Understanding Marketplace Startups: What You Need to Know

Do you know what a marketplace startup is? Learn about what makes them different from other companies and how you can rank on Google with your own venture.

Understanding Marketplace Startups: What You Need to Know
Do you know what a marketplace is? Think of it as an online platform where buyers and sellers come together to complete a transaction and get value from it. Examples of marketplaces include Etsy, Ebay, Clarity, Cashaa, Chatterbox, Chegg, Clippings, Monzo, eToro, Raisin, Bitdefender, and LendInvest. But what makes a marketplace different from other companies?

Simply put, a marketplace is a place where buyers and sellers meet to conduct business operations. In the online environment, that definition is still valid. Online marketplaces offer buyers the ability to choose what they would like to buy and sellers a variety of people to sell to. For instance, Airbnb is a search marketplace where guests select where they will stay and what to “buy” in the marketplace.

The growth phase at any cost is over for new companies in the consumer market. Acquiring new income without overspending is a key part of demonstrating to investors that your company is growing sustainably and intelligently, not just by spending cash. For every Airbnb there is a home exchange market that doesn't reach liquidity; for every Uber there is an on-demand market that can't make the economy work.

For a market to work and continue to function, both parties must want to trade within the market and not outside it. Standard market solutions such as Sharetribe Go are excellent tools for market entrepreneurs who want to get their first product out and validate their idea as quickly as possible. Every market exhibits a form of network effects, in which each additional user, whether on the demand side or on the supply side, enhances the utility of the network to all users.

In recent years, the definition of the market has been extended to include on-demand models that are considered markets due to the independent contractor relationship on the seller's side. There are four essential factors that shape any market and, with them, four questions that every founder must be able to answer before embarking on the complicated and rewarding adventure of building a new market.

Another competitive dynamic that seems to be taking place between Uber and Lyft is focusing on brand distinction, or on the values that the market ultimately represents. Homogeneous markets are coincidental markets, where demand doesn't care what supply they receive, as long as it is above the standard set by the market.

On this page you will find everything you need to know about creating a market, from the idea to the launch of the project. Platforms generally accept payments from vendors, but you can also create a marketplace app that only charges buyers or split the commission between both parties to reduce pressure on suppliers. A commission (also known as a “rake” or “vig”) is a fee charged by the market for each completed transaction between the seller and buyer.

So what kind of market should you choose? If you have a great idea for a horizontal market that makes your platform 100 percent unique and can offer real value for both sellers and buyers, this type should be your choice. Without the competitive moat offered by single supply, homogeneous markets compete on other aspects of product supply such as price.

Now that you know what a marketplace startup is and how it works, you can start planning your own venture. To help you get started with your project, check out our guide on how to rank on Google. With this information in hand you'll be well on your way to launching your own successful marketplace startup!