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Chicken or Egg: How To Launch a Marketplace?

When it comes to marketplace business models, there is always the age-old question of which comes first: the chicken or the egg? In this case, the “chicken” refers to the supply side of the marketplace (the sellers), while the “egg” pertains to the demand side (the buyers). In this panel discussion, experts with different backgrounds (from marketplace operators to technology and financial providers) explored the topic and shared their experience of building and enabling marketplaces to solve their chicken or egg problem, different monetization strategies, payment, technology and the importance of data.

The key to success lies in understanding the unique needs of your target audience, industry, and business model, and experimenting with various strategies to find the perfect balance between attracting buyers and sellers, generating valuable data, and monetizing your marketplace. Whether you’re building a B2B or B2C marketplace, focusing on a specific niche, or looking to pivot to a new industry, the key to success is adaptability, creativity, and a willingness to learn from both successes and failures. By staying agile and open to change, businesses can navigate the chicken and egg problem, build a thriving marketplace, and enjoy long-term success in the world of online commerce.

The Chicken or Egg Problem: Buyers vs. Sellers

The chicken and egg problem in the context of marketplace business models revolves around the question of which should come first: the buyers or the sellers? It’s a classic catch-22 situation: you need buyers to attract sellers, but you also need sellers to attract buyers. The panelists argued that the answer to this question depends on the type of marketplace being built. For example, in B2B marketplaces, it might be more important to focus on attracting buyers first, as they are the ones driving the demand for the products and services offered. On the other hand, in B2C marketplaces, it might be more important to attract sellers first, as they are the ones providing the products and services that will ultimately attract buyers.
Of course, there is no one-size-fits-all solution to this problem, and every marketplace will need to develop its own strategy for overcoming the chicken and egg conundrum. Some potential strategies include focusing on a specific niche, offering incentives for early adopters, and using publically available information for one side and driving demand for the customer side.

“The question of whether sellers or buyers are more important depends on the type of marketplace, but generally, finding buyers tends to be more challenging. However, I have also been involved in projects where companies were motivated by buyer demand, indicating that buyer-driven initiatives can play a significant role.” - Paula Conti.

Monetization Models: Which Comes First?

Once a marketplace has successfully navigated the chicken or the egg problem and is generating a steady flow of data, the next challenge is monetization. There are several different monetization models that can be employed by a marketplace, including commissions, subscription fees, lead generation fees, fulfillment fees, and advertising fees, among others.

As with the chicken or egg problem, the choice of monetization model will largely depend on the type of marketplace being built, as well as its target audience and industry. Ultimately, the key to successful monetization is to strike a balance between generating revenue for the marketplace and providing value to its users. This may involve experimenting with different monetization models, adjusting pricing strategies, or even combining multiple monetization methods to find the perfect blend that works for your specific marketplace.

“I generally feel that you should be slow to monetize, especially when network effects are important.” - Nick Fulton

Data: monitization and growth potential

As your marketplace grows, the wealth of data generated by user interactions and transactions can become a valuable asset. Marketplaces generate a wealth of data, including inventory visibility, order status, customer information, customer preferences, and more. This data can be used to help optimize the marketplace experience for both buyers and sellers, as well as to inform future business decisions and strategies.

Furthermore, by analyzing this data, you can gain insights into user behavior, market trends, and potential opportunities for growth. Additionally, you can monetize this data by offering targeted advertising, premium analytics services, or even selling it to third parties. The key is to strike a balance between monetizing your data and maintaining user trust and privacy.

In today’s GDPR-driven, cookie-less world, having access to accurate, up-to-date data is more important than ever for businesses looking to succeed in the online marketplace space.

Breaking the Tech Barrier: Overcoming Marketplace tech problem.

In today’s fast-paced business landscape, technology plays a pivotal role in the success of a marketplace. However, it can also become asignificant hurdle. Such was the case for a marketplace startup of Shuhrat that ultimately met its demise. Despite the promising concept and market potential, the startup struggled due to an excessively long development timeline. It took them a staggering 8 months to build a half-functioning Minimum Viable Product (MVP), which proved to be a fatal setback. Fortunately, there are numerous tech solution providers available today.

“Building a marketplace business is complex enough and technology should not be another barrier.” - Shuhrat Ashurov

Navigating Complexities in Payments and Financing

Managing payments and financing in a marketplace can be a complex and challenging endeavor. With multiple currencies, payment methods, and regulatory requirements to consider, it’s essential to partner with a reliable payment provider and stay up-to-date on industry best practices.

Additionally, offering flexible financing options, such as credit lines or invoice financing, can help attract more users and facilitate transactions on your platform. By effectively managing the financial aspects of your marketplace, you can ensure a seamless user experience and drive sustained growth.

Written by Shuhrat Ashurov ©TheNTWK


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