Steps on How to Make a Profitable Marketplace App for Your Startup

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Short description of the article

  • Intro

  • Income with a platform business model

  • How to build a platform?

  • What is a 3-tier architecture?

  • 3 ways to make money from a platform

  • Conclusion

Intro

The secret of the absolute success of such services as Uber, Airbnb, Etsy lies in the modern business model of mobile marketplace implementation. The most startups are built on a traditional business model, so-called pipe model. Its meaning is that enterprises receive value linearly. The manufacturer needs to have some material resources to start production. For example, rent a room, arrange raw materials, employ working staff and provide them with necessary equipment. Their value depends on the set of these resources.

A modern business model called the “platform” (Sangeet Paul Choudary, Platform Scale) is created and consumed by users. Pipes produce value and supply them to consumers, and platforms create online marketplace with conditions for production and consumption.

In order to plan and build the effective and popular web platform, there is a Platform Stack. It helps to identify the main strengths of a business, regardless of what you are building. The value is influenced by many factors and with the help of Stack you can understand the main ones and assess their impact on the business.

Income with a platform business model

Modern startups built the architecrure of a platform often earn more money. For example, well-known service Uber has become one of the most valuable startups. It is estimated at about $70 billion. At the same time, the staff of such commercial enterprises is much smaller and they do not own the products provided to buyers. All this motivates new startups to create their own different platforms. Some projects, created in 2017 have already become enough popular and profitable. One of them is Clearbit Connect. It expands Gmail's capabilities, helping the user to learn more about recipients. The service is used by 100 thousand people a day, that’s why its popularity and profitability became obvious.

How to build a platform?

Of course, you will agree that creation of popular and marketable startup on the platform basis is a really difficult task. We know how effectively solve this problem in several steps:

  1. Development of infrastructure that will provide conditions for the exchange of values;

  2. Attracting a potential user base;

  3. Creating links between users and products, services available on the platform.

The main condition of a successful platform is a well-designed architecture.

What is a 3-tier architecture?

Three - “tier” or “layer” architecture is a type of software consisting of three layers of logical computations:

  • Network-Marketplace-Community Layer

  • Infrastructure Layer

  • Data Layer

The main advantage that this type of software architecture provides the ability for the development team to integrate one part independently of the other. In general, this is a time of saving for the development or modernization of individual parts of the system.

Network-community-market tier

Network-community-market tier is often the most valuable moment for the platform. It is responsible for the relationship between its users. For example, TaskRabbit allows users and clients to interact with the platform. Thanks to the freelance writers and businesses can work together. That means, interaction occurs between those who consume values and those who create them.

This configuration dominates in social networks, online communities, content platforms, sharing economy platforms.

Infrastructure tier

The infrastructure layer contains tools, rules and services that controls the basic functions of the application. For example, tools that serve for building E-commerce platform. This means that this layer is the so-called engine of the platform. For example, applications like Airbnb allow users to create lists and attract guests to their apartments.

Tools are available to create online markets in Shopify. For platforms with a dominant level of infrastructure, its uniqueness is enough important.

Data tier

The informational level is very important for the transfer of value from the producer to the consumer. It contains significant data used by the platform and ensures consumers that they will find the content, service or product they need. Examples of such systems are MySQL, Oracle, PostgreSQL, Microsoft SQL Server.

Domination of the third layer is less common than the first and second levels. It can be used to collect information about customers in stores. In the end, it will help to attract new customers to store owners.

Platform combinations improve the application. For example, Flicker, as a means of storing photographs appeared much earlier than Facebook. But for today, the largest number of photos is successfully placed on a social network. This is due to the fact that Facebook is not only used as a store, thanks to the excellent network-community-market and data tier.

3 ways to make money from a platform

We understand how difficult it is to start a profitable online market, so we offer to consider three models of monetization. The choice of strategy depends on the dominant level of your platform. Of course, all parts of the platform play an important role in the business process.

We do not say that one is better than another. Each business platform has its own unique configuration.

1. The dominant Network-Marketplace-Community layer

The source of revenue for a market with a dominant level of the network market is the commission for the transaction. Payments for services occur on the platform, that is, customers do not pay manufacturers personally. The security and reliability of the environment are created by the platform. This explains the transaction fees. Uber drivers pay a commission of 25%. At Airbnb the maintenance fee for the residents is 3%, for guests from 6 to 12%. Thanks to these regular and stable payments both services are included in the top of really successful startups.

2. The dominant infrastructure layer

Infrastructure is the basic configuration, therefore all traditional views on the development of the platform are concentrated on this level. For example, well-known WordPress provides only infrastructure.

Infrastructure platforms earn money in two standard ways:

  • Payment for subscriptions. The average subscription fee varies from $30 to $300 dollars. As a result, they bring in 50% of the annual income.

  • Fees, depending on the payment of the transaction, commission fees.

3. The dominant data layer

Data serves for different purposes on different platforms. Facebook uses them to create news, Airbnb in order to show you the right accommodation. The uniqueness of data platforms is that they are a repository of information in which users find its value.

The main source of income on such platforms is advertising. Advertisers can themselves advertise on well-known pages or applications such as LinkedIn, create and post it on behalf of the advertiser. The Medium uses the data to help content to discover its market.

Each new project has its individual features, and if you want to get really interesting and profitable business, you need to realize layers structure to develop your platform and make it work with maximum efficiency.

Conclusion

In order to build profitable marketpalce platform we suggest simple stepts and tips that will help you to achieve this aim. Thus, development of infrastructure that will provide conditions for the exchange of values, attracting the potential users and creating link between users and products might be predominant ones in order to start developing the mrketplace. In addition, 3-tier architecture will be useful tool to organize your project.

In case, you got left any questions or suggestions, feel free to contact us and we will assist you in any inquiry!