Why many online marketplace businesses fail: The unsung reasons

First of all, why do most online marketplace businesses fail? How to start and grow an eCommerce marketplace out of it?

Being an eCommerce consultant, I’m eager, and I’m here to tell you everything about online marketplaces and things that goes around them. Here I’d say to you five reasons why most of the online marketplaces fail. Spoiler, it’s not about having not enough money.

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Top reasons to analyze why an online marketplace fails at any level

The first reason why eCommerce marketplaces fail is that founders want to launch a multi-vendor marketplace. At the early stage, you have to be focused more on what kind of problem you’re going to solve and how is your solution better than anything that already exists. People do not need the marketplace. People need a solution to their problems. If it eventually becomes a digital marketplace or SaaS or any other fancy words, that’s fine.

But the main goal at the early stage is to get your initial hypothesis verified and get your initial idea confirmed to focus on identifying the problem you are going to solve and what kind of solution you are going to offer those people who have this problem already.

The second reason eCommerce marketplaces fail is that most founders think they need to build software to start testing their ideas. Building software means automating some processes. What do you have to automate when you start something?

Nothing when you start the multi-vendor marketplace like you do not have to think about software. All you need is to find the easiest and most cost-effective marketplace solution to test your idea to make sure the market exists, and your solution will be used by people who have the problem.

You’re going to solve when you create software first, and then you go to the market to test your idea, and then you understand that the market seems a little different from what you imagined. This means that you have to change your software.

Why many online marketplace businesses fail: The unsung reasons
Why many online marketplace businesses fail: The unsung reasons

What does the recent market research say about the online marketplace business failures?

According to this new research, it will require more resources. It will be a little painful or sometimes even a lot painful. However, eventually, you can take existing software, platform or extension, and it will still have some functionality in place that will help you to better and faster test your idea.

But do not expect that this software will match your expectations about how a marketplace could look like. Usually, such software is developed as something universal that can work along with an idea, and it’s not about uniqueness. It’s not very customizable and so on. When you start a marketplace or any other startup, you do not have to think about your design’s fancy.

It would help if you focused on testing whether the problem exists and whether your solution works well for users who have this problem. And if they are ready to pay for your solution and so on, this is more valuable than having just a friendly marketplace website. You can have a very fancy design on your website with zero traction and zero conversion.

So it doesn’t make sense as an example. Craigslist has an awful design in the 21st century. However, check how many visitors Craigslist has before taking even existing software. You should create a list of assumptions and hypotheses that will help you understand whether your idea is viable, confirmed or not creates a list of assumptions.

Then you will better understand the easiest and most cost-effective way to test those assumptions and get the answers you look for before we move to the following reason why marketplaces go out of the market is.

Because founders usually do not have medium criteria or success, the minimum standards of success will help you to understand whether your hypothesis is confirmed or not. Let’s imagine that you launched a simple way of MEP that allows you to test your idea.

You assume that you can get 20 bookings of your service in one month through this MEP, and this 20 is a magic number. This is the main criteria of success that will help you to identify whether your hypothesis was confirmed or not without this number.

For example, you got ten bookings per month. Is it good or bad for your idea? Does it confirm your hypothesis or not? This is a mess, and many entrepreneurs have this problem. Because they do not understand whether they achieve excellent results and can move forward, this is not enough, and they should close their project.

Examples of failure of any eCommerce marketplace business

It also the primary reason why marketplaces fail is. Because founders see that their marketplace is for everyone, even Amazon doesn’t sell to everyone; Amazon is not available in many countries.

So people who live in those countries cannot use Amazon, so it’s not for everyone. Airbnb does not target everyone. Airbnb focuses on people who do not want to stay at hotels and look for something more unique. When Airbnb started in 2008, they targeted a particular audience of visitors of one of their inaugural conferences, just because all hotels were booked at that place.

However, those people still need to stay somewhere your initial target audience, let’s call them early adopters, has to be as narrow as possible.

If you start with many audiences, they require a specific approach to explain to them the idea of your marketplace. They have slightly different needs, and they require other marketing channels to reach out to them.

On the other hand, when you start with one audience, you can focus you can narrow down your pitch focus on one or two traffic channels that help you to bring the audience to your marketplace. This is much more efficient, and this will also help you focus on the feedback from this audience to make your product better for the exam.

Instead of getting feedback from several audiences and implementing different features, this is much more expensive. This is a very chaotic process. Seeing your early adopters, these are people who already have the problem you’re going to solve.

This problem is very tangible, and they already are trying to solve it. Somehow find them and offer them your solution, which is better than something that they already use. Create a user persona for these early adopters to describe those people.

At last, the last one is the eCommerce marketplace killer reason, a very messy one you do not think about the matrix from the beginning matrix. These indicators help you determine whether you move in the right direction, even if you have the list of assumptions and the minimum success criteria.

And you have a narrow target audience and a very simple and cost-effective MVP. If you ignore metrics, you probably will fail or have many problems’ matrix. These numbers help you understand how much you pay for one user that registers on your online marketplace.

Even how much your customer costs or the bounce rate on the last stage of your user flow many marketplaces, in the beginning, use expensive traffic channels customer acquisition cost is very high for them. Hence, acquiring one customer may cost twenty dollars, and the revenue you make from this customer is fifteen dollars.

So probably it doesn’t make sense to use the resource that we discussed here. But it takes some time to make it work. There were five main reasons why marketplaces and many other startups fail very fast.

If you don’t be prey for such reasons, be aware of some good eCommerce solution provider out there in the market that helps build an online marketplace with robust features to outgrow any reasons mentioned above.

Thanks for reading!!!

Ecommerce consultant