An ideal online marketplace should have a money-making technique to operate. Funding majorly needs to come from the community you are serving — the users of your site.
But what is an online marketplace? An Online Marketplace is a platform that allows third parties to list their product or services in order to capture value for the owner of the platform or the business as a whole.
Most of the time, such value is in monetary terms except for some dating and barter sites.
Choosing a monetization strategy, for the most part, depends on your target audience and your marketplace offering.
Let us review the different options of marketplace monetization, and give guidance on how to choose the right marketplace business model for your idea.
The major category options are
- Commision/transactional free
- Listing fee
- Other Fees
1.Commercial / Transactional fee
A marketplace that enables commercial transactions to happen directly on the platform can decide to take a percentage (%) or a flat fee cut on every successful transaction made by the vendor or the customer
There are 2 types of commission fee to choose from
- Charging the supply side(Vendor) — This is where fee cuts are deducted from the vendor’s balance of each successful transaction. eBay, Uber, and Etsy, all charge the provider/vendor a commission from each transaction that takes place on their platform.
- Charging the demand side(Customer) — This is where an extra fee is charged to the Customer for each successful transaction. An unconventional example is Takeaway.com that charges an extra fee to its users for online payments. This strategy succeeded because the Netherlands consumers prefer paying online over paying with cash, that they readily pay an extra for it.
Airbnb is one platform that charges both sides of the marketplace (Demand and the supply)
It is usually recommended to start with a commision based model and then pivot or combine other strategies as your business grows.
2. Listing Fee
This is a fee charged to vendors for making their product/services available in the marketplace. This technique is common to classified ads platforms like craigslist.
One can either choose to use the regular listing fee technique of charging a fee to new listings or the premium listing fee technique of charging an extra fee to make vendors’ listings more visible on the platform in search results. A good example is what OLX does.
Other unpopular techniques include:
3. Lead Fee
This technique is advisable when transactions happen outside of the platform. This model (also known as pay per lead) works great where vendors can browse the list of customers’ requests on the marketplace for free. It is only when they want access to the customer details, they pay a fee per details or introduction. In other words, this typical platform offers free discovery and monetize on enabling introductions.
It may also make sense to offer a credit system to its users in which they prepay usage then spend the credits on specific services within the platform. Dating sites and professional sites like thumbtack use this technique well.
4.Variable commission fee and variable listing fee
This is where the percentage (%) cut is not fixed which allows variations in service bundle and potentially building higher fee with each extra services demanded by the vendor. Booking.com, for example, lets suppliers /vendors override the regular commission fee.
5. Subscription/ membership fee
This is a model where users are charged a recurring fee to access the marketplace. This could be charged to a customer or a vendor. This model works best for marketplaces whose value offerings are very high. Large marketplaces like eBay can be able to charge sellers a subscription fee for the mere fact of being present in the marketplace. Subscription models can be subdivided into freemium and premium.
Once a marketplace has a large pool of participants, it is not a bad idea to offer support services to vendors even though those supports may not be directly related to your core offerings. Those support offerings can then be monetized.
Examples include Amazon, providing financing to its sellers, Uber providing financing to Uber drivers to buy cars or food delivery platforms selling suppliers to and negotiating discounts for restaurants.
This majorly involves selling ads targeted at your users. Although, it requires big scale to be meaningful. Platforms like Amazon is currently experimenting with this strategy.
A combination of two or more models/techniques may be a great idea to increase revenue stream even though many startups stick to one model at first. It is great to note that a combination of models works best for large marketplaces like eBay who has been able to combine models like commission fee, listing fee(regular and premium as well as subscription fee in its business model.
Before deciding, considering other marketplaces like Airbnb, craigslist etc in other to understand various types of business models is a good idea. However, the approach should not be based on what others are doing but understanding your niche, the values associated with the niche and adopting an appropriate model.
Originally published at nyocha.org on April 10, 2018.