How to Build a P2P Marketplace like Upwork, Etsy, or Airbnb: Steps, Challenges, and Key Metrics

April 22nd 2022 new story

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Photo by Clem Onojeghuo on Unsplash

Upwork, Etsy, Airbnb, Uber. What do they have in common? They are all P2P marketplaces and form the Collaborative Economy industry. Today may be the best day to know how to build a marketplace. The target group for such startups and technology is mature enough to realize new ideas.

PwC reports that the size of the market is currently at around $15 billion, and is expected to grow to $335 billion by 2025. That means that there is still space for a new project the size of Airbnb, Etsy or Upwork.

In this article, I want to be as short and as informative as possible. We will run through the main milestones of marketplace development, what metrics to measure after you’ve built something and what is the main struggle all marketplaces face.

What is a Peer-to-peer (P2P) marketplace?

An online P2P marketplace is a type of e-commerce website that connects two sides: the consumer and service/product provider. On Etsy, one side provides hand-made goods and the other buys them. Etsy creates convenient conditions for selling and shopping. The same goes for Upwork, where freelancers and business owners are looking for each other. Airbnb connects hosts and travelers.

Online marketplaces provide both sides with great service. Consumers get a wide range of choice and security when vendors receive convenient means for trading and target audience, without creating their own e-commerce website and spending a ton of money on advertising.

Below you can find top industries that form a collaborative economy and their biggest players:

How to Build a P2P Marketplace Like Upwork, Etsy, Airbnb, etc.

Everything starts with an idea

An idea is the core of your business. It’s not the only key to success — you also should have to gather the right team and release the product on time. But a great idea will motivate great people to work with you, it will attract investors and most importantly — users.

Provided below are the main steps and tools to form and test your idea.

1. Define your value proposition

What is the value you provide to your users?

There are 4 main values that can be provided to users:

Market access. Offering access to a big number of consumers or vendors.Price. Providing some service for a cheaper price.Convenience. Making some process more convenient.Time. Solving some problem faster than it was before.

For example, Airbnb allows risk-free booking of an apartment or room anywhere in the world, for those who are unable to book a hotel. BlaBlaCar provides consumers with low prices and ability to get to the destination when tickets aren’t available.

How your product will make people’s lives better?

“By far the most common mistake startups make is to solve problems no one has” — Paul Graham

2. Choose Marketplace Business Model

Commission model
This is one of the simplest business models. You charge a commission on every transaction made on the platform. For example, Upwork takes 30% of every payment made there.

Pack of actions model
This model is suitable for vendor-centric marketplaces, where the main transaction happens outside the platform. The vendor purchases the limited number of views/click to see phone number/click to order/contact requests.

Highlight model
Users pay for their ad to be highlighted and put on top of the list. C2C marketplaces often use that model.

CPC (Cost Per Click)
Google makes most of its money from this type of monetization, but marketplaces can use it too. For example, Amazon has its own ads management system, where vendors pay for clicks on their ads.

Subscription
Users pay a monthly fee to use a marketplace without extra costs. Store owners on Amazon and eBay have to pay a monthly bill to stay on the platform.

Freemium
This model has come from video games. Such a marketplace is free to use, but with limited opportunities. If users want to have additional, premium features they need to upgrade. It can be combined with monthly payments. Some freelance platforms provide VIP accounts for freelancers, which open more opportunities to get the client.

Mix it up
As marketplaces are growing, their monetization model becomes more and more complex and can merge a few models mentioned above.

3. Perform a SWOT Analysis of Your Business Idea

While working on SWOT analysis, you need to define all the Strengths, Weaknesses, Opportunities, and Threats of your business idea.

After you’ve analyzed your business idea, move to the analysis of your competitors. This will allow you to create a better product with a unique idea and cover new customer segments.

4. Define your target audience

Understanding your target audience is crucial. You have to understand their pain, what they desire, where do they live, what do they do for a living, what are their hobbies, etc.

Understanding your target audience will help you to form your idea right.

5. Create a Lean Canvas for Your Marketplace Startup

A Lean Canvas allows you to see a full picture and requires answering further questions:

What is your customers’ main problem?How your product solves this problem?What are the key metrics to track?What is your value proposition?How will you reach your customers?What are your customer segments?Who are your main competitors?What are your cost structure and revenue streams?

I can also recommend using Platform Design Toolkit tool from Marketplace Academy, which is developed especially for marketplace startups.

The platform design canvas from platform design toolkit by Marketplace Academy

Build an MVP

A Minimum Valuable Product (MVP) allows you to test your idea on the real market with real users, eliminating the risk of wasting a lot of time and costs on the development of the final product. I have a more detailed guide on building MVP in this article.
At this stage, you should gather a super-star team with some tech skills.

The basic features of every marketplace are:

User accounts, profiles, and settingsSearch and filtersChatsPayment systems integrationReviews and ratings

They can be realized from scratch with the help of a development team or by using ready-made platforms like Magento, Sharetribe, Near Me, or Marketplacer.

What Technologies To Use For Building a Peer-to-peer Marketplace Startup

If you decided to build your startup from scratch, you should wisely choose a technological stack. For many years of web development, we at Relevant Software have mostly used 2 most popular technology stacks that showed great results.

LAMP technology stack

LAMP is a reliable and time-tested stack known by many developers, so there will be no problems with finding specialists.

LAMP includes:

Linux operating systemApache web serverMySQL databasePHP, Perl or Python programming languages.

MEAN technology stack

MEAN is a modern technology stack powered entirely by JavaScript. It allows creating high-performance and revolutionary single page web applications.

MEAN consists of:

MongoDB databaseExpress.js serverAngular.js front-end frameworkNode.js back-end framework.

For example, Airbnb uses Ruby (Ruby on Rails) on the back-end and Javascript (React.js) on front-end with Nginx web server, Redis for caching and Amazon Web Servers for hosting and data storage.

For cloud hosting, we usually use DigitalOcean, as well as GCP.

The choice of tech stack will depend on the complexity of your project and budget available. If you need a free consultation from experienced startup developers, you can get it here.

Key Metrics of Marketplace

Overall Marketplace Metrics

These are key metrics of the whole platform:

Gross merchandise volume (GMV) is the total value for goods or services purchased through the marketplace in a month or year.Number of transactionsAverage Order Value (AOV) shows how much a user spends on one transaction.
AOV = GMV / # of transactions.Revenue is the final income that the company receives after all expenses.
Revenue = GMV — expenses.Customer acquisition cost (CAC) is the amount spent on marketing to get a customer.
CAC = Ad spend / # of customers.Signup conversion rate shows what percentage of users create an account visiting your platform.

Service/Product Provider Metrics

These KPIs concern only seller/supplier part of the marketplace:

SAC. Seller/supplier Acquisition Cost.Number of sellers/suppliers.Sellers/suppliers growth rate.Number of listings (if there are any).Cohort analysis. The percentage of sellers/suppliers still active 1 month and/or 1 year after signing up.GMV retention. Average percentage of the first-month GMV generated by sellers/suppliers in the 12th month.Concentration. Percentage of revenue generated by the top 20% of vendors.Net promoter score (NPS). An index ranging from -100 to 100 that shows how much sellers/suppliers are willing to recommend a platform to others.

Buyer Metrics

Some of the key buyer metrics are:

BAC. Buyer Acquisition CostNumber of buyersBuyer growth rate.Average number of orders per buyerAverage order growth per buyerRepeat buyer contribution. Percentage of buyers who have purchased more than once.GMV retention: Average percentage of the first-month GMV generated by sellers/suppliers in the 12th month.Concentration. Percentage of revenue generated by the top 20% of buyers.Net promoter score (NPS). An index ranging from -100 to 100 that shows how much sellers/suppliers are willing to recommend a platform to others.

These metrics will help you better manage your startup growth and will show how promising it is.

The biggest peer-to-peer marketplace challenge

Chicken and egg problem

Every peer-to-peer marketplace has this common struggle called chicken and egg problem. The problem is that a marketplace connects two parties: consumers and vendors and one won’t come without the other. If buyers come to a marketplace and can’t find what they are looking for, they’ll leave. The same goes to vendors, if nobody buys from them, they’ll stop using a marketplace.

This problem can be solved by investing a lot of money to marketing to drive a lot of users at the same time or by attracting one party first (by paying them or making a good offer). You can learn more about solving this problem in this article.

How Much Does It Cost To Build A Marketplace Startup?

The development cost is based on the time required to develop the desired features and technologies used. However, you can expect your MVP to cost around $30–50K with basic marketplace features we mentioned above.

If you already have an idea and would like to know how much it would cost to be developed, you can get an accurate quote here.

Conclusion

Quote by Gary Vee

Collaborative economy is booming and it’s great timing for new marketplaces to be born. I truly believe you have some great idea in your head that wants to be executed. Just keep in mind to deeply thought through your business idea and monetization model, understand your target audience, test your idea on beta users via MVP, gather a strong team and be patient enough to keep moving through tough times (they will be, believe me).

Good luck.

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