A digital marketplace makes money by deploying an online platform that digitally enables matches between parties.
Why consider it?
The model of a marketplace in which transaction-based deals are concluded between various parties is not new.
Thanks to developments in digital technology, it is now possible to create digital counterparts to physical marketplaces: digital marketplaces. In this model, the Internet is used as the infrastructure to put parties in contact with each other.
In the world of digital technology start-ups, the digital marketplace is becoming an increasingly dominant business model (source: Omar Mohout, Sirris). These are businesses that use the Internet as a channel to achieve a better match between a specific demand and an offer. Digital marketplaces are now emerging in almost every sector.
In some markets, value is delivered by finding relevant matches between parties (e.g. job market, real estate). Finding a match usually requires a significant amount of 'manual' effort. To achieve a higher degree of automation, digital algorithms can be applied. As well as making the offering more scalable, digital algorithms often increase the quality of the matches as the algorithm can take more parameters into account.
Once a digital marketplace is deployed and a large number of users have been activated, you can initiate recommendation as a service: learn from successful past matches to improve future matches. This can result in a self-sustaining, continuously improving service that your competitors may find hard to copy. Recommendations increase the quality of the matches, which in turn attracts more users to the marketplace, improving the quality of future recommendations, and so forth.
What does it involve?
Launching a digital marketplace entails developing a two-sided online platform that must be able to attract users from both sides with a dedicated value proposition (e.g. sellers and buyers).
At the heart of each digital marketplace is the digital matching algorithm that has to be designed. In some cases this can be straightforward but in other cases, sophisticated data analytics and/or machine learning techniques need to be applied.
Another key activity is community engineering. Business will only start booming when a sufficient critical mass of active users has been reached. Speed to market is important, so creators of digital marketplaces have to actively invest in the creation of a community of users. An important factor in this regard is the ease of joining of the marketplace (e.g. by API links to other social media platforms).