By Ramy Youssef, SVP & Global Head of Marketplaces, BORN Group

Marketplaces are probably as old as human history. You can see their ancient roots in today’s physical shopping malls, supermarkets, hypermarkets (think Walmart and Costco) and transportation hubs—places where sellers can offer their wares and buyers can find the things they’re looking for.

Marketplaces still fulfill the age-old purpose of connecting buyers and sellers, but the web and digitalization have catalyzed a revolution in how marketplaces work—and created powerful new opportunities for commerce online and in the real world.

Ecommerce giants have become household names: Amazon, eBay, Airbnb, and other platform operators demonstrate the monumental power of scaling marketplaces and of reinventing the customer experience. At first, they grew by embracing technologies to scale product listings, transactions, and logistics. They grew even more by embracing technologies to create an entirely new kind of shopping experience with, for example, personalization, real-time notifications on multiple platforms, and robust customer support. Moreover, today’s marketplaces generate new kinds of revenue and profit opportunities because of their enormous traffic. Network effects create a virtuous cycle, attracting third-party sellers, enabling new marketing/merchandising opportunities, and fostering lasting change in buyer behaviors.

Key Benefits of Technology

Marketplaces have been redefined by technology. And their benefits are increasingly attractive to all kinds of enterprises. If you have a substantial presence—online or in the real world—you have a tremendous asset that offers many potential benefits:

1. Diversified Revenue Streams: Obviously, a marketplace expands your sources of revenue, including fees from sellers, advertising/merchandising spends, and monetizing traffic. For B2B brands, a marketplace strategy can also enable entry into a B2C market. A manufacturer that one worked primarily through dealers, for example, can move to a more direct B2C model—and offer relevant third-party products and services to diversify its revenue streams.
2. Reduced Risks: As the marketplace/platform operator, you can add incremental sales without the risks and costs associated with product development and manufacturing as well as inventory and fulfillment.
3. Improved Time to Market: When you function as a marketplace, you can go to market with a more extensive value proposition much faster than if you had to develop products and build logistical support yourself.
4. Expanded Reach: When it comes to online presence, the size of your catalog and the number of products or services you offer are important. A substantial platform pays big dividends in terms of reach and discoverability.
5. Deeper Customer Engagement: A thriving, well-managed marketplace will strengthen your connection to customers and prospects. When you create a multifaceted platform that delivers real value—and is perceived as trustworthy—people will rely on it and make it a shopping destination. This also facilitates cross-selling.

A robust marketplace confers a substantial competitive advantage, enabling you to expand the reach of your brand through complementary product and service offerings with much less risk. Note that, according to Brand Finance, Amazon is the most valuable American brand for 2023.

How Do You Expand?

Given these substantial benefits, how do you approach the challenge of expanding your business or online presence into a true marketplace? Our deep experience in designing and building marketplaces suggests some initial steps:

Step 1: Choose your Revenue Model

Marketplaces typically follow one of these revenue models:

• They can be commission-based, charging a percentage fee on each transaction.
  Examples include Amazon Marketplace or Apple’s App Store.
• They can be membership- or subscription-based, charging users a fixed regular fee for an agreed-upon service level. For consumers, Netflix or the Apple One services use the subscription model, while companies like Etsy, Amazon, and eBay use a subscription model for sellers.
• Other common revenue models are based on listing fees—where sellers pay only for the listings they create—or the hybrid load fee model, which charges a fee for listing and a commission based on sales.

Step 2: Choose your Business Model

Next, decide which of the three predominant marketplace business models is most appropriate for you:

• Marketplace Model: This is a game-changer for businesses of all sizes. The marketplace model offers a low-risk way to expand your product offerings and increase revenue without the need to hold inventory or assume title. A typical marketplace aggregates many third-party suppliers who set the retail price but rely on the marketplace/platform to facilitate the transaction. Marketplaces tend to be highly scalable and offer consumers great variety and price transparency. The marketplace model also makes it easy and fast to add products, sellers, and categories to an existing platform. For many businesses, the marketplace model is the ideal way to monetize their digital traffic and deliver more choices and better value to customers.
• Dropship Model: We’re seeing a surge in demand for the dropship model, and it’s easy to see why. With dropship, organizations can expand their product offerings without the hassle and risk of holding inventory, relying instead on third-party sellers to handle the logistics of order fulfillment. The dropship model is also ripe for automation and optimization. With advanced technology platforms, the entire process can be streamlined for maximum efficiency and profitability.
• Hybrid Model: One of the most exciting emerging business models is the hybrid model, combining drop shipping with the more traditional marketplace model. This allows merchants to offer new product categories with minimal risk, while still maintaining and increasing revenue from their core offerings.

How Do You Choose
the Right Technology?

Every marketplace, from online platforms to collections of physical stores, relies on technology—and making the right tech decisions upfront can catalyze success.

This is exactly the approach we have built and applied successfully at the BORN Group. For clients eager to build or enhance their marketplace at the strategy level, we start technology discussions with our analytical approach which includes two key components: The Feature Value Matrix (FVM), and the 5C Analysis.

Feature Value Matrix

BORN has created a frame of reference that outlines a feature and its value to the business. The key output of the FVM is the determination of whether a feature is critical—and therefore should be included in the minimum viable product for launch—or whether it can wait to be included in a fast-follow phase.

The FVM starts with four steps:

1. Understand key business requirements.
2. Learn and challenge the existing system architecture by evaluating applications and the integration landscape.
3. Identify pain-points.
4. Define a solution baseline in terms of technical and business value.

5C Analysis

The BORN Group also developed the 5C Analysis to provide a quantitative representation of technology versus the business objectives and priorities. This helps business users to make more informed decisions. The 5C Analysis classifies each user story to:

• Conform: Identify requirements that can be conformed to OOTB (Out-of-the-Box) features once a platform is picked.
• Configure: Identify requirements that can be supported through configurations in the platform.
• Connect: Identify requirements that are better supported through an integration to a third-party tool.
• Customize: Identify requirements that will need to be built into the platform.
• Compromise: Identify requirements that will be supported by a third-party tool rather than being built into the platform.

Some Final Thoughts

The reality is that the potential of marketplaces—digitally-driven ecosystems for buyers, sellers, and partners—is enormous.

And this is true not just for online businesses. Any place where people gather—airports, train stations, sporting arenas, theme parks, to name a few—is already a marketplace, but they also offer all kinds of untapped opportunities that can be turned into growth by leveraging today’s technologies.

The initial decision to create a marketplace is generally driven by the understandable goal of growing revenue. And while revenue growth is certainly a critical metric for any marketplace, it’s not the only one that matters. At BORN, we’ve found that successful marketplaces are also characterized by high levels of customer engagement and repeat business. In fact, our clients often refer to their marketplaces as “engagement platforms” because they offer a unique and powerful opportunity to connect with customers on a deeper level.

When you can offer a true marketplace, with a wide range of products and services from multiple sellers, you transform your online presence into a go-to destination for customers looking to discover new brands and make informed purchasing decisions.

The result is a virtuous cycle of engagement and revenue, with each transaction leading to increased trust and loyalty among customers. As a result, many of our clients measure the success of their marketplace not just in terms of revenue, but also in terms of customer satisfaction, retention, and lifetime value.

If your brand is looking to grow your marketplace strategy or design, BORN Group would love to walk you through our proven approach.