What is a Two Sided Marketplace?
Two Sided Marketplace Definition
A two-sided, or double-sided, marketplace connects two groups of users: buyers and sellers. The marketplace platform itself is the intermediary between the two groups.
A few famous examples include Airbnb, Uber, and Etsy. These marketplaces act as the middleman to simplify transactions for both sides.
The marketplace operator, or merchant, makes their money through a number of different business models, but often charge a commission on every sale. For example, Uber and Airbnb charge service fees from both sides to make money.
Below, we’ll discuss:
How does a two-sided marketplace work?
A two-sided marketplace acts as an intermediary to match the supply and demand.
The following are three components of a 2-sided marketplace:
- Sellers list and fulfill orders: Sellers register, upload listings, and deliver products or services.
- Buyers browse and purchase: Buyers search for products or services, compare buying options, and then check out.
- The operators manage transactions: The marketplace operators manage payments, security, and sometimes logistics.
The success of a two-sided marketplace business model depends on what value you bring to both parties. For example, Upwork brings freelancers and businesses together. They provide value to businesses by sourcing freelancers, providing a ratings/review system, and handling contracts and payments. Freelancers gain access to clients, flexible work, and reliable payments.
Benefits of a two-sided marketplace
Here are the benefits of a two-sided marketplace for sellers, buyers, and operators:
Benefits for sellers
- Access to a larger customer base: Sellers can reach more buyers without taking on the marketing costs.
- Lower operational costs: The marketplace handles transactions, listings, and payments on the seller’s behalf.
- Built-in trust & credibility: In some cases, marketplaces have high brand value and credibility. They also use ratings and reviews to help sellers attract more customers.
Benefits for buyers
- More choices: Buyers can access a wider array of products, services, or professionals in one place.
- Competitive pricing: Because sellers are being listed alongside competitors, buyers can often find better deals.
- Convenience: They can browse, compare, and purchase from a single platform to save time.
Benefits for operators
- Easy earning model: Operators earn through commissions, listing fees, subscriptions, or ads without holding inventory.
- Low initial costs and risk: You don’t need to invest in inventory or pay upfront costs that may cause financial loss.
- Diversified monetization: You can earn from multiple revenue streams, including premium features, ads, and partnerships.
- Low operational costs: You focus more on management than fulfillment since sellers provide the products or services.
- Flexibility: You can set and control your seller/buyer guidelines, contract terms, and commission rates.
- Easy setup: You can use end-to-end low-code platforms like Nautical Commerce to build your marketplace quickly.
Two-sided marketplace business models
A two-sided marketplace makes money by powering business between buyers and sellers. Choosing the right revenue model depends on your marketplace's structure and user expectations. Many two-sided marketplaces use a mix of these strategies to maximize revenue.
Here are the most common two-sided marketplace business models:
Commission-based
The marketplace takes a percentage of every sale. This is the most common model because it aligns platform revenue with seller success. The more sellers earn, the more the marketplace makes.
Platforms like Airbnb charge guests and hosts a service fee on bookings, while Etsy deducts a percentage from every product sold.
Subscription-based
Sellers and/or buyers pay a recurring fee to list their products or services, regardless of sales. This works well for high-value marketplaces where sellers benefit from ongoing exposure.
For example, you might think that LinkedIn is just a social media platform, but it also operates a two-sided marketplace. With their LinkedIn Recruiter subscription plans, recruiters pay a monthly fee to get wider access to the talent pool on the site.
Listing fees
Sellers pay a fee to list each item on the marketplace, whether it sells or not. This model is ideal for marketplaces where inventory moves quickly or has a high profit margin. eBay charges sellers a fee per listing after their first 250 listings, which they call an insertion fee. With this business model, they make revenue even if the item doesn’t sell.
Lead generation
Marketplaces connect buyers with service providers and charge for lead access. Instead of paying per transaction, businesses pay for potential customers. Thumbtack and HomeAdvisor are two-sided marketplaces that charge professionals when a customer reaches out for a quote.
Ads & sponsored listings
Marketplaces with high traffic sell ad space or offer sellers the ability to boost their listings for more visibility. Zillow serves as an example of a two-sided marketplace using advertising fees. Through its Premier Agent program, Zillow connects real estate agents with potential buyers and sellers. Agents pay for advertising in specific ZIP codes, with costs varying based on factors like market demand and competition.
Two-sided marketplace examples
Two-sided marketplaces can work in all types of industries. Here are some examples of different types of two-sided marketplaces:
Faire’s two-sided B2B marketplace
Faire is a wholesale marketplace that connects independent retailers with wholesale brands, allowing them to source and distribute products. It charges a commission for each order and has net payment terms to retailers.
Retailers (buyers) can discover and stock unique products with risk-free returns, while independent brands (sellers) gain access to a vast retail network with flexible payment options and localized logistics.
Reverb’s physical goods marketplace
Reverb lets users buy and sell new, used, and vintage musical instruments and gear. It’s a unique two-sided marketplace that connects musicians, retailers, and brands worldwide. Reverb takes a percentage of each sale and offers premium seller services.
Workrise’s two-sided marketplace for services
Workrise (formerly RigUp) is a labor marketplace for skilled trades in industries like oil & gas, construction, and renewable energy. The platform solves labor shortage problems and simplifies contract management for companies while helping workers secure higher-paying opportunities.
Workrise earns revenue by taking a percentage of contractor payments or charging companies a hiring fee for placements.
Sniffspot’s Peer-to-Peer Marketplace
Sniffspot is an "Airbnb for dogs," where homeowners rent out their yards as private dog parks. It caters to dog owners who want a safe, off-leash space for their pets.
This model benefits both sides. Dog owners get access to safe, uncrowded spaces. And homeowners earn passive income from unused yard space.
How to build a successful two-sided marketplace
Here’s how you can build a successful two-sided marketplace:
Step 1: Pick a niche and target audience
A successful two-sided marketplace starts with a clearly defined niche. The more specific, the better. It helps attract the right buyers and sellers, build a strong brand, and create a focused marketing strategy.
Here’s how to get it right:
- Validate market demand: You can run surveys, analyze competitors, and look at industry trends
- Identify pain points: What problems do users face that your marketplace can solve? Remember, it needs to solve a problem for both sides
- Define your ideal users: Create buyer and seller personas based on real data, not assumptions
By narrowing your focus early, you avoid creating a generic platform that struggles to gain traction. Instead, you build something that directly meets user needs, making it easier to grow and monetize.
Most successful marketplaces start by focusing on a specific niche and building their reputation around it. For example, eBay started as the go-to platform for second-hand goods. Depop carved out its space in unique fashion. And Zillow established itself as the leader in real estate listings. By focusing on one niche, they created a clear value proposition and attracted the right users.
Step 2: Choose the right marketplace platform
Should you develop a custom marketplace from scratch or use a marketplace platform?
The is the question most founders face at the beginning of their marketplace journey.
Building from scratch means designing, coding, and maintaining the infrastructure yourself. You need a large upfront investment, a team of developers, and months of work before launching.
With marketplace platforms like Nautical Commerce, you can build a two-sided marketplace quickly and without tech resources. The end-to-end platform handles everything from vendor onboarding to secure multi vendor checkout.
This saves time and money so you can focus on growth, user acquisition, and optimizing the experience for your users.
Step 3: Solve the cold-start problem
When operating a marketplace, you need to overcome the cold-start problem. Sellers won’t join without buyers, and buyers won’t come without enough sellers.
The general rule of thumb is to focus on acquiring sellers first, then buyers. Buyers won’t come if you don’t have any sellers, but sellers may agree to list their products/services.
There are many strategies you can use to attract sellers, including lower transaction fees, free listings, or upfront payments. Once you have enough sellers, shift your focus to attracting buyers through targeted marketing efforts.
🔵 Check out Marketplace Bootcamp to learn more about building your supply and demand. 🔵
It’s important to note that starting with supply isn’t a hard and fast rule. Some marketplaces can begin with buyers, too. For example, OpenTable secured restaurant reservations from diners to build value before onboarding more restaurants.
Step 4: Implement trust and safety measures
Your marketplace needs to have a strong trust factor. There are many ways you can build trust on your marketplace (and even more ways to break that trust).
The first thing that comes to mind when talking about trust is secure payments. After all, buyers don’t purchase if they fear scams, and sellers don’t list if they’re unsure about payments. Use secure payment gateways like Stripe, PayPal, and Visa to reduce fraud risk.
Escrow services can hold funds until both parties fulfill their obligations. And anti-fraud systems can detect suspicious activity to prevent chargebacks and disputes before they happen.
Beyond payments, trust comes from transparency and communication. Allow only verified reviews and ratings so buyers rely on real feedback, not fake reviews. In case of disputes and refunds, have structured complaint handling, responsive customer support, and well-defined refund policies. The faster you resolve issues, the more buyers and sellers you can retain.
🔵 Read more about building marketplace trust 🔵
Step 5: Optimize the user experience
A complicated onboarding process or complex UX can drive buyers and sellers away. Sellers need quick sign-up, easy listing tools, quick third-party app integration, and instant payouts. Buyers expect fast search, quick navigation to find what they need, and a seamless checkout experience.
To improve user experience, regularly test your marketplace’s UX and update guidelines to keep things clear. Provide step-by-step instructions to help users navigate the platform with ease. Features like bulk uploads and seamless integrations with accounting, ERP, or CRM systems can make onboarding smoother.
The easier it is to buy and sell, the more engaged and active your users will be.
Step 6: Monetizing your marketplace
Not all marketplaces have the same revenue model. You need to choose a monetization lever and adopt other revenue streams that align with your user success.
Commissions work for high-volume transactions, while subscriptions make sure you earn a recurring income. Listing fees, ads, and premium seller tools can supplement revenue, but high costs may deter sellers.
Avoid hidden charges and unclear revenue-sharing models. Make sure your buyers see what they’re paying for and your sellers are hyper-aware of their earnings.
If you want to balance profitability with seller success, offer value-added features like better visibility, real-time analytics, or fulfillment services to justify your platform fees. When sellers see clear benefits, they’re more likely to reinvest in your marketplace.
For example, Upwork offers sellers the option to subscribe to Freelancer Plus, which provides increased proposal visibility and insights into competitor bids. This added value encourages freelancers to stay invested in the platform.
Step 7: Scaling your marketplace
Once your marketplace reaches a steady sales volume, expansion becomes the next challenge. Scaling too fast without demand can drain resources and lower quality. Two common expansion routes are adding new geographies or new product categories.
For geographic expansion, analyze local demand, payment methods, and logistics. Market preferences and regulations vary, so applying a one-size-fits-all approach can backfire. If expanding into new categories, focus on adjacent markets where existing users have already shown interest.
But expansion alone isn’t enough. You need to balance demand and supply. If sellers outnumber buyers, invest in marketing and partnerships. If demand exceeds supply, offer incentives to attract vendors.
How Nautical Commerce helps you build a two-sided marketplace
Coding a marketplace requires huge budgets, a full engineering team, and ongoing maintenance. A marketplace platform is a faster, more cost-effective, and scalable way to launch and grow. With a ready-to-use infrastructure, you can launch your marketplace in weeks instead of spending time on development.
Nautical Commerce offers an end-to-end platform to build a marketplace without investing thousands of dollars in technical setup.
Below's an overview of some of Nautical's key features.
Multi-vendor management
Nautical lets you onboard and manage multiple vendors from a single dashboard. Our platform gives you complete control over seller contracts, payout approvals, commission rates, and product catalog management.
Multi-vendor checkout for buyers
Buyers can check out multiple products from different vendors in a single transaction. Nautical automates multi-vendor management by notifying each vendor, calculating vendor payouts, sending emails, and updating shipping details to buyers.
You can also track real-time order status, inventory, and fulfillment processes from your dashboard.
Product catalog organization
You can customize your product catalog on your marketplace by adding product types, categories, and collections. Unlike custom development, our ready-made product catalog configurations are less of a technical headache and more detail-oriented.
Headless and API-first flexibility
Nautical lets you customize your marketplace for a branded user experience. We provide low-code tools and developer-friendly API for both technical and non-technical users.
You can build your marketplace stack using our headless architecture and 300+ API integrations to customize every detail. You can even add webhooks to trigger automation workflows to speed up recurring approvals such as payouts.
Financial management
On a two-sided marketplace, finances can get complex quickly without proper management. Financial ledgers are integrated into Nautical’s platform, enabling double-entry bookkeeping for merchants — a marketplace best practice. This ensures accurate tracking of the money coming in and money going out.
You can also automate and resolve disputes, refunds, and chargebacks using our one-click interface dashboard.
Independent seller portal
Sellers get access to their own portal so they can upload products, keep track of fulfillment workflows, and track performance insights.
Built-in analytics and reporting
Nautical provides powerful analytics to track multiple vendor profiles by order status, inventory, payouts, and sales in easy-to-read infographics. This helps you track vendor performance and optimize your marketplace.
Easy integrations for scalability
You can import your existing data through our third-party integration features. Nautical lets you connect your ERP, CRM, accounting, marketing, and other operating systems to synchronize data-sharing on the marketplace.
Other features you should know:
- Logistics and inventory: Nautical lets you track inventory and choose logistics options, including who ships orders (marketplace or seller), who sets shipping rates, and which countries are supported.
- Role-based permissions: The software lets you control staff access with role-based permissions. Sellers manage only their data, while you can oversee everything. This keeps data secure and operations organized.
Case Study: How a founder built a two-sided marketplace using Nautical
The problem
On the one side, farms often struggle to manage their own ecommerce stores due to limited tech resources, high costs, and complex logistics. On the other side, buyers want access to local food but struggle to access convenient options. Indie Food wanted to give independent food producers and farmers an easier way to sell online and buyers an easier way to access them.
The solution
Indie Food used Nautical Commerce to create a two-sided marketplace for local grocery shopping.
Nautical enabled them to:
- Connect food producers with online shoppers through a shared platform
- Launch quickly without the need for heavy upfront investment
- Automate key processes like inventory management, payments, and order fulfillment
"By drastically lowering the cost to entry, Nautical makes it easier to get started. We aren't weighed down by hundreds of thousands, if not millions, of dollars in development cost and time." - Corey Berman, Founder of Indie Food
The results
- Faster time-to-market: Indie Food launched in months instead of years
- Low cost to launch: Instead of putting resources into building from scratch, Indie Food can focus on growing its supply and demand
- Simple vendor experience: Vendors of all ages can use the platform to list products and fulfill orders
Final thoughts: Is a two-sided marketplace right for you?
A two-sided marketplace can be profitable, but it depends on how you balance supply and demand, leverage network effects, establish trust, and manage operations.
For a marketplace to succeed, you need to offer value to buyers and sellers while solving these challenges. This requires a solid infrastructure. One that allows you as the merchant to focus on both your user groups without being preoccupied with the technology.
Learn more about how Nautical simplifies building a two-sided marketplace. Sign up for a free trial.