how to choose the right business model and revenue model for your online marketplace
TRANSCRIPT
6 different revenue models
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and more articles about marketplaces
on the Free Marketplace Academy
6 revenue models for marketplaces
1. Commission
2. Membership/Subscription fee 3. Listing fee
4. Lead fee 5. Freemium
6. Featured listing and ads
Commission
Charge a commission from each transaction
Benefits: • providers are not charged before receiving value • usually most lucrative for marketplace owner
Challenges: • providing enough value for provider and customer • setting the right commission
Used by: Airbnb, Etsy, eBay, Fiverr, Uber, Taskrabbit
Membership/Subscription Fee
Some or all marketplace users are charged a recurring fee for access to the marketplace
Benefits: • if value is high but facilitating payment is difficult
Challenges: • Chicken and egg problem: how to find providers
without customers and vice versa
Used by: LinkedIn, Studiotime, StackOverflow careers
Listing fee
Some or all marketplace users are charged a recurring fee for access to the marketplace
Benefits: • if providers have no need for ongoing subscription
Challenges: • doesn’t guarantee value for providers so low fee • needs very large amount of listings to be profitable
Used by: Mascus, Etsy, Craigslist
Lead feeProviders are charged for each lead generated
Benefits: • better value proposition for providers, “no cure no
pay”
Challenges: • only works if value of lead is high • once relationship between lead and provider is set,
value leaves marketplace
Used by: Thumbtack
FreemiumFree basic experience, with premium offerings (such as insurance & delivery).
Benefits: • no initial threshold for using platform, easier to gain
mass usage
Challenges: • Difficult to offer premium services that tempt a good
portion of users, otherwise not sustainable. • requires high volume of users
Used by: Peerby
Featured Listings & AdsListings are free, but being featured is paid.
Benefits: • no initial threshold for using platform, easier to gain
mass
Challenges: • requires mass of users • conflict of interest, ads are usually a hindrance to
users
Used by: Zillow, Freecycle
Mixing revenue modelsMost modern successful marketplace employ different revenue models at the same time.
Generally, owning the transaction is the best option:
• scalable • revenue from all purchases through the site • low risk, high value for providers
Supplementing this with other revenue streams can be very lucrative. Etsy uses both commission and listing fee. Mascus combines listing fee and premium services.
Choosing a business modelFinding the right business model is mostly trial and error.
• Start with one, to avoid diverting focus.
• Be prepared to change it.
• Once growing, combine multiple revenue streams.
Read the full article and more articles about marketplaces
on the Free Marketplace Academy
Build your own marketplace at sharetribe.com