Is there a software marketplace

... and earn a commission on every sale. This post is out of the categoryBusiness models at LetsSeeWhatWorks and is intended to show how easy and cheap it is to create an online marketplace and thus build a scalable business model. All that is required for this is a trustworthy brand and a concept of how suppliers and buyers get into the marketplace.

Current Corona Info: In order to help entrepreneurs affected by corona, Sharetribe is currently offering an unlimited test period. You can find out more about this here.

The time of the niche marketplaces is at hand

The internet consists of more than just Amazon and Facebook. As easy and convenient as ordering from Amazon is, it is also factual. If you buy from Amazon, you want it to be quick and uncomplicated. What is missing is any form of emotional experience. No blog, no stories, no pictures on Instagram.

This works great in terms of conversion (here is a case study), but it is difficult for providers to remain permanently visible in the mass of products. In order to be able to survive as a retailer in the long term, many Amazon retailers are also building their own online shops at the same time. The company's own marketplace concept goes one step further. If you continue the shop idea and not only want to provide services to customers yourself (1: n), you can instead offer your own online marketplace in a niche with online marketplace software such as Sharetribe, where many providers can sell to many users ( n: n) and still build the emotional customer relationship that Amazon misses out on. At the same time, this opens up a new business model where the operator earns money from every transaction without having to sell the products himself.

A bit like dropshipping, only without the challenges of product quality, service and billing.

All that is necessary for this is a trustworthy brand in a niche, a concept for customer development and a suitable one Online marketplace software.

Marketplace software self-test

For this post I created an online marketplace myself with the help of the marketplace software Sharetribe. My goal was to be able to understand marketplace dynamics as well as possible. That's why I have the projectSurfTravelPlanner Switched "live" and operated with the help of Instagram Kaltaquise to get the first users on the marketplace. How well this worked, how I used the Sharetribe marketplace software (and what alternatives are still available) and how everyone can create a successful online marketplace, I'll explain below (with video!)

As a reading tip on the subject, I would also like to recommend the book The Lean Marketplace: a Practical Guide to Building a Successful Online Marketplace Business.

I was able to easily create my test online marketplace with the marketplace software Sharetribe.

Why an online marketplace is an attractive business model

Amazon and eBay for products, Booking.com or Airbnb for accommodations, or Uber or BlaBlaCar for trips from A to B ... They all show how attractive a marketplace can be. The top dog Amazon takes around 15% marketplace fees from every transaction of its dealers who sell something on Amazon. The other marketplaces are not squeamish about the fees either. Above all, they all have the luxury of barely being capped at the top. The models work for each individual seller in their microcosm, but on such a large scale that company valuations in the billions (or even billions of dollars on Amazon) are possible.

According to the 2014 Collaborative Economy Report by Vision Critical and CrowdCompanies, the main reasons for using marketplaces are:

green = Re-Sharers / blue = Neo-Sharers (source, p. 19)

However, if you want to build the new Amazon now, it will be difficult. Because the big marketplaces like Amazon and eBay started at a time when the market wasn't really developed. The lead that these brands have built up to this day can hardly be matched in the "everything" segment.

Nevertheless, there is the chance to start a successful marketplace on a small scale, even without large investor funds.

Success factors for online marketplaces

In the book "The Lean Marketplace" the following four main criteria for the success of an online marketplace are named:

  • Solve a problem for real users
  • Create a "Layer of Trust"
  • Start in a fragmented market
  • Help providers take advantage of unused "assets"

That's easier said than done. The main problem of many new marketplace operators is to focus on a very special customer group with a very special problem when generating ideas. One would rather think big and stumble with the first steps.

Behind the "Layer of Trust" is building a trusted brand that will gain credibility in a specific target group. For example, long before the actual marketplace starts, a blog with the corresponding content can not only build reach, but also trust.

Or to put it the other way around: Depending on the niche, a successful (and authentic) blogger can establish a business model with an online marketplace in order to monetize his reach. For example, why not think about a marketplace for vegan products as a vegan blogger?

In the best case scenario, the market should be fragmented, so there shouldn't be just one player where customers buy everything.

Another recommendation in the book is, for example, to turn "vacancy" into money. There are actually many examples: The apartments that are on Airbnb were offered before. Thanks to the platform, users now have the opportunity to monetize the apartment in their own absence (e.g. on vacation). The "Layer of Trust" arises at Airbnb e.g. through insurance, a verified community (ID control and reviews) and meanwhile millions of great reports like mine.

But young startups have also dared to step into the sharing economy with their own marketplace. Lagerfind.com (formerly Shelfsailor) e.g. wants to mediate empty storage rooms such as the attic or a corner in the basement.

SofaConcerts is already successfully placing artists in private living rooms.

Podcast listening tip with Miriam from Sofaconcerts: With a budget of € 500 to 32 million Facebook video views

Which marketplace business model makes sense?

The classic way to make money with an online marketplace is Commissions per transaction (% of sales). However, this can be an enormous challenge, especially at the start, because transactions only occur when many providers and customers cavort on the marketplace and buy or sell products.

Alternative business models are e.g.

  • Fixed prices per transaction (e.g. € 1 per booking)
  • Fixed prices per alternative target value (e.g. "pay per view" or "pay per click")
  • Fixed prices per month (membership, e.g. € 20 / month)

All of these models already exist and are used in a wide variety of marketplaces. Studiotime.io e.g. is a marketplace based on Sharetribe for music studios and charges a monthly fee of at least 23 dollarsto be allowed to list an entry. Each transaction will be repeated 5% transaction fees (of which the platform itself has to pay e.g. payment fees).

Which model or mixed model works also depends heavily on the market and the products sold. Only where potential providers can potentially convert a lot of money, a monthly flat rate will probably be gladly accepted. If it is more of a private marketplace like eBay classifieds, it becomes more difficult and a risk-free model (payment only if successful) makes more sense. There is hardly any general answer.

With Sharetribe to your own MVP marketplace

The Finnish marketplace software Sharetribe shows how easy it is to get your own marketplace idea on the street. Sharetribe offers all the essential basic marketplace functions that everyone is already using for $ 79 a month can create a marketplace including BaFin-compliant payment processing.

Above all, the low entry price makes this software very attractive. There is not much flexibility at the start and tasks such as blogging or invoicing (or the entire accounting) have to be done manually and with separate tools and on a subdomain (here are a few blogging tools).

In addition to the price advantage, the standardized range of functions also has the focus advantage: the less you can play around with the design, the more the focus is on the concept itself. Where can I reach my customers? What should they be able to sell and to whom?

Sharetribe enables the following transactions to be processed:

  • Free transactions (inquiries)
  • Selling products
  • Rental of products
  • Offer of services
  • Giving things away
  • Requests
  • Announcements

BaFin-compliant marketplace for payment processing in Germany (and worldwide)

Payments can also be processed via Sharetribe. The payment methods PayPal and, since summer 2018, Stripe Connect have also been integrated for this purpose. Finally, because with Stipe Connect it is finally possible to carry out BaFin-compliant payment transactions on marketplaces.

How does Stripe Connect work?

A marketplace operator uses his own Stripe account for this. The Connect function then creates a kind of "sub-account" for marketplace users who can receive payments (e.g. via SEPA payment) via the marketplace operator. Sellers on the marketplace can thus accept payments by credit card on the marketplace without their own Stripe Account and receive these, minus the marketplace commission, paid to their own bank account with a short delay. This payout function is possible via Stripe in 25 countries and several currencies and is constantly being expanded to include additional countries.

Although the money goes through the account of the marketplace operator, he never has the money in hand and can dispose of it. This means that the Federal Finance Agency (BaFin) is no longer required to carry out checks. It is enough that Stripe is checked there. You can find out more about this here at Stripe.

Alternatives to Stripe Connect are

  • Adyen MarketPay
  • PayPal, and
  • Mangopay

You can read about the exact differences between the payment providers here. Stripe Connect supports split payments (e.g. 95% to merchants, 5% marketplace) and delayed payments, but e.g. no real escrow process. Nevertheless, due to the price model and the ease of use in combination with Sharetribe, Stripe is my current recommendation, especially at the start.

Case Study: My own online marketplace with the Sharetribe software

Since I also run the surf and travel blog meerdavon.com with my wife Heidi, I decided to start a marketplace test in the surf travel market segment. The target group (both buyers and sellers) is large and diverse. The competition among providers is high and my hope was that I would use the online marketplaceSurfTravelPlanner was able to offer quick help in order to attract more customers to the provider. In addition, we already had a good basis of trust and arguments with meerdavon (60,000+ monthly page views, prizes won, verifiable top SEO rankings, etc.), which I was also able to use on the marketplace with a new name to win over providers.

In order to start as authentically as possible, I also registered a .com domain for the test and created real content. Nothing should indicate a test. This is what my test online marketplace with the Sharetribe software looked like in practice (25 min):

The right offer for the right demand

Every marketplace starts with the Chicken and egg problem, also my online marketplace. Who can vendors & sellers reach? What can users and customers buy?

In my case, the idea was to bring various service providers around surfing (surfing) such as surf camps, surf schools, surf photographers, surf van rental companies, etc. together with buyers (surfers or surf travelers).

Providers should have their bookabledeals be able to post and sell via self-service on the online marketplace. Our offer was to market the offers (e.g. within the reach of meerdavon.com) and thus win customers for our own service.

For info: After about two weeks I informed all providers that we would not continue the online marketplace.

Win first users via Instagram bot

An empty marketplace is relatively unattractive for everyone! To solve the problem, I posted the first offers myself and marked them with the word "demo".

My chosen first acquisition channel was Instagram. I created a new Instagram account and used an Instagram bot to address potential camps with the appropriate hashtags. If they followed me as a reaction to the bot activities, the providers (also via bot) received a "personal" direct message with information about our new marketplace. I was really happy with the result for a cold start. I have been on this path in 5 days

  • Built around 300 Instagram followers,
  • Get 15 new advertisements from 10 users on the marketplace,
  • of which 4 users have deposited payment data for payouts.

If you want to learn more about Instagram as an acquisition channel, have a look at this Instagram guide from day 1 or this guide for the Instagram bot.

Conclusion on Sharetribe and alternative marketplace software

Sharetribe is a really round solution and well suited to start a marketplace MVP. The cost is pretty low to start at $ 79 a month. On the other hand, Sharetribe offers a lot of space and flexibility upwards with the product "Flex" (Studiotime.io uses e.g. Sharetribe Flex)

Sharetribe alternatives

Of course, Sharetribe isn't the only marketplace software. Here are some alternatives:

Near me

Near Me is a marketplace software that focuses on locality. The design and the booking workflow are much more flexible than with Shartribe. However, I would not recommend it for getting started or just to try it. Prices start at $ 500-1000 a month.

Market placer

Marketplacer is even less flexible in its base than Sharetribe, but offers dropshipping integrations to other shop systems such as WooCommerce, Shopify, Magento and other online shop systems. With this, at least the initial supply with initial offers could be solved very quickly. Integrations for international tax calculation, support and marketing are also a real advantage. Unfortunately, the Australians don't reveal anything about pricing on their website.

Shopify with Marketplace Apps

I'm a big Shopify fan, but the marketplace apps have not yet convinced me. The main problem was the missing BaFin-compliant payment process, e.g. via Stripe Connect. If that is solved, however, the strategy of your own online shop could easily be expanded to include a marketplace. For example, there are apps

In the end, Sharetribe remains for me the marketplace software, which is the best way to start and validate a hypothesis for the marketplace business model.

If you want, you can try Sharetribe yourself for 30 days free of charge.

Christian Häfner

Christian is the founder of LetsSeeWhatWorks and regularly writes about his own experience as an entrepreneur from his founding such as FastBill, Happy Coffee, meerdavon, or LetsSeeWhatWorks. You can find more about Christian here.