. Their fans will definitely follow.

You have to make sure that on launch day, your marketplace won’t be a tabula rasa without a single listing. This kills trust in your page and makes it highly unlikely that you will attract new users. So, do your best to build a small but loyal community before the launch.

Cost and time of marketplace website development

Build an online marketplace

Being in the early stages of marketplace startup development, you are likely short on money. So, the marketplace website cost is a significant factor.

Hiring an in-house team could cost you a fortune. However, there is always the option to outsource. You can assign the development process to a company from another country and save a big piece of your budget pie. App development outsourcing is a great option to reduce expenses without risking quality. You should definitely learn more about it!

These are the main stages in marketplace development and their approximate duration:

  • Research and analysis - 40-100 hours
    Analyze the current market, research the demand, and study competitor services. You can do this on your own or together with an experienced business analyst. Involving a professional will get you detailed project requirements, which will be a solid starting point for your development process.

  • UX and UI design of a marketplace app - 100-300 hours
    Don’t neglect the work of an experienced UX profi. Their job is to ensure that the users have the best experience when working with your app. A good UX is a competitive advantage, just like a catchy and stylish interface.

  • Frontend and backend development - 300-1000 hours
    The time required to build a marketplace app is much harder to estimate since the time and cost of the development process completely depends on the application’s functionality, the chosen technology stack, the size of the team, and more. However, the approximate numbers mentioned above are real. 

  • Quality assurance and bug fixing - 150-350 hours
    To achieve exclusive software quality, development and QA processes should run simultaneously. Some business owners see software testing as a piece of the cake that they can do by themselves. However, a test engineer can implement various techniques to cover most of the possible usage scenarios, ensuring that your customers don’t face an unexpected problem during app usage.

When starting from scratch, your marketplace app development team should include:

  • A business analyst

  • A UX/UI designer

  • Software developers (frontend and backend pros, or full-stack programmers);

  • A manual or automation QA engineer, depending on your project needs.

The price of the project is calculated based on software company rates, which vary by country.

US and Canada - $150 to $180 per hour

Western and Northern Europe - $90 to $120 per hour

Eastern Europe - $40 to $75 per hour

Asia and Southern America - $15 to $45 per hour

In our article on offshore software development, we analyzed different rates and regions. Eastern Europe generally offers the most attractive price and quality. That’s why we use the average rate in Ukraine for further calculations.

How much does it cost to build an online marketplace? The price starts at $30 000 for a simple MVP and can reach up to $100 000 for a full-featured application with complex architecture.

App development cost for marketplaces

Technology stacks for building a marketplace that we use at Clockwise

Usually, there are two options to choose from:

  • A ready-to-use platform such as Sharetribe
    Sharetribe is a Wordpress for marketplaces. It enables different grades of customization depending on your technical skills. It is generally a one-size-fits-all solution created for non-developers.

  • A custom marketplace application
    If your requirements are above average, a ready-made platform won’t satisfy them. You need to hire a team that builds a tailored solution with your case in mind. No compromises, only high-end results.   

Clockwise Software develops custom marketplace apps only and the technology stack we choose depends on each individual case we work on. This is what we have to offer:

Frontend development:

  • React
  • Angular
  • Vue.js

Backend development:

  • Node.js
  • Laravel

Mobile app development:

  • React Native
  • Ionic
  • NativeScript
  • Cordova
  • Flutter

Databases:

  • MongoDB
  • MySQL
  • Oracle

Cloud solutions:

  • Amazon Web Services
  • Digitalocean
  • Google Cloud
  • Heroku

We mix our core technologies, employ the latest trends and study new tools to achieve the highest efficiency possible. Each project is unique, just as the technology stack required.

Want to discuss the set of tools and technologies that will bring your idea to life? There’s nothing easier than scheduling a free consultation with our manager!

Must-Have features for a Marketplace MVP

So, you’ve decided on the tools and technologies. But the hardest choice is still to come. Which features should you implement in your MVP, and which ones can wait? Here’s a list of features your marketplace MVP must include:

  • Easy social login
    Don’t bother your first users with a complicated authorization process. Social login buttons are convenient and save you development time

  • Profiles for buyers and sellers
    You’ll have two user types in your app. Therefore, get ready to create two types of interfaces for them

  • Search and filtering
    There won’t be many listings at first, but you still have to provide your users with an easy search and filtering process, or they’ll quit.

  • Messaging
    The main task of a marketplace is to connect sellers and buyers. Give them an opportunity to discuss transactions right in your app.

  • Reviews
    People trust other people’s opinions. That’s why implementing a review system can increase trust on your platform and improve conversion rates.

  • Payments
    One reason why customers come to a marketplace is that they need a reliable third party to manage the transaction. You have to think carefully about which payment gateway to choose for your marketplace.

These are the absolute minimum features your marketplace app needs to start attracting customers. Later on, you’ll add more sophisticated features to improve the user experience and increase your revenue. Moreover, customer interaction will give you ideas for new functionality as well!

Looking for some inspiration?

The sharing economy is a good place 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 completely passionate about what you do.

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

  • Science Exchange. Marketplaces can also serve the scientific community. 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. This simple idea solves the problems of thousands of dog lovers.

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

Marketplace app development process

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

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

The examples of Airbnb, Couchsurfing, Uber, BlaBlaCar, Lyft and many more prove that the idea is what really matters. If an idea solves the existing problems of potential users - it has a bright future. If an 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. 

Read more about our expertise in marketplace app development. We cover the whole process, starting with business analysis through design and development up to product launch and beyond. 

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