A two-sided marketplace is what most people think about when they decide to build an app. Bringing two different user groups into the same app has proved to be a revolutionary marketplace business model. So much so that one might even say that, in a way, it has become a curse for many entrepreneurs. Due to its success, thinking outside this model has become so hard that it often seems impossible.
Luckily, even for those entrepreneurs whose ideas revolve around building a two-sided marketplace, there is still a lot to do in terms of innovation. Although it might sometimes seem like everything has been done, there are many different agents whose relationships can improve through technology. Marketplace businesses driven by apps are nowhere near to disappear, as they still have lots to contribute to strengthening value chains across a number of industries. This is especially true when it comes to eCommerce marketplaces.
In this post we discuss what a marketplace is, how an app can help build one, and why eCommerce marketplaces have great growth potential.
What Is a Two-sided Marketplace?
A two-sided marketplace is a place where two agents, sellers and buyers, meet to exchange goods or services. A marketplace uses a network effect to increase its value. This means that the more people there are, the more valuable a marketplace is to its members. A marketplace with no one to sell or buy is not very useful.
Thanks to apps and other digital tools, particularly cloud technologies, traditional marketplaces have shifted from brick and mortar to virtual environments. In the digital world, these marketplaces are commonly referred to as marketplace platforms.
A platform business model has become the most common type of marketplace in the digital age. It builds on the sharing economy to bring together service providers with consumers, helping strengthen existing value chains and creating new ones through the use of technology. A platform harnesses the power of scalability thanks to technology and network effects, thus apps are a common way for a platform-based business to scale and grow.
Two-sided Marketplace Apps
Apps have the potential to act as intermediaries between the two agents, the user groups, in a two-sided marketplace. A marketplace app can help users follow rules, ensuring that everything occurs according to certain procedures in a secure and reliable way.
This sounds like something minor, but in reality, bringing together two different parts whose interests differ can be very hard. By using a common platform, both parties can be assured that their individual interests are met. However, the company behind the app needs to make sure that this is so. Failing to guarantee that the marketplace’s conditions are met will potentially devalue it. A marketplace is only as strong as the rules that make it work and users’ perceptions of how these rules are implemented.
Some of the most famous marketplaces are:
- Amazon
- Airbnb
- Etsy
- Uber
Although they are very different, these marketplaces all manage to somehow bring together different users from diverse backgrounds. They all have a unique set of rules with different legal requirements, and, in the end, users decide to adhere to them or not. As long as they keep offering a way to meet users’ needs, there will always be an interest in joining them.
Big Tech Marketplaces
The size of some of these marketplaces has become an issue for certain countries around the world. Due to their size and influence, they have gained the attention of governments. As a result, many governments seek to regulate them in order to control certain aspects of the economy and social sphere.
This is an ongoing debate that is nowhere near to being solved. Whatever happens to some of these big marketplaces is yet to be seen, especially as new technologies disrupt existing marketplace conditions. However, it is hard to imagine what solution will be implemented as it is commonly accepted that a platform business model’s pace of innovation is faster than that of a government to regulate. Also, governments need to consider that whatever they do, they should be careful not to stagnate the pace of innovation.
eCommerce Marketplace Platforms
One particular type of marketplace that deserves special attention is the eCommerce marketplace segment. Because of the network effects found in eCommerce marketplace platforms, many companies have seen an interesting opportunity to experiment with a variety of platforms.
Amazon was once only a bookseller, but with time it has grown to become the world’s largest marketplace, selling almost anything you can imagine. Similarly, Shopify, although not a marketplace itself, is helping companies create their online stores by allowing them to sell their own products across the internet through a SaaS marketplace platform. Even Etsy, a niche marketplace focused on crafts and vintage internet products seems to be doing well.
Multichannel Marketplace Apps
With the rise of all sorts of eCommerce marketplace apps, users, including individuals and consumer companies alike, can sell their goods and services, strengthening value chains throughout a number of industries. A company is not constrained to sell on a specific marketplace app. This gives rise to multichannel marketplace strategies, where it is possible to reach customers through various apps.
So, for example, a company might sell its services on Amazon, Shopify, and eBay. This means greater benefits for buyers and sellers, and also creates a rivalry between different marketplaces. Because platform service providers compete to create the best alternative for sellers and buyers, innovation is constantly occurring throughout this industry. This means not only opportunities for existing players, but also for new ones through innovative marketplace business models.
Test Your Idea Using an eCommerce Marketplace MVP
There is a lot of space for two-sided marketplace innovation thanks to apps. The eCommerce sector seems to be particularly open to new marketplaces, especially for niches. However, companies wishing to build a new marketplace or innovate in an existing market should be very careful. Testing a business hypothesis is crucial before going all in.
To do so, a great strategy is to build a Minimum Viable Product (MVP) app that can help companies test their business model. eCommerce marketplaces can first be tested on a small sample of a market before scaling. That way, companies wishing to create a new platform may know beforehand what works and what doesn’t. An experienced app development company can help you build an eCommerce marketplace so that it scales easily when the time comes.
