Is Now a Good Time to Build a Marketplace Platform?
Is now a good time to build a marketplace platform? Yes, if you can show people want it first. How to validate, design and build one that works, from Code23.
Is now a good time to build a marketplace platform? Yes, if you can already point to real buyers and sellers who want it. Marketplace platforms can reduce blank-page development, but cost and complexity still depend on the model and requirements: platforms such as Sharetribe and Mercur mean you're rarely starting from nothing. What hasn't got any easier is proving demand. Etsy, Airbnb and Not on the High Street all needed real people willing to trade before the platform mattered. Code23 has worked across marketplace categories from wine auctions to kids' parties to football sponsorship. Building before validating demand increases the risk of investing in the wrong proposition.
That's the shift since this article first ran. Marketplaces aren't a novelty any more, so the model itself won't be your edge. The order can reduce risk: validate first, build the smallest version that demonstrates the intended value exchange, which might be an enquiry, booking or payment, then choose a platform that can grow with you.
That’s not to say that it’s not a big undertaking. Technology can support a viable model, but cannot make it successful; that still depends on an informed strategy, understanding best practice, and putting in the hours.
In this guide we share some of what we’ve learnt here at Code23, which covers the evidence and decisions to examine before committing to a build.
Initially we’ll talk about why this has become such a booming market, the challenges you may face, why it’s crucial to be clear about your own objectives, the evidence that indicates when to launch and the importance of engaging your users.
Some marketplaces avoid owning inventory because independent sellers supply it, think of Etsy, which doesn’t own any actual retail space, so you can create an online marketplace without big upfront costs for initial inventory. This can reduce inventory-capital requirements, but scalability still depends on liquidity, trust, operations and unit economics.
This has created opportunities for entrepreneurs in many sectors.
But let’s not kid ourselves: building an online marketplace and making it successful isn’t a foregone conclusion. It takes hard work and commitment.
Having a fantastic idea that you believe in and launching a marketplace is just the start. Just think, if you don’t have your own inventory initially, how are you going to attract buyers? and equally, how are you going to sell the idea to people so that they bring their own inventory into your marketplace?
"After wanting to up my game with my marketplace website I found Code23. They made switching web agencies really easy and have consistently provided great support, thoughtful suggestions and advice to improve the website thats has helped me focus on growing the business. The team are super responsive which is very reassuring for a non-techie!"
Unless you get really lucky, it is unusual for a marketplace to become successful overnight; there is a time period required to build critical mass. This can be because many marketplace ideas require a change in mindset. Airbnb helped make peer-to-peer short stays familiar at scale. It’s important that when you set out you are very clear in what it is you want to achieve. Break this down into three simple questions:
Why?
What?
How?
Be certain about why you want to create a marketplace. Be honest with yourself about this: is it because you want to work for yourself? You believe it will make a difference to the world for the better? You simply want to be wealthy? It actually doesn’t matter what the reason is. Being clear about the objective helps you evaluate suitable strategies, but does not establish demand.
A word of advice: it’s best if it’s something you are truly passionate about. Personal commitment can support persistence, but it does not establish demand.
There’s a big difference between envisaging a small business that will require minimum staff and a more capital-intensive plan that may require external finance, which could include venture capital, debt, grants or other sources. In the second instance, to attract investment you’ll need a clear business strategy, a solution to an identified problem, strong UX design concepts or a Minimum Viable Product (MVP), as well as stage-appropriate evidence about the market, model, team, risks and potential returns.
Once you’re clear on your initial thinking and goals, from a practical point of view you’ll need to consider how to actually build a marketplace. If you cannot build it yourself, options include a technical co-founder, an internal hire, a suitable platform or a specialist marketplace development agency.
Work out which parts of the process you have experience in and where you are going to need help and advice. Take into account how much you want to spend, who your contacts are and where you can utilise your own professional experience. All of these factors will impact the way you start up your marketplace business and your initial stages.
While many start-ups already consist of a capable team of founders, if you’re on your own without the necessary technical skills, don’t let that put you off, you can still make it happen… a suitable technical partner can help assess the options, but it cannot guarantee the outcome.
Of course, the features and functionality on offer will play a key role in the success of your marketplace, but there’s more to it than that. Drive matters, but success also depends on demand, execution and unit economics, along with your ability to sell it as a viable proposition that people will want to buy. In other words, choose the least expensive test that can answer the next important question; that may be research, a prototype, a concierge test or an MVP.
An MVP can collect evidence, but its cost and value depend on what must be built to test the proposition. What you don’t want to do is spend a lot of money on something that, further down the line, clearly wasn’t such a great idea after all. Because you won’t know if the idea has legs until you offer it to people, get it out there as soon as possible while making sure you can, at least at a minimum level, deliver the solution you’re promising.
In the initial stages focus on the idea rather than the platform. The best platform in the world won’t make a success of a bad idea that no-one is interested in. Building a sophisticated platform before collecting demand evidence increases avoidable risk.
By getting feedback from customers and potential customers you can keep refining the proposition as evidence emerges. It can’t be over-emphasised just how important customer feedback is… keep talking to people, their input is invaluable. A sound proposition matters alongside execution, operations and unit economics. The platform is an integral part of that, but the world’s most all singing all dancing platform won’t turn an unwanted proposition into a wanted one. It’s customers that do that.
Once you’re happy that your idea is sound, it’s time to get it out there… it’s time to build a marketplace platform! That’s where we come in. Here at Code23 we take a user-focused, no-templates approach, designing each marketplace around how your buyers, sellers and team actually need it to work, and help you judge whether a ready-made platform or a custom build fits yours best.
Frequently asked questions
How do you build a marketplace platform?
Start by proving people actually want it: real conversations with possible buyers and sellers, before any code. Then design the smallest version that demonstrates the intended value exchange, which might be an enquiry, booking or payment, and choose a platform that can grow with the business. Skipping validation increases the risk of later rework, often at a higher cost than doing it properly the first time.
How much does it cost to build a marketplace platform?
There's no fixed number. It depends on the features your buyers and sellers actually need at launch, and whether you build on a platform such as Sharetribe or MarketStarter, or from scratch. We work to a fixed price agreed up front, not an open-ended day rate. Our free Marketplace Growth Review can help you judge what your version needs.
How does a marketplace make money?
Most marketplaces earn a percentage of each transaction, sometimes with a listing or subscription fee on top. The commission model has to survive contact with real usage, so it's worth deciding it before you build rather than bolting it on later. Design fees, payments and payouts around the operating model. Where safeguarded funds or escrow are actually required, use an appropriately authorised provider and obtain legal advice for the relevant jurisdiction. Profitability comes down to volume and take rate covering your costs.
Next step
Is now a good time to build a marketplace platform? If you can already find people who’d use it, yes. If you can’t, that’s the first thing to fix, not the platform.
Our free Marketplace Growth Review is a 30-minute call that can help you judge whether your idea, your numbers and your plan are ready to build. If they are, our Marketplace Growth Plan puts the buyer, seller and platform features you actually need, and a fixed price, in writing before you commit to anything. We’ve built 50+ marketplaces over 15+ years, from wine auctions to kids’ parties, so we can bring that experience to the problem you’re solving.
Build the marketplace
Start with the workflows that make the model work.
We’ll map buyers, sellers, payments and operations before the build, backed by experience from more than 50 marketplace projects.
