Choosing a Business Model
Marketplace
What Is a Marketplace?
A marketplace is a two-sided platform whose two sides traditionally consist of buyers and sellers. These roles take different forms depending on the vertical:
| Company | Sellers | Buyers |
|---|---|---|
| Amazon | Third-party sellers | Buyers |
| Uber | Drivers | Riders |
| Airbnb | Hosts | Guests |
| Rover | Dog sitters | Dog owners |
| Hipcamp | Private landowners | Campers |
How Marketplaces Make Money
Marketplace businesses take a percentage of each transaction — typically between 5–20% of the total transaction value. The total volume of all transactions on the platform is called GMV (Gross Merchandise Volume).
Some companies use their own terminology for this metric:
- Uber and Airbnb call it "Gross Bookings"
- In Q2 2021, Uber had $21.9B in Gross Bookings and $3.9B in revenue (~18%)
- In Q2 2021, Airbnb had $13.4B in Gross Bookings and $1.3B in revenue (~10%)
The Cold Start Problem
Marketplaces are hard to get started — you need buyers to attract sellers and sellers to attract buyers. This chicken-and-egg problem means you typically don't make meaningful revenue for a while until the platform has enough participants on both sides.
The flip side: once a marketplace hits scale, it becomes extremely hard to stop. Network effects make the platform increasingly valuable and difficult to displace. Craigslist, Amazon, and eBay are examples of self-sustaining marketplaces that have proven nearly impossible to unseat.