#9 The online marketplace business model

This popular revenue model connecting buyers and sellers is a numbers game. High traffic volumes or high value transactions are key...

If Amazon is the poster-child for the traditional e-commerce model then eBay provides the template for online marketplaces in which the platform owner facilitates sales or transactions and takes a fee or commission in return.

It’s a model that you’ll find across a broad range of commercial sectors. There are marketplaces where houses can be bought and sold, platforms putting design and marketing companies in touch with Chinese manufacturers and sites such as AirBnB which create markets for low rent holiday accommodation. Online marketplaces are also revolutionising business finance in the shape of crowdfunding and peer-to-peer lending sites. According to PwC research, the UK market is set to be worth £9bn by 2025.

Functionality is the key and according to James Allgrove, Stripe’s head of business development, setting up a user-friendly payment system should be a priority. “A key challenge for any marketplace looking to achieve scale rapidly has been figuring out how to both receive payments from customers around the world and ensure sellers get paid, whether they’re drivers, cleaners or shop owners.”

Markets don’t guarantee buyers and sellers success – as anyone who has ever unsuccessfully bid on eBay – will testify. However, they are attractive because they bring buyers and sellers together, usually without any upfront cost. The platform operators take a small cut from a large volume of transactions. By its nature, though, it’s a numbers game. Success as online market requires either high traffic volumes or a focus on high value transactions generating sizeable commissions and fees.

This is #9 out of 10 ways to make money from your tech business idea.

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