Marketplace Model
IntermediateA marketplace model is a business model in which a company provides a platform that connects buyers and sellers and earns money from the transactions between them, usually through fees or commissions.
Marketplaces do not usually own the goods or provide the services themselves. Instead, they bring the two sides together and make it easy for them to trade. Examples include online shopping marketplaces, ride-hailing apps, holiday rental platforms, food delivery services and freelance work platforms.
Marketplaces typically earn money by charging a commission on each sale, a fee to list items, a subscription for sellers or payments for advertising and promotion within the platform.
For example, a holiday rental platform might charge hosts 3% and guests 14% on each booking. On a 1,000 booking, the platform would earn about 170.
A key measure for marketplaces is gross merchandise value, the total value of goods or services sold through the platform. The company's own revenue is only the share it keeps.
Marketplaces benefit from network effects: more buyers attract more sellers, and more sellers attract more buyers. This can make successful marketplaces very difficult for rivals to compete with. The challenge is building enough activity on both sides at the start.
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