Which is the right business model for your marketplace?

The 21st century is all about online marketplaces. Probably everything we buy today must be sold on one or the other marketplace with multiple vendors competing for access to a wide range of customers. Marketplace startups have really scaled up in the last 10 years. They have become a part and parcel of our life now. Let’s explore various business models startups can deploy for their marketplace!

Commission
This is a pretty interesting model adopted by the majority of online marketplaces. When the customer pays the seller the marketplace facilitates the payment and charges a percentage of the transaction value. In this model, sellers are at an advantage as they have to pay only when they are getting some monetary value out of the marketplace. They are comfortable joining such platforms because they don’t have to pay an upfront fee for it.
Examples- Uber, AirBnB, Fiverr

Membership/subscription fee
A membership fee (sometimes called a subscription fee) is a model where marketplace’s users are charged a recurring fee to use the marketplace. With this model, the typical value proposition for providers is that the marketplace helps them find new customers. For customers, it helps them save costs or find unique experiences. This model is recommended when the customer is likely to do several transactions but facilitating payment is really difficult.
Examples- OkCupid, Couchsurfing

Listing fee
In this business model, marketplaces charge a fee from providers when they post new listings. It is used when the potential value per listing that the seller is going to get is big. This model is quite common with classified ads. The value proposition of the marketplace is very simple: it aggregates a massive volume of listings into a single online destination, and guarantees lots of visibility for those listings.
Examples- Etsy, Craigslist

Lead fee
The lead fee model is somewhere between the listing fee and commission models. In a lead fee model, customers post requests on the site, and providers pay in order to make a bid for these customers. The model gives a better value proposition than the listing fee model: you only pay when you are put in touch with a potential customer. The lead fee model only works if the value of the lead is high.
Examples- Justdial, Sulekha

Freemium
All of us are so addicted to free trials that we may confuse it with Freemium, i.e. the Free + Premium model. Free trial lets you use all of the marketplace’s features for free for a limited period of time while in the freemium model you get to use a certain portion of the features but for an unlimited time. The marketplace charges you only when you sign up for the premium account which has multiple additional features.
Examples- Playstore, Appstore

Advertisements
Here the marketplace lets everyone use it for free. This helps it grow and acquire a huge number of customers after which they charge the sellers for ads. Ads can be in the form of ‘featured listings’ or targeted as per the customer data that is mined by the platform.
Examples- Olx

Major challenge for starting a marketplace is dealing with generating demand and supply
This is a classic problem, second only to what comes first-chicken or egg? Another concern for startup founders is how to prevent users from circumventing the marketplace? What is the future valuation of my marketplace? How do I calculate it? We would be more than happy to discuss these things with you along with nuances of all the business models mentioned above.

To get in touch, contact our founder, Aniruddha- +91 99206 74042