Dominant Rise of Marketplace Model in Indian Startups

Summary

This 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

00:00

🚖 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.

05:01

💼 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.

10:02

📈 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.

Keywords

💡Marketplace Model

The Marketplace Model refers to a business strategy where a company facilitates transactions between buyers and sellers without owning the products themselves. In the video, companies like Uber, Airbnb, and Swiggy are highlighted as examples of the marketplace model, where they provide platforms for services but do not own the physical assets such as taxis, real estate, or restaurants.

💡Zero Inventory Model

The Zero Inventory Model is a business approach where a company does not hold physical inventory but instead acts as an intermediary between buyers and sellers. The video explains that Amazon, despite having its own brands, primarily makes money from facilitating transactions and logistics rather than selling its own inventory, exemplifying the zero inventory model.

💡Horizontal Marketplaces

Horizontal Marketplaces are platforms that offer a wide range of products across different categories. The video uses Flipkart as an example, noting that it provides everything from groceries to electronics, showcasing the broad scope of a horizontal marketplace.

💡Vertical Marketplaces

Vertical Marketplaces focus on a single product category but offer a deep variety within that category. Cars24 is given as an example in the video, where the platform specializes in used cars and related services, highlighting the niche focus of vertical marketplaces.

💡Chicken and Egg Problem

The 'Chicken and Egg Problem' in the context of the video refers to the challenge new marketplaces face in attracting both buyers and sellers simultaneously. The video suggests that without sellers, there are no products for buyers, and without buyers, sellers have no market, creating a cyclical dilemma for new platforms.

💡Incentives

Incentives are strategies used by marketplaces to attract and retain both buyers and sellers. The video mentions Swiggy's use of a 'swiggy 50' coupon as an example of a monetary incentive to attract new customers, illustrating how incentives can be a powerful tool for building a marketplace's ecosystem.

💡Commission Model

The Commission Model is a revenue generation strategy where a marketplace charges a percentage or fixed amount for every successful transaction. The video explains that platforms like Flipkart and Amazon use this model, justifying the fees by providing payment and logistics services, and not requiring upfront subscription fees from users.

💡Subscription Model

The Subscription Model involves charging users a recurring fee to access the marketplace's services. The video points out that while this model can provide a higher quality experience and cost savings for power users, it requires a level of trust and perceived value that newer marketplaces might not yet have established.

💡Listing Model

The Listing Model is a fee structure where sellers pay for each product they list on a marketplace. The video uses the example of high-ticket items like cars or houses, where sellers are willing to pay listing fees in exchange for the potential of making a significant profit from each sale.

💡Freemium Model

The Freemium Model allows basic access to a platform for free, with the option to pay for premium features. The video discusses how platforms like Slack use this model, offering core functionality at no cost to attract users, then upsell to premium features as users become more reliant on the platform.

💡Decoding Marketplaces

Decoding Marketplaces refers to the event organized by Accel India, aimed at educating aspiring startup founders and business leaders about India's marketplace ecosystem. The video positions this event as a valuable opportunity for learning from successful founders and navigating the complexities of the marketplace business model.

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