Marketplace Business Model: A Complete Guide for Businesses [2024]

Do you want to start a business but do not want to create and sell your own product? Well, this is one of the most common concerns of present-day entrepreneurs and can now be easily tackled, thanks to the growing scope of technology and rising demand for a digital economy.

In other words, you can now generate revenue from other people’s businesses and capitalize on their innovation by simply providing them a platform to offer their products or services. This concept is briefly known as the marketplace business model and is highly popular at present.

If you, too, are interested in this concept and want to explore it further, this blog will provide you with all the information that you need to set up a successful marketplace business. Read this blog until the very end to find out the best strategy for starting a business with the marketplace model.

We will start the blog by discussing what exactly a marketplace is and how it can be used in the present-day business scenario.

Back to Basics: What is a Marketplace?

Traditionally, a marketplace is an open space or a building dedicated to commercial activities. Various different vendors gather in these marketplaces to sell their goods to customers, creating a pool of sellers from whom buyers can choose and purchase goods or services. Briefly, this is the business model of an offline marketplace.

Owing to rapid digitalization, this concept of a marketplace has evolved tremendously in the past few years. The present-day marketplaces are single-stop online platforms where buyers and sellers can connect for business and trade goods or services.

Online marketplaces are highly popular at present owing to their very nature of being convenient, conventional, and readily available. As a result, this concept is worth trillions of dollars at present, making it a great business idea.

Moreover, let us tell you that owing to the latest tech innovations, digital marketplaces are more than just E-commerce stores and platforms. Nowadays, you can establish a marketplace out of any and every concept and generate revenue from your business.

This extent of the scope and inclusivity that the marketplace revenue model offers calls for a certain bi-furcation. Based on who you want to target with your solution, a marketplace business can be of different types. We will be discussing these types in the coming section.

Marketplace Business Model Decoded: 3 Types of Marketplaces

Generally speaking, there are three types of business models for marketplaces. In this section, we will discuss each of these types to gain a better understanding of the multi-vendor business model.

1. Business-to-Business (B2B) Marketplace

The B2B marketplace business model is a business-to-business ecosystem where trade takes place between two business organizations. These types of marketplace solutions act as a platform that connects different businesses with each other and enables them to trade their goods and services or even gain better access to their target markets. Clutch and Amazon Business are two of the most popular B2B platforms on the internet.

2. Business-to-Consumer (B2C) Marketplace

This is one of the most popular types of marketplaces and is widely adopted by businesses looking to build marketplace platforms. Here, a wide pool of businesses collects on a single platform to gain access to an even larger consumer market. These businesses can directly sell their goods to the target consumers using the marketplace as a mediator. Some of the most renowned B2C platforms are Amazon and Alibaba.

3. Consumer-to-Consumer (C2C) Marketplace

Consumer-to-consumer types of marketplaces connect two end users looking to trade goods with each other. These types of platforms eliminate intermediaries from the trade and enable people to easily sell their goods without paying any additional commission. Do note that the goods sold on such marketplaces can be used or brand new. Airbnb and eBay are two of the most successful examples of companies working with the C2C marketplace model.

Now that you know about the different types of marketplaces, you can go ahead and choose a model or even a combination of different models for your online marketplace platform.

Do note that we can also classify the marketplace business model based on the number of players on the platform. We will be discussing this in the coming section.

Marketplace Types Based on the Number of Players

When we talk about the online marketplace business model, it is important to consider the key components of the market, i.e., the players that will use this marketplace. This is because when offering MaaS (Marketplace as a Service) solution, a lot will depend on the number of players and their roles in the marketplace. Do note that the owner of the marketplace is usually not counted as an acting party of the platform, as their role is limited to offering a platform.

Generally speaking, there are two types of marketplace under this approach; two-sided and three-sided markets. Moving forward, we will understand these terms in detail.

1. Two-sided Market

A two-sided marketplace is a platform with only two acting parties, buyers and sellers. These parties can interact and trade with each other and do business with ease using the marketplace portal. This is the closest equivalent of the offline marketplace business model and is most commonly used by businesses building online marketplaces.

2. Three-sided Market

Also known as a multi-sided marketplace, a three-sided marketplace is a platform with three acting parties. This type of online marketplace business model is most commonly adopted by food delivery platforms, where a marketplace involves restaurants, food delivery partners, and end-consumers. This model is known globally for its vast revenue potential and can be monetized in numerous ways.

Now that you know about the theoretical knits and grits of the business model of marketplaces, it is time to dive into some practical examples of marketplaces and understand how this concept works in the real world.

Top 6 Companies Using the Marketplace Business Model

Recognizing the vast potential and remarkable benefits of the multi-vendor business model, many notable organizations have adopted it and have experienced tremendous market success. In this section, we will discuss a few companies that work with the marketplace model and how exactly they generate revenue from this model.

Amazon

• Market Type: Two-sided Market
• Marketplace Activities: B2C
• Net Revenue (2022): USD 514 Billion

Amazon is the most popular example of organizations working with the online marketplace business model and is a perfect digital example of a traditional marketplace. This platform is a one-stop destination for all your shopping needs and is flooded with millions of buyers who visit the platform every day.

The company generates revenue by charging the sellers listed on the platform a certain commission or fee for the sales made in the marketplace. This makes Amazon an exemplary marketplace business platform.

Uber

• Market Type: Two-sided
• Marketplace Activities: B2C
• Net Revenue (2022): USD 31.877 Billion

Uber is one of the most popular on-demand taxi booking platforms across the globe. However, very few people know that Uber is actually a marketplace that helps taxi drivers and taxi finders connect with each other.

This platform works with the B2C model and is a one-stop destination to find and connect with taxis. Taxi drivers can register on the platform and are notified every time a potential buyer within the selected radar is looking for a ride. These drivers have to pay a certain amount of the total fare to the platform as a fee for its role as an intermediary, hence enabling Uber to generate revenue from the listings.

Airbnb

• Market Type: Two-sided
• Marketplace Activities: C2C
• Net Revenue (2022): USD 8.4 Billion

As the travel and tourism sector continues to grow, more and more people are looking for convenient and budget-friendly stays for their vacations and tours. This is the factor that Airbnb fulfills as an accommodation-focused company working with the marketplace business model. Airbnb works with the consumer-to-consumer model and enables two consumers to connect with each other and exchange services.

Simply put, accommodation owners can list their properties and accommodation facilities on the platform, and the users can browse through these listings, check prices, and book a stay for their tour. The platform generates revenue by charging the property listers a commission fee and the users a service fee.

LinkedIn

• Market Type: Two-sided
• Marketplace Activities: B2B, B2C
• Net Revenue (2022): USD 13.8 Billion

Thanks to technology, it has now become easy for business organizations to find skilled employees to fill the job roles in their company. This factor has also proven to be beneficial for job seekers, who can now connect with recruiters to find a suitable job that fits their skills. One such platform that fulfills this demand-supply gap is LinkedIn.

The platform is chiefly focused on enabling job seekers and job offers to connect with each other, hence facilitating the online marketplace revenue model. In terms of revenue generation, LinkedIn uses a combination of traditional and innovative monetization strategies like premium subscriptions, in-platform ads, etc.

Clutch

• Market Type: Two-sided
• Marketplace Activities: B2B, B2C
• Net Revenue (2022): USD 14.2 Million

For businesses planning to develop a tech product, it is paramount to find the right technology partner and software engineers that are equipped with the right skills to handle their project. Clutch is a marketplace that facilitates this need and enables consumers and businesses to connect with software engineering companies.

At its very core, Clutch is a business listing platform that generates revenue from sponsored listing fees and matchmaking. This marketplace serves as a common ground for IT service providers and service seekers to connect with each other and explore collaboration opportunities, making the platform a one-stop destination for finding a tech partner.

Expedia

• Market Type: Two-sided
• Marketplace Activities: B2B, B2C
• Net Revenue (2022): USD 11.667 Billion

Planning a tour can often be a tedious process. Travelers often have to visit different websites to plan different parts of their tour, like accommodation, travel tickets, vehicles, cruises, etc. In this case, having a travel marketplace like Expedia is a great solution. Expedia leverages the marketplace business model to nurture a single-stop travel solution for global travelers.

Booking commissions, sponsored advertisements, and reselling fees are a few ways through which Expedia generates revenue. Being an OTA marketplace, one can use this platform for almost anything and everything travel related and leverage its offerings.

Now that you know how the marketplace works in a digital setting, it is time to discuss how you can utilize this information and knowledge to make money from your marketplace. We will be covering this part in the upcoming section.

How Do Online Marketplaces Make Money? Understanding Monetization Models

In the previous section, we briefly discussed how some of the top companies generate revenue with the marketplace business strategy. Let us tell you that the marketplace revenue model is a complex phenomenon and involves numerous knits and grits. Moving forward, we will thoroughly discuss some of the best online marketplace revenue generation models.

1. Commission

A commission is a small fee or a part of the transaction that is charged by a third party for its role in facilitating a bigger transaction. Commissions are one of the most commonly chosen ways for businesses to generate revenue when working with the marketplace business model.

The reason why so many marketplace owners, as well as vendors, prefer this model is that commissions generate a proven value for all the parties involved. Usually, vendors are charged a commission after they have made the sale, therefore leaving no scope for doubts.

However, it is essential to note that many times, the people using the platform find a way to bypass paying commissions, often by directly contacting each other. In this case, you need to create an infallible revenue model that leaves no scope for bypass and ensure that you generate enough value through your marketplace to satisfy the end users with your offerings.

2. Membership Fees

A membership fee is a recurring charge that vendors, sellers, or end users have to pay in order to keep using the platform. You can choose to charge membership fees from either product/service offerers and availers or both of them, as per your business plan. Generally speaking, in this type of online marketplace revenue model, the membership fees are billed on a monthly or annual basis but can also be charged quarterly.

Do note that in many cases, the vendors and users are hesitant to sign up on platforms monetizing with this model due to the lack of experience and confidence in the platform. Nevertheless, this is one of the most solid and infallible monetization strategies that certainly cannot be bypassed.

3. Listing Fees

A listing fee is a one-time payment through which businesses can enlist themself on a platform and get access to a diverse consumer base. This low-risk and high-return revenue generation strategy is excellent if you want to develop a business listing portal that encapsulates a wide target market.

However, in order to convince your target market to enlist on your platform and generate revenue with this monetization model, you will need aggressive marketing for your marketplace. Craigslist and Etsy are two top-rated companies working with the marketplace model using the listing fees strategy.

4. Featured Listing/Sponsored Ad

The marketplace business model enables businesses to connect with a wide consumer pool. However, owing to their low entry barriers and seamless accessibility, marketplaces are now flooded with a plethora of vendors offering similar types of products or services.

In this case, the vendors need to stand out from their competitors to remain profitable. One way to do this is to use the sponsored/featured listing feature. This usually involved paying the marketplace platform a certain fee for receiving additional promotional benefits from the platform.

These benefits can range from being listed at the top of the search results, having a personalized banner on the marketplace, or any other leverage on the platform. Generally speaking, this monetization model is used in combination with other models.

5. Freemium

The freemium online marketplace revenue model is a mix of free and premium subscription models. Here, a few features of the marketplace are free to use, and accessing others requires paying a certain membership fee.

What makes freemium a popular choice among marketplace users is that they can use the basic features for free, enabling them to get an idea about how the marketplace works before investing in purchasing a subscription.

This monetization strategy is also useful in the early phases of market penetration as it enables businesses to build consumer trust. Once you have established a stable market reputation, you can shift from the freemium model to the paid membership (membership fee) model.

6. Lead Fees

The primary objective for any vendor to enlist in a marketplace is to generate business. Most users hesitate to pay any money before enlisting on such platforms as they are uncertain about whether or not they will be able to generate revenue from this listing.

In this scenario, it is an excellent idea for marketplaces to adopt the lead fee revenue model. This marketplace revenue model is a mix of the listing fee model and commission model. Here, the end users post their requirements on the marketplace, and the vendors can pitch their products or services to these users.

The marketplace charges the vendor to access these requirements and pitch their offerings or for every contract closed through the platform. This type of revenue model is exclusively lead-focused and enables vendors to remain certain that they are receiving value for their money by getting business from the platform.

This is it for different ways through which you can monetize your marketplace and generate revenue from it. We have reached the end of the blog and have covered everything related to the marketplace model.

Marketplace Business Model: Final Thoughts

The online marketplace business model is a rapidly growing concept and is gaining tremendous market popularity. By establishing a digital marketplace, you can not only leverage highly lucrative revenue streams but also facilitate a world-class platform for the niche of your interest.

All you need to do here is understand the concept of a marketplace, determine the type of marketplace that you wish to develop (B2B, B2C, C2C), outline the key players in your marketplace (two-sided market or three-sided market), and choose the right marketplace revenue model.

You can use this blog as a guide to understand the business model for marketplaces and create a strategy that befits your business needs.

Planning to Build a Digital Marketplace?

If you are looking to build an online marketplace platform and start a business with the marketplace model, you can get in touch with our team today. Auxano Global Services is a globally leading name for marketplace development services and offers bespoke business solutions.

Contact us today by emailing us your requirements at admin@auxanoglobalservices.com. You can also fill out our Contact Us form, and our team will get back to you within 24 hours with unique business solutions.

Frequently Asked Questions on the Marketplace Business Model

1. Should I go with the single-store model or choose the online marketplace business model?

Whether to go with the single-store model or choose the marketplace model is a choice that depends on various factors such as your business objectives, target market, revenue streams, etc.

However, it is important to note that both of these models have unique demands. To elaborate, working with the single-vendor model requires having a product or a service to offer. On the other hand, the marketplace approach is excellent for businesses with no product or service to offer except the online marketplace platform.

At the end of the day, both of these models are highly lucrative and have tremendous potential. You can choose any of these models and make a groundbreaking market entry.

2. How do I choose the right monetization strategy for my marketplace business?

There are various monetization strategies to generate revenue from your marketplace. However, when it comes to choosing the right online marketplace revenue model, there are certain business and market factors that you need to consider to make the correct choice.

Ultimately, there is no one solution that fits all business needs. We, therefore, recommend you consult with an expert for your project and get their input. These experts will analyze your business environment and will help you outline the best possible monetization strategy for your project.

If you need experienced and economical consultants for your requirements, you can hire our tech experts for your project today. With a wide expertise in tech consulting and a budget-friendly IT consulting rate of $25/hour, we can help you get a complete IT engineering strategy with a robust monetization plan for your marketplace.

3. Should I develop a website or a mobile app for my B2B marketplace platform?

Websites and mobile applications are two of the most popular platforms for implementing the marketplace business model. Whether to develop an app or a website, or even a combination of these platforms for your B2B marketplace depends on factors like capital availability, targeted user market, and business objectives.

You can consult with our experts today to find out the best approach for online marketplace development and build an impactful solution for your business.

4. How much time will it take to develop my marketplace platform?

There is no single answer to this question, as the development timeline for your project depends on numerous factors like the number of features, platform complexity, the developer’s skills, the number of engineers working on the project, etc.

In the end, your project can take anywhere from 7 months to 8 months to be developed. Do note that these figures are just estimated and can change with varying project requirements.

5. How much does it cost to develop a marketplace web and app solution?

The cost of building a marketplace app can range from $15,000 to $45,000 per OS platform (Android, iOS, Linux, etc.). On the other hand, the cost of building a marketplace website can range from $10,000 to $25,000.

If these figures fall out of your budget, you can go with the hybrid development approach and build a web and app for $20,000 to $67,000. You can get in touch with us today to get a precise quotation for your project.

6. How do I find the right partner to build my marketplace project?

It is important to find the right technology partner to build an impactful solution using the marketplace business model. We recommend that you choose a skilled IT agency with ample and proven experience in engineering marketplace-based solutions to ensure that your project is completed with efficiency and quality.

You can also choose to work with our team for your project and outsource your marketplace development project to our experts. We hold 8+ years of experience in offering end-to-end technology solutions and are the leading IT partner for a number of businesses. Connect with us today to learn more about our expertise in offering solutions with the marketplace model.

7. How can I get professional help to validate my business model?

If you are looking for expert help with the online marketplace business model or need assistance in validating your ideas, we recommend you consult with our business experts today.

Having cutting-edge familiarity with the business model of online marketplaces and experience in building some of the best online marketplace solutions, we are the leading choice for businesses looking to consult their ideas. Connect with our team today to get bespoke business solutions for your requirements.