Dominant Rise of Marketplace Model in Indian Startups
Summary
TLDRThis video explores the marketplace model, exemplified by companies like Uber, Airbnb, and Swiggy, which dominate their sectors without owning the products they facilitate. It delves into the mechanics of horizontal and vertical marketplaces, the challenges of building a seller-buyer ecosystem, and the various revenue models including commission, subscription, listing fees, and freemium. The video also highlights an exclusive event by Accel India, 'Decoding Marketplaces,' aimed at educating aspiring founders and business leaders about India's marketplace ecosystem.
Takeaways
- 🚖 Uber, Airbnb, and Swiggy are examples of companies that dominate their sectors without owning the core products they facilitate.
- 🏪 These companies operate on the Marketplace model, acting as platforms for buyers and sellers to connect and transact.
- 🌐 The Marketplace model is characterized by a centralized platform, often a website or app, where transactions are facilitated without the platform owning inventory.
- 📈 The success of these platforms lies in their ability to create strong ecosystems of buyers and sellers, overcoming the 'chicken and egg' problem of attracting both parties.
- 💼 There are two main types of marketplaces: horizontal, which offer a wide range of products, and vertical, which focus on a specific category.
- 💰 Marketplaces generate revenue through various models, including commission on transactions, subscription fees, listing fees, and freemium models.
- 🔍 The commission model is the most common, where the platform takes a percentage from each successful transaction.
- 📊 Subscription models provide exclusive access and a higher quality experience for a recurring fee, which can be appealing for power users.
- 🏡 The listing model charges sellers for each product listed, which is effective for high-value items where sellers can profit from multiple listings.
- 🔑 The freemium model offers basic access for free to attract users, with the option to upgrade to premium features for an additional cost.
- 📚 Decoding Marketplaces is an event by Accel India, aimed at educating aspiring and successful entrepreneurs about the Indian marketplace ecosystem.
Q & A
What is the Marketplace model?
-The Marketplace model is a business strategy where a company acts as an intermediary between buyers and sellers, facilitating transactions without owning the products or services being sold. It's a platform that brings together different parties to discover and conduct business.
How do companies like Uber, Airbnb, and Swiggy operate without owning the core assets of their respective industries?
-Companies like Uber, Airbnb, and Swiggy operate by providing a platform for service providers and consumers to connect. They do not own the core assets such as taxis, real estate, or restaurants but instead facilitate transactions and provide services that enable these transactions to occur.
What is the difference between horizontal and vertical marketplaces?
-Horizontal marketplaces offer a wide range of products across different categories on a single platform, while vertical marketplaces focus on a single product category but offer a variety of options within that category.
Why do marketplaces like Amazon and Flipkart thrive in India?
-Marketplaces like Amazon and Flipkart thrive in India due to the large consumer base, the growing adoption of digital technologies, and the convenience they provide to both buyers and sellers. They also offer a wide range of products and services, catering to diverse needs.
What is the 'chicken and egg problem' in the context of marketplaces?
-The 'chicken and egg problem' refers to the challenge new marketplaces face in attracting both buyers and sellers simultaneously. Without a critical mass of either, the platform may struggle to gain traction, as sellers need buyers and vice versa.
How do marketplaces attract sellers to their platforms?
-Marketplaces attract sellers by offering simplicity, convenience, and often incentives such as lower fees or promotional support. They also provide tools and services that make it easier for sellers to manage their online presence and transactions.
What is the commission model in the context of marketplace revenue generation?
-The commission model is a revenue generation strategy where the marketplace takes a percentage of each successful transaction as a fee. This is justified as the marketplace handles payment processing and logistics for the transaction.
How does the subscription model differ from the commission model for marketplaces?
-The subscription model requires buyers, sellers, or both to pay a recurring fee to access the marketplace, often providing additional features or services. This contrasts with the commission model, where the marketplace earns revenue through a percentage of each transaction.
What is the listing model and how does it generate revenue for marketplaces?
-The listing model involves charging sellers a fee for each product they list on the marketplace. This model is often used for high-ticket items where the transaction typically occurs offline, and the marketplace acts primarily as a discovery service.
What challenges do marketplaces face when setting listing fees?
-Marketplaces face the challenge of pricing listing fees appropriately. If the fees are too high, sellers may be discouraged, and if they are too low, the value of premium listings diminishes, potentially reducing the incentive for sellers to pay for increased visibility.
How does the freemium model work for marketplaces?
-The freemium model allows both buyers and sellers to use the marketplace for free, with the option to pay for premium features or services. The goal is to attract users with the free version and then upsell them to the premium version as they become more reliant on the platform.
Outlines
🚖 The Rise of Marketplace Model Giants
The paragraph introduces the concept of the marketplace model, exemplified by companies like Uber, Airbnb, and Swiggy. These companies, despite not owning the core assets of their respective industries, have become dominant players by facilitating transactions between buyers and sellers. The video promises to delve into how these platforms operate and their success factors. The script also touches on the role of centralized platforms like Amazon, which primarily earns from logistics and fulfillment rather than owning inventory, highlighting the zero inventory model.
💼 Revenue Models of Marketplaces
This section discusses various revenue models employed by marketplaces. It starts with the commission model, where platforms earn a percentage from each transaction, justifying this fee through the provision of payment and logistics services. The subscription model is also explored, where users pay a recurring fee for enhanced access, as seen with Netflix. The listing model, where sellers pay for each product listed, is highlighted as suitable for high-value items. The paragraph also mentions the freemium model, where basic services are free, and advanced features require payment, exemplified by Slack.
📈 Decoding Marketplaces: An Event Overview
The final paragraph shifts focus to an upcoming event, 'Decoding Marketplaces,' organized by Accel India, a leading venture capital firm with a history of investing in successful startups like Flipkart. The event aims to gather aspiring founders and business leaders to learn about India's marketplace ecosystem. It also mentions the 'C to Scale' initiative, which includes interviews with founders of successful marketplaces. The paragraph concludes with an invitation for viewers to participate in the exclusive event and access valuable insights from industry leaders.
Mindmap
Keywords
💡Marketplace Model
💡Zero Inventory Model
💡Horizontal Marketplaces
💡Vertical Marketplaces
💡Chicken and Egg Problem
💡Incentives
💡Commission Model
💡Subscription Model
💡Listing Model
💡Freemium Model
💡Decoding Marketplaces
Highlights
Uber, Airbnb, and Swiggy dominate their sectors despite not owning the core assets—taxis, real estate, or restaurants—on which their businesses rely.
These companies use the marketplace model, connecting buyers and sellers without directly producing or owning the products or services.
The marketplace model allows platforms to act as intermediaries, facilitating transactions between independent sellers and buyers, while earning revenue through various methods.
Amazon's marketplace model is a zero-inventory model, focusing on logistics and fulfillment rather than directly selling products, despite having private label brands.
India has seen a massive success of the marketplace model, with platforms like Flipkart, Swiggy, Zomato, Cars 24, and Ola being prominent examples.
There are two main types of marketplaces: horizontal marketplaces (like Flipkart), which offer a wide range of products across categories, and vertical marketplaces (like Cars 24), which specialize in a single category.
New marketplaces face the 'chicken and egg' problem: attracting buyers without sellers, and sellers without buyers. Incentives are often used to overcome this hurdle.
Swiggy, for instance, used the 'Swiggy 50' coupon to attract new customers, offering 50% off on the first five orders to build its buyer base.
Making the selling process simple and convenient is crucial for attracting sellers, as they prefer ease over setting up their own platforms.
Marketplaces primarily generate revenue through the commission model, charging a fee per successful transaction, as seen with platforms like Amazon and Flipkart.
Some marketplaces adopt the subscription model, where buyers, sellers, or both pay recurring fees for premium access, as seen with platforms like Netflix and IndiaMart.
The listing model is another revenue stream, where sellers pay for each product they list, often used for high-ticket items like cars or houses.
The freemium model offers basic functionality for free but charges for premium features. This approach is commonly used by SaaS companies like Slack.
Marketplaces must carefully balance free vs. premium features to avoid frustrating users or making the platform feel inadequate without paid options.
Axel India, a venture capital firm that has invested in successful marketplace startups like Flipkart, Swiggy, and Zomato, is hosting an event called 'Decoding Marketplaces' to share insights on building marketplace businesses.
Transcripts
Uber doesn't own any taxis Airbnb
doesn't own any real estate swiggy
doesn't own any restaurants or even make
food yet all three of these companies
are giants they dominate their
respective sectors even though they're
not actually making the product their
business relies on without cabs Uber
would be nothing without accommodation
Airbnb would go bankrupt without
restaurants or food swiggy would be
useless so how does this work how is it
possible well these companies are using
something called The Marketplace model
where they simply act as a place where
people can shop transact a market you've
got sellers and you've got buyers and
the place where they go to convene where
they go to discover each other that's
Uber that's Airbnb that's swiggy Riders
discover drivers guests discover hosts
users discover restaurants and in
today's video I'm going to be explaining
how these platforms actually work and
why they're so successful
[Music]
foreign
marketplaces where buyers and sellers
connect is usually a centralized
platform oftentimes a website or an app
built by a giant company like for
example Amazon and yes Amazon does have
private label Brands they sell their own
products under a variety of names like
Amazon Basics or solimo there are
actually dozens of subsidiary companies
that Amazon owns and sells on their
marketplaces around the world but this
is really just a side hustle for Amazon
the real money isn't in their inventory
it's in logistics fulfillment it's in
being the middleman between sellers and
buyers helping them to connect
facilitating the virtual transaction of
goods and then the physical transfer of
goods so this is oftentimes referred to
as a zero inventory model where the
marketplace itself isn't primarily
focused on producing or buying products
that they then need to turn around and
sell to free up space in their
warehouses but this is actually just one
of two popular models and the other one
of course being the inventory model and
Nika is a pretty good example of this
because they actually store the products
themselves physically Lee as inventory
which means that they're able to
guarantee a higher standard of quality
and fulfillment for their customers
because they're in complete control of
that inventory now in India the
marketplace model has actually really
thrived which is why there's tons of
marketplaces everywhere that you look
I've mentioned two Nika and amazon.in
but some of the other ones are flip card
swiggy which I did mention earlier
zomato cars 24 and Ola these are all
marketplaces but one thing that I
haven't talked about yet are the two
categories of marketplaces horizontal
marketplaces and vertical marketplaces
so horizontal marketplaces offer
products across different categories on
a single platform with a similar level
of service so for example customers can
buy products on Flipkart ranging from
groceries to mobile phones to Fashion to
electronics Flipkart basically has
everything they're very horizontal
vertical marketplaces on the other hand
focus on just one product category but
they offer a lot of variety within that
category and cars 24 is a great example
of this because they buy in and sell
used cars and also provide other
services like for example car financing
of course one thing that I have failed
to mention here is that all of these
businesses are established Flipkart
swiggy and zomato cars 24 Ola Nike
Amazon they have strong seller and buyer
ecosystems that enable them to make
money and this isn't the case for every
Marketplace especially marketplaces that
are up and coming oftentimes you'll hear
startups that are trying to adopt a
Marketplace model refer to the chicken
and egg problem that is to say how do
you get buyers without Sellers and how
do you get sellers without buyers it's a
chicken and egg problem which came first
the chicken or the egg well there's
actually a tactic here that marketplaces
can use to attract both buyers and
sellers and that's incentives so
incentives and especially monetary
incentives are one of the most popular
ways of building an initial buyer seller
ecosystem so for example in the early
days Wiki used to give a coupon called
swiggy 50 where new customers would get
50 off on their first five orders now
this tactic does work well for buyers
yes but what about sellers well one of
the most crucial things a Marketplace
can do is make it as simple as possible
for sellers to start selling ultimately
the Reser a seller is approaching a
Marketplace instead of taking a DDC
approach is that they don't want to
spend the time money and resources to
set up their own platform they want the
Simplicity and convenience of a
Marketplace to do that for them but if
they find themselves confused and
stressed out they might just decide to
sell on a more streamlined Marketplace
like for example Amazon or flip card
instead so those are the basics of the
marketplace model but now let's actually
take a look at how these businesses make
money so the first method of generating
revenue from a Marketplace is called the
commission model and this is arguably
the most widespread way for a
Marketplace to make money they take a
commission for every successful
transaction and the reason they're able
to justify this is that they handle the
payment and logistics for each sale and
buyers and sellers are okay with losing
this money to commissions because
they're using these platforms for free
they don't have to pay a subscription to
have access to them they just use them
without any upfront payment and examples
of companies that use this model include
flip card Amazon and myntra now another
Revenue generator is called the
subscription model where either buyers
or sellers or both are charged a
recurring fee to access the marketplace
making it more exclusive and they're
willing to pay the subscription because
through it they gain access to a higher
quality experience and also sometimes it
actually allows them to save money if
they're a power user the cost of the
subscription ends up paying for itself
and Netflix uses this model where its
users are charged a recurring fee to
gain access to its entire library of
movies and web series of course this
model doesn't always work especially for
new marketplaces because they haven't
built the trust required to justify a
recurring payment unless they prove to
customers that the subscription is
valuable customers won't be interested
and will instead choose to shop on
marketplaces that are free to access and
for sellers if you're asking them for a
subscription they need to be absolutely
certain that that recurring payment is
going to give them more exposure to
potential customers than listing their
products for free on a Marketplace that
doesn't charge them anything one example
of a successful Marketplace using a
subscription model for sellers is
indiamart while indiamart is totally
free for buyers its main source of
Revenue is subscription fees received
from sellers now in the case of
platforms like indiamart you pay a
one-time subscription fee and list as
many products as you want but this isn't
exactly viable for every type of product
and that's where we need to discuss
another model called the listing model
with this model sellers are actually
charged for every single product that
they upload on the platform every SKU
and this model is utilized when Sellers
List High ticket items like cars or
houses sellers usually end up profiting
here from having more than one product
listed on the platform and the
marketplace actually benefits from this
as well because the more products the
seller lists the more Revenue the
marketplace brings in also this model is
usually implemented when the transaction
typically doesn't occur on the platform
itself the marketplace is is just a
discovery service and the actual
purchase happens offline so in this case
the marketplace can't charge a
commission but they can charge a listing
fee and it's also worth noting here that
some marketplaces will take a hybrid
approach where a listing fee is charged
for sellers who want to get their
product in front of more eyeballs so
they're willing to pay that premium
listing fee but if they prefer they can
also do it for free they can opt for
that option and customers can just
discover their listings more organically
and of course one of the challenges of
this model is pricing listing fees
appropriately if the fee is too high
then sellers might be scared off and if
the fee is too low then the value of
paying that premium listing fee for
visibility diminishes as competition in
the marketplaces premium segment
increases and you also don't want to
make the free listing functionality too
powerful or else sellers might not feel
that the premium listing fee is
Justified and they might just choose to
list for free instead and Achieve
similar results and finally now we have
the freemium model here the marketplace
can be used free of charge for both
buyers and sellers and the idea is that
once buyers and sellers get hooked to
the platform once they realize how
valuable it is for them then they don't
mind paying a fee or a subscription to
gain access to additional power user
features but this is also a tricky
balancing act for the marketplace
because you don't want to make buyers
and sellers feel like the platform is
useless without the premium
functionality otherwise they might just
get frustrated and leave but you also
want to make the premium functionality
powerful enough to pay for SAS companies
like for example Slack are a great
example of successfully navigating this
terrain so slack allows you to gain
access to basic features for free so you
onboard your whole team everybody gets
comfortable using slack and then as your
company grows and the need for premium
features becomes more and more apparent
then you switch over to the premium
model now obviously I myself have never
built a Marketplace I'm just telling you
guys what I know for my research and
also the conversations that I've had
with Founders and that's actually the
best way that you can learn more about
the ins and outs of business and
specifically in this case the nuances
and realities of running a Marketplace
business the founders of marketplaces
like swiggy taxi for sure and spinney
have so much knowledge and insight to
share with people who are willing to
take the time to listen to their advice
and so now I want to tell you about Axel
India's upcoming event decoding
marketplaces so Excel India for those of
you don't know is one of the leading
Venture Capital firms in India and they
usually work with early and growth stage
startups and they're also the first
investor in a little-known startup back
in 2009 called Flipkart and the one
million dollar check that they wrote as
seed money for this fledgling company
enabled Flipkart to set up their initial
operations and also gave confidence to
other investors to join the party now
flipgrid is just one of many examples of
excel successful lucrative portfolio
Investments they've also played a vital
role in shaping the sector and also
molding the future of many Marketplace
startups like for example swiggy Captain
fresh taxi for sure Zed work and black
buck and the amazing thing is that
they've actually compiled all of these
success stories on a platform called C
to scale as law long-form interviews
where they discuss everything from
achieving product Market fit to dealing
with large competitors and the first
link in the description of this video is
excel's YouTube channel where you can
find all of these full-length interviews
so decoding marketplaces this event
that's happening on December 1st is part
of the C to scale initiative and for
this event Excel is going to be bringing
together aspiring startup Founders and
also successful Business Leaders to
learn more about India's Marketplace
ecosystem and also how to navigate it
now I want to take this opportunity to
say a big thanks to Axel for
collaborating with us on this video and
if you want a chance to participate in
this exciting event or you just want to
learn about the stories of the founders
that have participated in their program
seed to scale then click on the link in
the description down below and by the
way this is an exclusive invite-only
event so it's a pretty rare opportunity
for backstage with millionaires viewers
to learn from India's top Marketplace
Founders so head over to the link in the
description down below for a chance to
win a ticket to this event and thanks so
much for watching this video I'll see
you in the next one
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