What's a vetted marketplace, and why is it so interesting?
The next evolution of marketplaces could be vetted, moderated – and more profitable. What vetted marketplaces are, and why they are so interesting for founders.
Traditionally, marketplaces have been a thing of large volume and small margins. ebay, for example, is a massive open marketplace, charging a selling fee of around 2.5%-5%. The job of ebay is just to create exposure for products and a bit more ease of payment handling, not much more. Even though this fee seems extremely inconsiderable, it helped ebay turn over $11bn in revenue in 2018.
Etsy is in a similar category, offering an entirely open marketplace, without many obstacles, and charges a 5% fee (and a few cents per listing) for the exposure, filtering, network effects and payment.
For a marketplace that means that in order to make money, they need to scale – a lot. If you run a small scale marketplace that averages $100,000 in sales and booking every month, you’re just getting around $5,000 of revenue with an Etsy model, damn!
What is a vetted marketplace?
A vetted marketplace is under closer management and moderation compared to an open marketplace like etsy, ebay and co. A fair example is Airbnb, which does offer exposure and easier booking, but also organizes insurance, issue resolutions, cancellation management and offers additional, exclusive info the bookers, like the amenities in the place you are staying in. That has their cost, for either you or the place you are staying in – about 14 - 20%.
Another great example is Empire Flippers. Empire Flippers is a vetted marketplace for businesses, meaning that they list and bring exposure to businesses that are looking to sell, but also vet the businesses that are getting listed (to make sure that the numbers are okay), help with estimating the worth of that business, and even help with a transfer. While Flippa, a more open marketplace in the same space, charges around 5% for a ~$100,000 listing, Empire Flippers can charge up to 15% for the same size of listings (and people pay gladly).
Why vetted marketplaces are more interesting
You could say that the fight for the “everything marketplace“ is over. Ebay, Etsy, Amazon & co. took the cake there. As a result of that, creators worldwide are starting to create their own little niche marketplaces – for indoor plants, for tech mentors, for surfing attire, drone rentals and much more.
If your market size is not in the tens of millions, but more so in the tens of thousands, having a 2.5% fee structure is not interesting. A vetted marketplace is often a better experience to the user (because they have a point of contact) and often times also offers better quality. Users or suppliers are happy to pay extra for that, because it often means that the experience is better (for one of the sides, anyways).
If you’re not looking to build a venture scale business, a vetted marketplace could be the solution that can take your business from a theoretical six-figure business to seven, eight figures and beyond.