Understanding Marketplace Revenue Models

By: Malcolm Friedberg | April 9, 2018 | Marketplaces

Marketplaces are enterprises with buyers and sellers but no inventory. They are all the rage in e-commerce because they will likely put a lot of companies out of business, at least the ones that don’t evolve. Marketplace businesses come in all shapes, sizes and types, but they all seek to become highly efficient, money-making machines.

And while they share a common goal, they employ many distinct models to get there: taking a commission from one party, taking a commission from both parties, charging one party a subscription fee, charging both parties a fee, charging by successful completion of a goal, charging by usage, monetizing their property with ads, and on and on.

To help narrow the universe, below are a few of the most common marketplace revenue models:

Commission/fee based marketplaces where fees are only collected when the seller and buyer make a deal:

These businesses collect a service fee from the seller when something is sold, such as Fiverr, Airbnb and Uber. Buyers are incented to look because browsing is free, sellers are also motivated to list items or services because there’s no fee, and sellers are charged a portion of the buyer’s payment when they make a sale.

It’s a win-win for both the seller and buyer because no one pays until a deal is consummated. The marketplace operator benefits by getting a cut from the value they provide.

Membership/subscription fees:

Some marketplace operators charge buyers and sellers a fee to access the platform. This model is ideal for cases where the marketplace provides high value, and where users typically engage in multiple transactions (that would be impractical to charge for each).

For example, Match.com and other dating websites charge a monthly flat fee with upgrades on how many people you want to communicate with. In the same arena, other dating sites like Bumble only charge the man to join, allowing the women to join for free.

Listing fees:

This is a common model for job listing and classifieds websites. For example, many job listing marketplaces charge employers a per-ad fee for each job listing, while remaining free to job seekers. In this case, the potential value of a single listing is large enough to justify advance payment.

These models often provide listers with breaks based the number of listings. $99/1 listing; $249/3 and $299/5, etc. This gives the lister both an opportunity to start small, but also provides economies of scale as they consolidate their listings with one vendor.

Freemium with opportunity for greater visibility:

Now, while the previously mentioned fee structures work well for high-value companies, they don’t help marketplaces where people share items for free.

Take Carousell, the leading classified listing in Southeast Asia. It’s a marketplace where users can snap a photo, post it, chat with buyers, and then sell their items. Rather than charging transaction or listing fees, Carousell offers “bumps” which boost listing visibility. In this case, sellers can choose to pay for added exposure. Craigslist is similar in the sense that they charge for listing on some categories but not for others.

Advertising:

Although the business model isn’t as sexy as it once was, advertising is worth mentioning because it’s still a fundamental revenue stream for many marketplaces. There’s not a lot to explain in this one, as it’s just selling real estate for eyeballs. While there are a few advertising-only marketplaces such as Listia, most marketplaces use advertising in conjunction with another revenue model.

 

This is the third of a five part introductory series on Marketplace businesses. You can find the first portion of the series here, and the second here.

 

To learn more about the marketplace business model can help improve your profitability, check out The Kahuna Blog! Simply click the button below!
 
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Author: Malcolm Friedberg

Malcolm Friedberg is Head of Marketing at Kahuna. Prior to Kahuna, Malcolm served as CMO at CleverTap, where he led the U.S. go-to-market and customer acquisition strategies. He also founded MiDash (later acquired by Position2), a marketing intelligence platform, and started Left Brain DGA, a leading demand generation strategy agency. Most recently, he exercised his J.D. and founded FamilyWise.com, a service offering free estate planning. Malcolm is an avid writer having contributed to numerous publications, such as Entrepreneur.com, Huffington Post, and TheStreet.

Fun fact:

Malcolm is a published author, an Emmy nominee, and a super energetic AYSO volunteer.

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