What is a marketplace?

Online marketplaces can sell to people, to other businesses, or create a two sided platform like Uber’s drivers and riders. Marketplaces can cater to any industry or customer. Airbnb creates a marketplace where people can list their homes for rental by visitors, where Airbnb gets a cut with every transaction. eBay is one of the most classic examples of a marketplace, where people can shop for goods that have been listed by other people on eBay. Marketplaces are convenient for both buyers and sellers, and if you can think of a marketplace as a business, they can generate a lot of profit when people use the service.

“A two-sided market exists when both buyers and sellers meet to exchange a product or service, creating both bids to buy and offers (asks) to sell. This can occur when two user groups or agents interact through an intermediary or platform to the benefit of both parties,” explains Investopedia. Examples of this type of marketplace are Airbnb, Etsy, Facebook Marketplace, Upwork, eBay, and Uber.

“Food delivery marketplaces are a common example of three-sided marketplaces, in that they are comprised of restaurants, delivery drivers, and consumers. Multi-sided marketplaces are often harder to get off the ground because they need to acquire and retain additional sides of the marketplace,” furthers Andreessen Horowitz.

All marketplaces benefit from something that is called the network effect. This what happens when the amount of people using a product increases over time. When there is ample demand, supply can meet that demand if the business is functional or the idea is salient. If the first person ever to open a new food delivery app specializing in local food is met with ample selection, they’re more likely to recommend the app, which means the delivery driver and restaurants can make more profit.

Online marketplaces can be great businesses because they are generally based off of software, and not so much hardware. Uber doesn’t actually own cars, they just take a cut from every successful trip or food delivery that their reservation software makes. These businesses are resilient, and can scale up and down as necessary. To think about what could be a marketplace, think about where there is demand with unmet supply, and how software can fix that.