Marketplace Masterclass #1: How Do Marketplaces Like Etsy And Fiverr Make Money?
Welcome to the Marketplace Masterclass. In this three part series I will tell you all about creating a marketplace business model, designing and developing a marketplace as well as scaling and marketing it. You will learn what are the different types of marketplaces with real-life examples and how to build your product to succeed.
All Articles In This Series:
- How Do Marketplaces Like Etsy And Fiverr Make Money?
- How To Design & Develop A Marketplace?
- A Guide To Scaling, Growing & Maintaining Your Marketplace
Do you want to know why Etsy is worth over 195 mln dollars? Or how Fiverr made around 50 mln $ in the last quarter of 2020 alone? Or how StockX made 2,5 bln dollars in gross merchandise in one year? Today, I’m going to discuss how those companies operate and which business models they use to achieve such great results and most important how their product is built. You can use these tactics to scale or build your own marketplace. Let’s dive into the different types of marketplaces:
First, there’s horizontal marketplaces. They are focused on reaching a wide group of customers with a variety of goods and services. Good examples of this model would be eBay. Fiverr and Etsy also belong to this category. Here’s all the different models of a horizontal marketplace:
A B2B marketplace is an online space for businesses to purchase supplies or services in wholesale or bulk. A great example would be Amazon Business. It’s a separate site that enables businesses to connect with other vendors through Amazon.
A B2C marketplace is one of the most popular marketplace models. It’s a space for individual consumers to purchase goods or services from individual sellers. A great example is Aliexpress.
A C2C marketplace is enabling individuals to sell their products (new, used or hand-made) or services to other individuals. A good example would be sites like Etsy or OLX.
This one is the most complicated model. A B2B2C marketplace is a marketplace created by a larger business for its business partners as a way to promote their products or services to individual users. It’s most common when vendors or a certain business are small and fragmented and wouldn’t be able to launch such a venture themselves.
Next up, there’s vertical marketplaces. From the definition of a horizontal marketplace, you might already know what a vertical one is. Rather than focusing on a wide appeal, vertical marketplaces are focused on a certain industry, niche, product or service type. There are many different subcategories of vertical marketplaces, because, truth be told, you can launch a vertical marketplace in any niche. Even if it’s a marketplace for Swedish cheese makers. So, to help you understand this concept better, here’s a few examples of vertical marketplaces:
- Transportation Marketplace – the most popular transportation marketplace is probably Uber. It’s basically a marketplace of drivers and it offers B2C as well as B2B services.
- Accommodation Marketplace – if you’ve ever used Airbnb, you should be familiar with an accommodation marketplace. It’s a model focused on connecting housing owners with renters.
- Sneaker Marketplace – Every sneakerhead probably knows StockX. It’s the biggest marketplace for shoes and streetwear. This marketplace connects individual sellers and buyers of streetwear fashion.
- StartUp Marketplace – a great example is Kickstarter which is basically a marketplace for ideas where individuals can invest in projects they like and believe in.
- Parenting Marketplace – the last example of a vertical marketplace is quite surprising. Mush is a marketplace for moms to find other moms whose children are at a similar age and to arrange play-dates. This really shows that marketplaces can be successful within any niche.
Other Types Of Marketplaces
Besides the vertical and horizontal marketplace models, there’s also some other types you might want to consider depending on your objectives.
- Managed Marketplace – a managed marketplace is pretty much self explanatory. Instead of just providing a platform that connects sellers and buyers, in this model you will also need to provide a service like item authentication etc. which makes the transaction more valuable for both parties. A great example would be StockX. Their authentication and analytics tool have drawn in a huge user base and made StockX 2,5 bln in gross merchandise in 2020.
- Community-Driven Marketplace – a community-driven marketplace is still a typical marketplace, except it provides additional value in the form of a community. Besides selling and buying products or services, the users are also able to connect with each other. Etsy actually integrates a bit of this strategy as well. Besides the revenue from ads and featured listings, they have also built a very tight community of people. They even say that “Community is at the heart of all we do at Etsy. Etsy members use community spaces to inspire each other.”
- SaaS-Enabled Marketplace – in some cases, the marketplace can serve as an additional space where SaaS users can get complimentary services or products. A good example would be the Magento plugin marketplace.
How Do Successful Marketplaces Like Etsy, Fiverr or StockX Operate?
Now that you know all about the different types of marketplaces, let’s discuss some specific cases. How do marketplaces like Etsy, Fiverr or StockX make money? How do they attract users?
All these successful marketplaces operate within small niches. They focus on solving one specific problem for their users. And this enables them to build products adjusted for their users needs. StockX is a great example here. They are a marketplace for rare sneakers and streetwear. That’s their niche and they have dominated it.
But what is the difference between StockX and, let’s say, eBay? After all, eBay also lists and sells rare sneakers. But StockX does something special within their niche. They offer product authentication and product analytics which eBay doesn’t have. They know that the market is very focused on authentic items. You don’t want to spend 400$ on shoes and then discover they are fake. So by focusing on one specific nishe you can target your users’ problems better and design your product specifically for this small group of users. This is something StockX did. They enable their users to track shoe inventory, track prices in real time and make sure that everything on the platform is deadstock, which means it’s brand new and not fake.
Now let’s jump to Etsy and their strategy. Etsy utilizes the next great strategy for marketplaces – they attract people by offering unique, one-of-a-kind pieces of art as well as a strong community. With other marketplaces like Amazon on the market, it is really hard to stand out. However, Etsy has taken a strategy that enables them to break out from the crowd. You can get virtually anything on Amazon, but Etsy offers the users the ability to get something unique, special and hand-made. Another thing Etsy has, that other marketplaces don’t, is their community. People within the hand-made community are always looking for tips and tricks, instructions etc., so it’s important that they have an outlet for that. And Etsy offers just that. That’s ultimately what makes this marketplace so successful. They cater to a specific community and create an online space for their interests.
From the examples I talked about, you can gather a few key takeaways for a marketplace’s success. First of all, it’s very important to look for a niche in which you can take the cake, so to speak. It would be very hard to compete with Amazon, but if you look for a smaller but more specific market, your chances of success will skyrocket. The next thing is to build your marketplace around the users’ needs. Within a specific niche, users will have specific needs and wants. Think about that, when building your marketplace. After all, that’s something that made StockX and Etsy so successful – they are perfectly tailored to their specific niches. Lastly, think about all the different types of marketplaces I talked about. There’s so many to choose from and you can mix and match different business models depending on your niche, to best monetize your marketplace.
What makes us experts on this topic?
Well, I am the CEO of INVO and together with my team we build digital products, including marketplaces. We have made our clients millions in revenue from our web and mobile products. What you’ve learned from this episode is backed up by our experience and knowledge of our entire product team.
If you’re looking for a team of experts to build and launch your online marketplace business – contact us!