The Steps of the Marketplace Business Model
- Connecting buyers and sellers: The first step of the marketplace business model is to connect a large number of buyers and sellers in one place, usually through an online platform.
- Facilitating transactions: Once buyers and sellers are connected, the marketplace facilitates transactions between them, usually by handling payments and providing a communication channel.
- Earning a commission: The final step is for the marketplace to earn a commission on each transaction. This is the primary way that marketplaces generate revenue.
How does Airbnb make money?
Airbnb generates revenue primarily through a commission-based model. The platform charges both hosts and guests a service fee for each booking made. Hosts are charged a fee of 3% to 5% of the booking value, while guests are charged a fee of 6% to 12% of the booking value.
Airbnb also generates revenue through other means such as, booking fees for business travel, additional services such as cleaning and cancellation insurance, and advertising revenue from property managers and hotels.
Pros & Cons of Marketplace
Pros:
- High scalability: As more people join, the revenue generated increases with the number of transactions, allowing the company to reinvest in the platform and continue to improve the user experience.
- Connecting a large number of buyers and sellers: It leads to increased competition, which can drive down prices for customers and increase the number of offerings available.
- Expanding the reach of small businesses and individuals: Gives them access to a global customer base
Cons:
- Chicken and egg model: It's a common problem faced by marketplaces, where the platform needs to attract both buyers and sellers to be successful, but one group may not join until the other is already there.
- Regulatory issues: Marketplaces must comply with different laws and regulations in each place they operate.
- Constant innovation: To stay competitive, marketplaces must continuously work to improve the user experience and offer unique features to attract and retain customers.
The marketplace business model in startup terminology
The marketplace business model is a popular method for startups to connect buyers and sellers through an online platform. The business operates as an intermediary, facilitating transactions between parties while earning a commission on each sale.
One of the main challenges faced by startups using this model is the "chicken and egg" problem, where the platform needs to attract both buyers and sellers to be successful, but one group may not join until the other is already there.
Additionally, startups must also ensure that they are complying with laws and regulations and constantly innovating to stay competitive.
Applying the Marketplace Business Model to Airbnb
Airbnb is a perfect example of a company that has successfully applied the marketplace business model. The platform connects hosts who have a spare room or entire home to rent with guests looking for a place to stay.
Airbnb facilitates transactions between hosts and guests by handling payments and providing a communication channel for them. The company generates revenue by charging both hosts and guests a service fee for each booking made, typically between 3-12% depending on the booking value.
In terms of the "chicken and egg" problem, Airbnb initially faced the challenge of attracting both hosts and guests to the platform. To solve this, the company focused on building a strong brand and emphasizing the unique experiences offered by staying in a local's home. Additionally, the company also invested in marketing and advertising to attract guests to the platform.
Airbnb also has had to navigate regulatory issues and comply with different laws and regulations in each place they operate. The company has had to work with local governments and communities to address concerns and ensure compliance.
In terms of innovation, Airbnb has been constantly working to improve the user experience and offer unique features to attract and retain customers. For example, the company has introduced new services such as Experiences and Adventures, which allows guests to book unique and local experiences offered by hosts. Additionally, the company has also introduced new features such as verified ID, which helps to increase trust and safety on the platform.
The Marketplace Business Model Can Lead to Success
The marketplace business model has proven to be successful for companies like Airbnb. Hence, it allows for scalability and increased competition, expands the reach of small businesses and individuals, and generates revenue through commissions. However, startups using this model must also navigate challenges such as the "chicken and egg" problem, regulatory issues, and constant innovation to stay competitive.
Despite these challenges, companies that successfully apply the marketplace business model can create a unique and valuable platform that connects buyers and sellers in a way that benefits both parties. Airbnb's success is a testament to the potential of this business model, and it serves as an inspiration for other startups looking to enter the marketplace space.
