What Makes a Marketplace Successful?

Learn what makes a marketplace successful: from defining target markets & ideal customer personas; choosing revenue streams & metrics; selecting technology & creating an exemplary user experience.

What Makes a Marketplace Successful?

The most important value proposition of Marketplaces is to provide high quality demand to suppliers and high quality supply to buyers in the most efficient and effective way. In other words, a market is only as good as its trading liquidity. This means that if you create a marketplace to target these users, you could be reducing 20% of the commission for buyers, thus adding value to the chain.

This makes the sales process more efficient and your market the reference solution. For example, I was one of the first to adopt Dropbox (which is not a market, by the way). I accumulated about 20 GB of free space by initially purchasing 250 MB and then 500 MB for each new user. I also got 20 GB by inviting people to my mailing list and getting more than a dozen people to join with my referral links. As a result, Dropbox gained 4 million new members.

This is the simplest, but now rare, model in a market. Charging a flat, all-inclusive 20% used to be the norm in markets where payment transactions are done online, but due to companies like Uber, this is now being replaced by more complex business models. One of the oldest models is Craigslist in the 1990s. It could not charge online for offline transactions, so it allowed users to pay to put their ads at the top of the list, highlight them in yellow, use large fonts and other perks.

When you first create a marketplace, you will try five or possibly even 10 different ways to get users for less than what they will generate for you over time. This could be a referral program as mentioned above. However, it could also be a more traditional loyalty program. For example, 10% of your tenth order.

An example of a 10 times better product would be the all-inclusive car rental app Fair. Multiple vendors deliver a unified, high-value end-customer experience. There are certain recommended functions for any type of market - whether it's a peer-to-peer (P2P) marketplace such as Etsy, Amazon, Uber, eBay or Upwork; or a B2C marketplace such as the App Store or Google Play; or even if it's a B2B platform connecting many B2B sellers (brands and manufacturers) and buyers.

The suitability of the product to the market is undoubtedly the most important factor for the success of the market. If the market doesn't want what you sell, you're dead in the water. Rapid iteration of a minimum viable product (MVP) provides an empirical way to develop product marketability. These advanced prototypes allow market entrepreneurs to quickly collect user feedback while minimizing the financial risk that accompanies a complete platform.

Each iteration cycle relies on new insights to refine your market value proposition until sufficient traction is achieved. Learn more about using MVP to establish product marketability.

Key components of a go-to-market strategy include defining your target market and ideal customer personas; conducting a detailed competitive analysis; clarifying your value proposition; mapping out the customer journey; choosing a business model and technology stack; identifying marketing and sales channels; and describing your customers' success process. It's important to distinguish between business models and revenue streams.

Business models describe the value stream in your business - that is, the benefits to users and what products or services will be offered to a specific target market. Revenue streams determine how market owners can monetize the flow of that value between users (buyers & sellers). The most popular sources of income on the market are commissions, subscription fees, publishing fees, freemium and advertising.

Finding the right option for your market can be based on benchmarking with similar types of platforms. However, using an MVP to clarify your value proposition to users and determine if they are willing to pay for that value will give a more precise indication. Learn more about choosing revenue streams for your market.

Entrepreneurs must be able to obtain clear information based on customer interaction with their markets. Metrics fulfill this function by converting observable data into customer information. The trick is to choose the most suitable ones for your business context. Measuring the wrong metrics can lead you astray and eventually lead to market failure. Learn more about choosing the right metrics for your market.

Your choice of technology will have a major impact on the flexibility, extensibility and scalability of your market platform. There are an amazing variety of options ranging from SaaS DIY templates to custom development - with plug-and-play hybrid options such as WordPress and Woocommerce in between. Custom development obviously gives you the most freedom.

In the short term it provides flexibility to create an MVP that can accurately measure and improve product suitability to market; over the long term it provides scalability to handle rapid growth; and enough extensibility to allow integration with appropriate features and functionality - probably second only in importance after product adaptation to the market.

Easy-to-understand ordering and shipping processes; transparent customer feedback; and an exemplary user experience will inspire confidence in your market. Focusing on network effects forces market owners to put buyer-seller relationships at the heart of platform development - which means constantly analyzing user behavior and using rapid iteration to establish product-market suitability.

The way users experience their market is a reflection of technical expertise applied; go-to-market strategy implemented; and level of product-market suitability achieved. Your market must be well organized; reliable; easy to navigate; with as little friction as possible between what users want and satisfaction of their needs.

Your marketing plan should kick start your marketing strategy - while marketing is an ongoing activity aimed at increasing competitive advantage over time - your go-to-market strategy should describe how you will successfully bring your product or service to market.

Effectively communicating your value proposition (how are you solving problems for your target market) is first step on that path....