History of Marketplaces
In this article, I’m going to walk through my process of building a basic version of Uber in Bubble. Since this is a bird’s-eye view of how to build Uber, I’ll stay on a relatively high level and cover a few core features that make up most of the app, as well as my database structure.
In September of 1995, Pierre Omidyar launched a small site named AuctionWeb. The site was, "dedicated to bringing together buyers and sellers in an honest and open marketplace". Within the month, AuctionWeb - later named eBay - had successfully facilitated their first buyer / seller relationship, resulting in the sale of a broken laser pointer.
It would be nearly fifteen years before the world saw the launch of AirBnB, and with it, a more general understanding of the power of marketplaces. Technology crafted with the intention of bringing together buyers and sellers is now widely understood as one of the most powerful applications of the Internet. While examples of marketplaces like Amazon, Etsy, and Uber (maybe?) abound, it’s worth looking at what makes them such an attractive business model.
Why are digital marketplaces so great?
They run themselves
Marketplaces provide an incredibly lean business model in comparison to other more inventory dependent businesses.
In a marketplace, sellers are the ones providing the products. This helps you as a business owner in two key ways:
- You don’t have to carry or manage inventory
- You’re not managing the execution of orders
Visitors come to a marketplace because of its ability to collect many sellers together under one digital roof. As a result, online marketplaces are able to attract larger numbers of potential customers than the sum of each site's visitors independently, incentivizing more sellers to join.
This makes for a much more efficient buying experience from a purchaser’s perspective, and allows items to be bought from multiple merchants via a single checkout process.
And again, once a purchase is made, sellers are the ones responsible for ensuring that buyers receive their product, not necessarily the site owner.
Marketplaces create their own network effects
Once this stage is set, and a strong base of either buyers or sellers are present, finding users for your digital marketplace becomes that much easier. Buyers bring sellers, sellers bring buyers. As you scale, the recruiting process becomes that much easier on both sides of the marketplace.
But herein lies the greatest constraints that marketplaces provide: getting started.
Why are digital marketplaces so difficult to start?
Nobody wants to be in an empty room.
Two-sided marketplaces inherently lend themselves to a chicken-and-egg problem. Suppliers won't join unless buyers are accessible, and buyers won't join without a slew of options to purchase from.
Setting up marketplaces is difficult. But the technical side of things is the easy part; it’s been done thousands of times before. Getting the flywheel spinning, and finding both consumers and providers is the difficult part.
As such, it has always required as much work, if not more, on the business side than the technical. Luckily, with much of the technical difficulty abstracted away thanks to new digital tools, founders can afford to focus entirely on establishing those initial relationships.
In Paul Graham's seminal piece on building marketplaces, "Do Things That Don't Scale", he talks about this exact predicament, and offers some advice.
"The most common unscalable thing founders have to do at the start is to recruit users manually. Nearly all startups have to. You can't wait for users to come to you. You have to go out and get them."
Whether you utilize a Collison Installation approach, or any other growth hacking methodology, the most important part is that you go out and recruit users.
This part, unlike the technical aspects of your marketplace, is just about as difficult now as it was for any other established marketplace.
Quality assurance is difficult when others are executing orders
One of the greatest benefits of running a two-sided marketplace business is that owners don’t have to manage the actual execution of orders. However, this can also prove incredibly challenging, particularly when starting out.
Despite not being the one shipping products to customers, if a buyer ends up having a negative experience with a supplier, it is still your brand that intermediated the interaction. As such, quality assurance is inevitably more difficult.
Existing marketplaces have had to set up programs to address this exact issue. eBay’s Money Back Guarantee applies to all purchases on the site, and is enacted to address quality assurance concerns from buyers directly.
Marketplaces are complex with many stakeholders
And herein lies the single most significant difficulty in building marketplaces. They’re complex. They must be built to service, and balance the needs of a wide range of stakeholders.
Leah Solivan is the founder and former CEO of TaskRabbit, an online and mobile marketplace that matches freelance labor with local demand. She describes marketplaces as:
"anything but simple: successful marketplaces are built upon multiple complex systems that are connected and intertwined. In this way, they are akin to living, breathing organisms.” (Source)
Marketplaces present themselves as a clear double edged sword. The fact that owners are simply facilitating relationships between buyers and sellers means that the marketplace is able to not just operate on its own, but scale at exponential rates as a result of their creator’s efforts. The difficulty this creates is the loss in control presented by the fact that owners don’t get to oversee every aspect of the customer experience. However, when managed correctly, marketplaces can provide incredible benefits for all parties involved.
What does this mean?
Marketplaces have an incredible amount of complexity. Fortunately, the technical aspects of building your business don’t need to contribute to that complexity. Given the advent of a class of tools built to empower non-technical creators, entrepreneurs are able to focus on the “hard to scale” aspects of their businesses, as opposed to the technical.
Traditional development processes
In the past, those looking to test an idea were forced to turn to any number of suboptimal options. They could approach a technical co-founder in the hopes they would be interested in building their idea. However, even if they were the most inspirational of founders, they would still be expected to give up anywhere from 30 - 70% of their equity in return for seeing their idea realized by someone else.
Alternatively, they could teach themselves to code. But this process is normally one that doesn’t fit into the timeframe, or reality of most entrepreneurs.
Finally, they could outsource the development to a traditional software development firm. However, doing so before finding product-market fit requires immense amounts of capital upfront to fund the development of a business that will likely need to pivot at some point in their near future.
The Alternatives: Developing it yourself using no-code tools?
Intro to No-Code, and how it can help
There's no reason a non-technical founder should have to focus on building out technical solutions already solved thousands of times before.
This is even more true in the stages before product-market fit is found.
To address this exact issue, the "no-code" movement has sprung up to provide tools that are redefining the concept of a software engineer. Put simply, no-code lets you turn ideas into a fully functioning product using the smallest amount of time and resources.
Some of these tools have made their way into common parlance like SquareSpace and Adobe Dreamweaver. But in the last few years, a growing number of tools have been introduced that empower creators to build much more niche, and much more powerful applications.
The Off the Shelf Version (3 hours)
Sharetribe is a service that lets you build a marketplace business using their off the shelf solutions. If you’re looking to simply test out your idea as quickly as you can, it’s possible to have a marketplace up and running within a few hours.
This video does a fantastic job at helping new users get up to speed with Sharetribe. By following it, you could have an MVP of your marketplace live in as little as 30 minutes.
However, building your marketplace with an off-the-shelf builder means you’re entirely constrained by the functionality offered by the service. If you’re looking to build something with the exact feature set you’re hoping for, we recommend looking to visual development.
Using Visual Development Tools (4-6 weeks)
Visual development tools are a subset of no-code tools built to allow anyone to build applications to their specification without needing to code. For something like a two-sided marketplace, we recommend turning to Bubble.
Bubble is the platform we use at AirDev to build out products for clients that range from single founder startups to Fortune 50 companies, and everything in between.
Bubble is easy to use, and allows you to build faster, taking ideas from design to full application in weeks as opposed to months. It allows businesses to iterate faster as both the development cycle is shortened, and anyone on your team is able to make changes to the marketplace you're building.
To learn more about Bubble, we've put together a few resources.
Canvas Manual is a resource created by AirDev that acts as our guide to development in Bubble. It includes things like best practices, how we build, and a more extensive list of learning resources we've curated from across the Internet.
Use a No-Code agency
While traditional development firms are expensive, a new class of development firms that take advantage of the no-code movement to reduce costs, and shorten timelines. At AirDev, we realized the advantages tools like Bubble provide for those looking to build new products.
As such, we build products for clients using no-code tools so that your costs are lower, timelines are shorter, and your idea can be realized and iterated on as quickly as possible. We’ve been building in no-code since 2015, and have a rigorous, battle-tested process for the applications we build. As a result, you get a combination of the best infrastructure, standardized through our work with hundreds of clients alongside all the benefits of complete customization for your marketplace needs. If you're interested in seeing how we can make your marketplace a reality, click here to talk to us.
What to focus on with your marketplace
One of the most powerful aspects of the no-code movement is the ability for founders to spend their time developing the unique parts of their businesses, and hyper-tailoring it to their customer's needs.
With the technical details out of the way, we have a few tips for how to scale your marketplace.
Blue Ocean to scale buyer side
If you can engage a shadow market - opening up a whole new class of previously unreachable buyers - via your marketplace, you’ll have suppliers lining up.
There are nearly limitless opportunities for marketplace businesses. However, rather than looking to open a marketplace that simply competes with pre-existing businesses, successful marketplaces engage entirely new markets on both the supplier, and buyer side.
This pursuit of bringing entirely new audiences into your market is part of what's known as a "Blue Ocean Strategy". In trying to create a “blue ocean” for your business (as opposed to the "red oceans" where competition is cutthroat and "bloody"), businesses don't just focus on beating the competition, but making the competition irrelevant via a leap in value for buyers. In doing so, they open up new and uncontested market space for themselves.
Example: Live Theaters to Movie Theater
A textbook example of this is the world's transition from live plays to movie theaters. In 1905, the entire concept of movie theaters was created by Harry Davis. Davis did not focus on simply creating a better live play. Instead, he opened up "nickelodeons", buildings with many screens that charged only 5 cents to watch pre-recorded films at any time of day, and targeted lower-rent neighborhoods. In doing so, he created an entirely new market - one that was entirely inaccessible to the live play industry previously.
For this reason, it's vital when looking at building out your marketplace to not just focus on your core market, but on your total addressable market. Does the existence of your marketplace allow for a market to expand? If so, you're likely onto something.
Concierge MVPs to test new processes iteratively
When just starting out with your marketplace, the exact processes for how you’ll handle every need your users might have aren't known. At that point it's better to not build everything and instead handle stuff manually. One way to actually test this is through using a tool known as the “Concierge Minimum Viable Product”.
Concierge MVPs are built to replace complicated technical processes with humans. Their goal is to circumvent the need to invest time and resources up front building features users may not even want. As hypotheses are tested, and confirmed, only then should business owners roll out new features.
Example: Marketplaces - AirBnB
For a marketplace example, we need to look no further than AirBnB. AirBnB focused on engaging a shadow market - a latent supply base of rentable units previously inaccessible - to create an entirely new industry. But the founders had an early hypothesis: that listings with high quality, professional photos would get more bookings. From The Lean Product Playbook by Dan Olsen:
“They manually recruited hosts to offer them professional photography, and recruited photographers to match up with the hosts. After scheduling the photo shoot and taking the pictures, the photographers would upload their pictures to Dropbox, and Airbnb employees would upload them to the associated property listing”
It was only after confirming that this process indeed increased bookings for hosts with professional photos that they built out a system. They were then able automate the process so that instead of photographers being recruited by employees, the system automatically asks hosts if professional photography is something they’d like to take advantage of, and connects them with photographers automatically.
Types of Marketplaces We’re Hoping to See Built
Managed Digital Marketplaces
In line with the earlier section on shadow markets, we see a potentially massive business opportunity for marketplaces targeting services typically carried offline. The home care market, and upskilling market are both areas with addressable markets largely untapped. While services in this category typically have higher amounts of regulation, the ability to successfully navigate these areas simply means the creation of a larger moat around your business.
The U.S. restaurant industry alone does over $800 billion in sales a year (Source). Yet wholesale food purchasers still rely on predominantly offline systems to take care of their food sourcing needs.
Online marketplaces that connect food distributors with local businesses is a marketplace we would love to see, and could help target issues like the fact that a third of all food produced for human consumption goes to waste (Source). And the potential for B2B marketplaces is not just limited to the food industry.
We've talked a lot about how to create a marketplace that can scale in this article. However, not every business must be built to scale. Niche Marketplaces address specific, long tail needs of a choice few customers - albeit extremely well. While many marketplaces will be built for fewer customers than Lyft ever hopes to reach, the lower cost structures involved in building these marketplaces means they can still be viable, profitable businesses.
With all this in mind, go out and get started building your own digital marketplace. Remember, a marketplace can always be reduced to a place for those looking to provide a product or service to those looking to purchase their offering. But if you want your marketplace to thrive, it’s vital to focus on the unique value you provide: your ability to connect buyers and sellers in a manner previously not possible without your business.