Platforms like eBay, Etsy, and Upwork exemplify the “Open Marketplace” model. They are massive, accessible to everyone, and rely on scale. They charge a relatively low fee (5-10%) because they don’t do much hand-holding. They provide the table, you bring the dinner.
For huge companies, this works. eBay generated $11 billion in revenue in 2018 by collecting pennies on millions of transactions.
However, for a new marketplace startup, this model is a trap. If you are running a niche marketplace with $100,000 in GMV, a 5% take rate gives you $5,000 in revenue. That barely pays for the server costs, let alone a salary.
Enter the Vetted Marketplace.
What is a Vetted Marketplace?
A vetted marketplace (or “Managed Marketplace”) flips the script. Instead of letting anyone in, you act as a gatekeeper. You heavily curate the supply, ensuring that every listing is high-quality.
In exchange for this curation, trust, and white-glove service, you can charge significantly higher fees – often 15% to 30%, or even more.
Key Differentiators:
- Quality over Quantity: You might have 500 amazing suppliers instead of 50,000 mediocre ones.
- Trust: Buyers don’t need to worry about being scammed or hiring a dud. You’ve done the homework for them.
- Enhanced Services: You offer insurance, dispute resolution, or project management.
- Higher Take Rate: Because you add more value, you capture more value.
Examples of Successful Vetted Marketplaces
1. Toptal vs. Upwork
Upwork is open. You post a job, and you get 50 proposals, 45 of which are spam. You have to sift through them yourself. The platform provides the connection, but you own the risk.
Toptal is vetted. They claim to accept only the “Top 3%” of freelancers. When you go to Toptal, they hand-pick a developer for you.
- The Difference: Toptal charges premium rates and takes a much larger margin because they save the client dozens of hours of hiring time and remove the risk of a bad hire.
2. Empire Flippers vs. Flippa
Flippa is an open marketplace for buying websites. You can find great deals, but you can also buy a scam site with fake traffic. It’s the Wild West.
Empire Flippers manually vets every business. They check the P&L, verify the traffic, and interview the seller.
- The Difference: Buyers trust Empire Flippers with six and seven-figure transactions, allowing Empire to charge a 15% commission on million-dollar deals. Sellers are willing to pay it because they get access to serious, qualified buyers.
3. Airbnb (The Hybrid)
Airbnb started relatively open but has moved towards vetting with programs like Airbnb Plus, where homes are inspected for quality, design, and amenities. This allows them to target higher-end travelers who would otherwise book a hotel.
The Spectrum of Vetting
Vetting isn’t binary. It’s a spectrum.
- Light Vetting (Identity): Verifying email, phone number, and social profiles (e.g., Uber). This builds basic safety.
- Medium Vetting (Portfolio): Reviewing past work or checking a license (e.g., Rover for dog sitters). This builds competence.
- Heavy Vetting (Skill): Coding tests, live interviews, and background checks (e.g., Toptal). This guarantees excellence.
The deeper you go, the more operational overhead you have, but the more you can charge.
Why Vetted Marketplaces Are Winning
1. The “Paradox of Choice”
Consumers are drowning in options. They are tired of reading 500 reviews to buy a toaster. They are willing to pay a premium for curation. They want an expert to say, “This is the best one for you.”
2. Higher Unit Economics
In a niche market, you can’t survive on volume. You need high Average Order Value (AOV) and a high take rate. If you sell a $10,000 service and take 20%, you make $2,000 per transaction. You only need 50 transactions a month to build a solid business.
3. Stronger Moats
An open marketplace is easy to copy. A vetted marketplace is hard. The “moat” is your operational expertise and your reputation. If people trust your brand’s seal of approval, that is a defensible asset that cannot be easily replicated by code.
Challenges to Consider
While vetted marketplaces offer numerous advantages, they also come with challenges:
- Resource Intensive: Vetting requires human time. You need a team of experts to interview candidates or inspect goods.
- Scaling is Harder: You can’t just open the floodgates. Your growth is limited by how fast you can vet supply.
- Bottlenecks: Your vetting team becomes the bottleneck for growth.
Strategies for Building a Successful Vetted Marketplace
- Define Clear Standards: Establish strict criteria for what “good” looks like. Be transparent about your rejection reasons.
- Automate Where Possible: Use automated tests or video interviews to filter the top of the funnel so your humans only talk to the best candidates.
- Offer Value-Added Services: Don’t just take a cut. Provide contracts, insurance, or tools that make your suppliers’ lives easier.
The “Vetting Funnel”
Think of your supply acquisition like a sales funnel.
- Top of Funnel: 1,000 Applicants (Automated form)
- Middle of Funnel: 200 Pass automated test (Code challenge / Video submission)
- Bottom of Funnel: 50 Pass human interview (Culture fit / Soft skills)
- Live Supply: 50 New Suppliers
By structuring it this way, you can maintain high standards without hiring an army of recruiters. You only spend human time on the most promising 20% of applicants.
Operationalizing Vetting (The Stack)
You don’t need a custom backend to start vetting. Use a “No-Code” stack:
- Typeform: For the initial application and quiz questions.
- Zapier: To route applications.
- Checkr: For automated background checks.
- VideoAsk: For asynchronous video interviews (candidates record themselves answering questions).
- Airtable: As your “Applicant Tracking System” (ATS).
This stack allows you to process hundreds of applicants a week with a very small team.
The Economics of Vetting
Is vetting worth it? Let’s do the math.
Open Marketplace:
- CAC: $100
- LTV: $300
- Ratio: 3:1
Vetted Marketplace:
- CAC: $500 (Higher because vetting costs money/time)
- LTV: $2,500 (Higher AOV, higher retention, higher trust)
- Ratio: 5:1
Even though it costs 5x more to acquire and onboard a supplier, the value they generate is 8x higher. Vetting is an investment in LTV.
Pricing Power and Margins
The biggest advantage of the vetted model is pricing power. When you act as a guarantor of quality, you are no longer just a “connector”; you are an “insurer”.
Clients pay for the absence of risk.
If a company hires a developer on Upwork for $50/hr and the project fails, they blame the developer. If they hire a developer on Toptal for $100/hr and the project fails, they blame Toptal.
Because you take on that reputational risk, you earn the right to charge a premium. This allows for much healthier unit economics and the ability to spend more on CAC (Customer Acquisition Cost) than your open competitors.
Conclusion
The era of the “Craigslist unbundling” is largely over. The new wave of marketplaces are vertically focused and heavily managed. By prioritizing quality, offering enhanced services, and fostering trust, these platforms can command higher fees and deliver superior experiences.
If you are building in a high-stakes vertical (childcare, healthcare, M&A, expensive freelance), vetting is almost mandatory. Trust is the currency. You don’t need to be the “Everything Store”. You just need to be the “Best Store” for your niche.
Optimize Your Vetting Process with Twosided
Managing a vetted marketplace requires tracking not just transactions, but the quality of your supply over time.
Twosided helps you monitor the lifecycle of your vetted suppliers:
- Supplier Performance: Do your “Top 1%” actually get better ratings than the rest?
- Churn Prediction: Identify when your best suppliers are at risk of leaving.
- Utilization Rates: Ensure your vetted suppliers have enough work to stay happy.
Don’t let your standards slip as you scale. Keep your marketplace high-quality with Twosided.