Is Building An Online Marketplace Really That Hard?

Balanced Payments Payment processing, escrow, and payouts in one simple API

This is the first in a six-part series of posts about online/mobile marketplaces. Brought to you by CollaborativeConsumption.com and our content partner Balanced.

I used to take a trotro every weekend down to Makola Market near Kwame Nkrumah Circle when I lived in Accra. Trotros are these amazing creations of urban ingenuity that put most big-city public transportation systems to shame. A driver steers a minibus (the trotro) along a pre-defined route through the city while a ‘mate’ literally hangs out the window, using hand signals to communicate to passengers the specific route his trotro is taking. The mate pops back inside only to collect the appropriate fare from each passenger. It’s perfectly ordered chaos. The closest thing we have here in San Francisco are apps like Lyft, SideCar, and Uber. Instead of cryptic hand signals, we have pink moustaches and iPhone apps. These mobile transportation apps, Accra’s trotro system, and even my final destination, Makola Market, are all examples of one of the world’s most important economic and cultural models: the marketplace.

Trotro at Makola Market, Accra. Courtesy of Carifrique on Flickr.

Trotro at Makola Market, Accra. Courtesy of Carifrique on Flickr.

Marketplaces by definition are places, real or virtual, where goods and services are exchanged. We’ve had marketplaces almost as long as humans have had cities, but over the last few years, advances in information technology and identity verification have increased their proliferation online. Regardless of if you consider online marketplaces to be a subset of ‘collaborative consumption’, the ‘Sharing Economy’, ‘The Collaborative Economy’ or something else altogether, it’s hard to overstate how efficient this economic model is at aligning supply and demand…if you can convince enough buyers *and* sellers to use your platform.

Over the past 2.5 years working as co-founder and VP of Growth for Balanced, a payments API built specifically for marketplaces and crowdfunding platforms like Fancy, Crowdtilt, and Zaarly, I’ve had the pleasure of talking with hundreds of online/mobile marketplace operators; everyone from CEOs, CTOs, VP Operations to engineers, designers, product managers, customer support reps and so on. I’ve come away from these conversations with a great deal of respect for anyone who is brave (read: crazy) enough to attempt to launch one of these things. I’ve also come away with some insights into how successful (and not so successful) marketplaces operate. Over the next few weeks, thanks to CollaborativeConsumption.com, I’ll share with you what I’ve learned about the unique problems online or mobile marketplaces face, and how to deal with them. While I’ve never been on the side of operating an online marketplace myself, I’ve watched enough good people go through the exact same problems trying to scale their businesses to believe I have identified a few common trends or maxims. Here are the key home truths as to why building these marketplaces is more difficult than the average ‘real-world’ business:

  1. Double-sided user acquisition: A classic chicken-and-egg problem.

  2. Now that you have customers, financial accounting and policy enforcement is vital.

  3. Double-sided platforms with payments functionality are lightning rods for fraudsters.

  4. Because fraudsters love marketplaces, banks and regulators hate them.

If you’d like to suggest specific topics for me to cover, please feel free to contact me on Twitter at @jkwade. Here’s what I’m planning so far:

Topics

  • The Unique Challenges of Marketplaces

  • Marketplace Fraud

  • Payments & Compliance

  • User acquisition & Scaling a Double-sided Platform

  • The Anatomy of a Successful Marketplace

  • What’s next for Collaborative Consumption and Marketplaces

As my Australian friends would say, see you in a fortnight 🙂

Pay it forward,

-Jareau

Jareau Wade headshotJareau Wade is a co-founder and VP Growth at Balanced. Previously, he was the 1st employee and head of data acquisition at Milo.com until it was acquired by eBay in late 2010. Before Milo, Jareau was a founding faculty member at an Accra, Ghana-based technology-entrepreneurship training institute called MEST.

Jareau also holds a BSE in Electrical Engineering from University of Pennsylvania where he built emergency personnel tracking systems using GPS.

5 thoughts on “Is Building An Online Marketplace Really That Hard?

  1. I’ve been expecting an article series such as this one for a while now that depicts the difficulties of building an online marketplace.

    My company is building a universal reputation platform for e-commerce marketplaces. By using a universal reputation system, we tackle head-on the problem of entry barriers for sellers with already EXISTING reputation in other platforms.

    Using RepStamp, we let sellers and buyers carry their already existing reputation from other platforms and never start from scratch again. One reputation, anywhere!

    Would love to chat Jareau

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