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Marketplace Best Practices
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October 17, 2023

Build vs Buy: What to Consider for Your Marketplace Software

Nicole Kahansky
Nicole Kahansky
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Key Takeaways

  • Launching a marketplace is expensive and time-consuming: over half of firms spend $3M or more and take over 6 months to launch
  • Both buy and build approaches have their own challenges, with building fully from scratch coming with significant risk and cost. 
  • The best option for most businesses is to buy and build: buy the backend and build the front-end. 

Marketplaces are the future of ecommerce, giving businesses the power to expand their offerings to meet buyers’ growing and diversifying needs while simultaneously giving buyers access to more product and service options

In fact, marketplaces facilitated $1 trillion worth of transactions in the retail and travel segments alone in 2020, expected to grow 15% annually through 2025. Consumers are making their preferences for marketplaces clear, and businesses that can capture some exuberance have room to scale.

Many businesses exploring the idea of launching a marketplace of their own face a common dilemma: Does it make more sense to custom-build it using in-house resources or to buy a platform from a technology provider?

It can feel like a difficult puzzle to solve without fully understanding what either entails. Both options have pros and cons, and the best option for one business might not suit another.

The best advice? Don’t choose one or the other. Do both.

This article reviews:

Wh‎at are the costs of creating a marketplace?

Whether you decide to buy or build your own platform, the first thing you need to consider is the general cost of creating an online marketplace. In both cases, the investment is significant and ongoing. 

According to a recent Forrester study commissioned by Nautical, over half of firms spent $3M or more to launch their own marketplace, while 100% of respondents hired more employees to help with its adoption and management. Nearly half hired more than 15 employees.

More than half of respondents
Source
         

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Also, marketplaces require a long runway to launch, even for firms that purchase their platform straight from a vendor. 66% of Forrester’s respondents took over six months to launch their marketplaces, while 36% needed over a year.

Wh‎at are the pros and cons of building your own marketplace? 

Pros of building your marketplace 

Highly customizable

Building your own platform allows you to include all of your dream marketplace features, but this level of customization comes with significantly more risk. Firms that build their own marketplaces need to carefully balance their custom features with the platform’s basic functionality, all without going over budget or over schedule.

Cons of building your marketplace

Challenges with internal adoption 

You may think that custom-building your marketplace will make it easier to meet employees' expectations and needs, but the numbers show that internal adoption is generally lower for custom platforms.

According to the Forrester study, 70% of respondents with self-built marketplaces had difficulty with internal teams’ willingness to use the new technology, compared to 47% of those with vendor-supported platforms.

Challenges with vendor adoption 

Third-party sellers’ ability to pick up and use your platform is also vital to your marketplace’s success. If you can’t entice vendors to sell on your marketplace, it won’t matter how many cool, unique features you’ve included.

70% of respondents to the Forrester study with self-built marketplaces reported that third-party sellers’ ability to adapt to the platform was a challenge during launch, compared to 46% of those with purchased marketplace platforms.

Graph depicting firms that purchased vendor marketplace solutions faced fewer challenges w adoption

         

Higher cost

Building a custom marketplace will never be the most cost-effective path to launching a marketplace. There’s a very real risk of going over budget and sacrificing time, money, and efficiency for the sake of dream features.

According to Forrester, respondents with self-built marketplaces were 43% more likely to spend $6 million or more on the build than those who purchased their platform from a vendor.

Wh‎at are the pros and cons of buying a marketplace software solution?

Cons of buying a marketplace platform:

Less customizable 

The lack of customization options in vendor marketplace software solutions is a big part of what makes the build vs buy debate so difficult for businesses to settle.

However, spending time customizing the backend of your marketplace is a waste of time. At the end of the day, all marketplaces have the same plumbing, so customization beyond what a technology solution provides isn’t always necessary to meet your needs.

Pros of buying a marketplace platform: 

It’s easier to scale

As your business grows and encounters new challenges, the technology that underpins its operations will need to adapt in tandem. 

This is much easier when companies have access to the experience and resources of pre-built marketplace platforms. Technology providers take care of scaling digital operations. Instead of hiring more staff to operate as you scale, an effective platform takes on the brunt of the backend work and automation required— freeing up valuable resources for other, high-value tasks.

You’ll get to market faster

While launching a new marketplace will never be an overnight affair, businesses that skip reinventing the wheel and buy their marketplace platforms from vendors get up and running much faster. 

The faster a marketplace goes live, the faster you can validate your business model, expand, acquire sellers, and tap into its growth potential. 

Our advice? Follow a crawl, walk, run trajectory instead of a boil-the-ocean approach.

It’s less expensive

Buying a marketplace platform is far less expensive than building one yourself.

No matter what type of marketplace you’re running, the plumbing behind the scenes remains the same. So why spend money building something from scratch — including paying for all of the ongoing hosting, software, and security management — when you could invest in your core business instead?

🔵 Learn more about marketplace platforms 🔵

Ev‎aluating your options: It’s not buy vs build, it’s buy and build 

Launching a new platform isn’t as simple as picking one side in the build vs buy argument. The best option for most businesses is to buy and build: buy the backend and build the front end.

This mixed strategy gives businesses the ability to deliver the reliable and seamless platform experience to sellers and employees that pre-built options provide, while still enjoying the customization options of the build-from-scratch approach.

By investing in a platform with all of the backend required for workflow orchestration and multi-vendor support, your business can allocate its precious development resources toward crafting distinctive buyer experiences.

Strike the perfect buy and build balance

If you’re trying to launch a new marketplace, the build vs buy debate isn’t as black-and-white as it seems. 

Building a platform from the ground up is expensive, time-consuming, and often leads to lower adoption rates than those bought from vendors. However, creating a unique buying experience for your customers is an important part of what differentiates your business — and the customization capabilities aren't always available in an entirely out-of-the-box solution.

The best solution is to marry the two options into a single approach: buy and build. 

Nautical Commerce’s multi-vendor marketplace platform can take on the heavy lift required for your back-end while giving you the freedom to customize your unique front-end experience.

Additional resources: 

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