Playing the Middleman: Tips for Building a Successful Online Marketplace

kathryn by Kathryn Hawkins on January 22, 2013
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Etsy, OpenTable, Airbnb, and other successful startups in recent memory have at least one thing in common: They don’t sell their own products or services. These online marketplaces facilitate transactions between merchants and buyers. In short, they act as middlemen.

Are you looking to do the same? Here are four strategies for building a marketplace that both vendors and buyers will want to use.

1. Provide true value to sellers. When merchants sell directly to their customers, they can take home all of the profits without paying commission fees. Encourage them to accept your model and pay for your service (via sales commissions or a subscription) by demonstrating your value. Maybe it’s about scale: On Etsy, for instance, merchants gain exposure to millions of potential buyers vs. the hundreds they might reach through their own networks. Maybe it’s about security: Airbnb provides a $100,000 insurance policy to hosts and handles the billing process for them.

Consider what you can offer. Have you built an easy-to-use, beautiful platform that will appeal to vendors who haven’t yet mastered the web? Can you provide sellers with access to potential partners or investors? Think about your value proposition and spotlight it when recruiting merchants. Chances are, you won’t gain much of a user base unless you have some high-quality vendors on board, so offer great incentives to attract the best merchants.

2. Simplify the buying process. If you want buyers to use your service rather than contact vendors directly, you need to build a platform that helps them accomplish their goals quickly and painlessly. That’s what OpenTable did for restaurant reservations: Instead of playing phone tag with restaurant hosts, diners can check the website or app to quickly find out which establishments have tables available and book online. Focus on user experience when building your platform, actively solicit user feedback and suggestions, and don’t market the site until you’ve ironed out the kinks. Impress customers with a seamless buying experience to keep them coming back.

3. Include verification systems. By creating a platform for buyers and sellers, you’re implicitly endorsing the people who use your site, and it could come back to haunt you if someone breaks the rules (see Airbnb’s PR nightmare). Enable and encourage users to add feedback and testimonies for one another, and coax users into connecting their Facebook profiles and other social media accounts so that it’s clear they’re not falsely representing themselves.

4. Provide useful information to potential buyers and sellers. When it comes to promoting your online marketplace, don’t pour your marketing budget into keyword advertising. There are so many other companies competing for the same words that it’s unlikely you’ll make a dent. Instead, create valuable free resources that your prospects will be likely to share all over the internet. SmartBear Software founder Jason Cohen points to the example of Open Office Space, a startup that matches renters with sublets: The company published a free guide to leasing commercial office space, which helped it generate interest and backlinks from larger sites all over the web, in turn, raising its keyword rankings.

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