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SaaS enabled Marketplaces [SEMs] offer the best of the both worlds for a savvy entrepreneur, but the model also comes with significant risks for less seasoned business owners. The novelty of this hybrid concept is intriguing, especially when a Google Trends report frowns upon requests with “Hmm, your search does not have enough data…”
As a software development partner with all types of products in our portfolio [including SaaS and marketplace projects], Dev.Pro has taken a deep dive into this concept. This is how to build a marketplace with SaaS enabled features.
Let’s consider a few figures from the universe of marketplaces and the SaaS industry:
- In 2021, customers spent $3.23 trillion on the top 100 marketplaces
- Amazon and eBay are the only two marketplaces with billions of monthly visitors. Amazon sees :5,2 billion monthly visits, while eBay sees 1.7 billion visitors every month.
- SaaS is responsible for 5.4% of IT spending in the US, according to Deloitte.
- In the 9-year period SaaS M&A volume grew at a CAGR of 22% to reach $24 billion by the year 2020.
SaaS + Marketplace = better than SaaS vs Marketplace?
Let’s define both of these concepts so we can better understand the hybrid model.
SaaS – Software as a Service is one of the 3 key types of cloud service models, which allows a user to take advantage of all of the application’s features without coding, manage infra config, and implement DB maintenance. With SaaS, customers get to use all of the app’s functionality at a reasonable monthly subscription fee.
Slack, Shopify, Dropbox, and MailChimp are SaaS products [some of them have a freemium version as well].
Pricing models are diverse and can include per user, flat rate, tiered rates, and usage-based pricing.
In terms of revenue streams, SaaS companies can also make money by offering upsells, getting commission from affiliate sales, running in-app ads, or offering custom integrations or premium support.
A marketplace is a platform that brings together the seller and the buyer, allowing each side to access features like item listings, payment, communications, notifications, and product catalogs.
Marketplaces have two customers to cater to, but they also have two customers to get revenue from: the buyer and the seller. Their revenue streams include: subscription plans, listing fees, commissions, lead fees, ads, sponsored items, and premium placement.
Amazon, eBay, Etsy are eCommerce marketplaces. Booking.com is a marketplace for hotels, Shutterstock allows you to buy / sell images and videos, while Uber facilitates the sales / purchases of rides.
This leads us to an answer to the question:
What is a SaaS-Enabled Marketplace?
SaaS-enabled marketplaces are hybrid platforms that combine an intuitive application for a user to manage certain tasks on a subscription basis with the possibility to extend the business model to multiple merchants in the manner of a marketplace.
The hybrid nature of the platform is exhibited vertically and horizontally, penetrating each step of the product design and development:
- SEM companies can opt for revenue models characteristic to SaaS and marketplaces, mixing and matching subscription plans, premium placements, fees, and commissions.
- Both the buyer and the seller sides may have SaaS features and/or marketplace features available.
- Design, development, deployment, and marketing all embrace the advantages and disadvantages of both models. For example, the freemium model allows these platforms to gain traction and MAU quickly, only to later convert it into commission and listing fees with added marketplace features.
The principle was formulated by Chris Dixon as “come for the tool stay for the network,” where a utility with limited functionality acts as bait for a set of offspring features.
Building a SaaS-Enabled Marketplace: the Chicken and Egg Dilemma
As the SEM format has evolved as a step up for leaders in search of bigger markets, or as a way for new entrants to differentiate themselves from the existing offer, there are 3 ways that SaaS-enabled marketplaces are born:
- SaaS products adding the marketplace features and merchant functionality
- Marketplaces add SaaS features, expanding the service offer for buyer or seller side
- SEM-native products, which learn the emerging model and embrace its diversity
Depending on your status quo, the decision lies on the crossroads of the answers to these questions:
- How saturated is the space with marketplaces / SaaS products in the chosen industry and location? [the more offers exist, the tougher it’s going to compete]
- Is it a horizontal SaaS or a vertical one?
- Do you have access to bootstrapping resources, angel investors or other forms of funding? [SaaS may be easier to raise money with a freemium subscription model providing good MAU enough to raise Series A funding.]
- How versed are your team members in the creation and promotion of marketplaces vs SaaS products?
- Which side of the supply-demand channel does your business idea address most? The vendor, the mediator, or the end user?
Once you know what single feature in your business idea is unique enough to attract both the users and the investors, how much expertise, talent and funds you have to get it off the ground, it’s time to build SaaS-based marketplaces.
Stages of Building a SaaS-Enabled Marketplaces
Depending on which side of the spectrum your market expertise and idea is closer to, you will start with building a SaaS or marketplace set of functionalities. However, details aside, most of the projects will go through these stages:
- Ideation: Industry-Insider or Investor-Driven
The business idea is mostly conceived of by a founder who is immersed in a topic of some industry and may see a gap in the offer and demand. As a user, the founder may experience a glaring lack of some commodity to connect the needs of a market with existing services.
Alternatively, and more rarely, ideas may come from serial entrepreneurs, who have knowledge of the startup ecosystem, and have the data to support potential demand in a certain business area. These people then procure the human resources needed to fill this void.
This also happens when a global solution is copied by local players with a good deal of localization features, like translation, currency, cultural fit. In this case, it’s a shift-and-lift matter with little ideation and lots of technical fine tuning.
It’s not uncommon to test the market at this stage as well by simply putting up a website and trying a few Google or Facebook ads to check the demand. This is what Yi-Hsian Godfrey, the co-founder of the child care marketplace Apiary, did as a small feasibility study for his now successful project.
- Marketing Research: Industry, Competitors, and Verticals
Marketing research is one of the steps taken lightly by all the novice business creators. But that’s why 3 out 4 venture-backed startups fail.
Lack of product market fit, poor marketing, and team and financial issues are often cited as the key reason for failures.
A proper market and feasibility study should provide a good overview of these aspects:
- Existing and addressable market
- Competition – existing and budding, global and local, big successes and major failures of similar products
- Potential demand, target audience segmentation, ideal user persona
- Monetization models and revenue streams
- Latest M&As, funding rounds and startup incubator finds
Vivisecting the existing inventory of similar business concepts will provide a glimpse into their positive and negative learnings saving time, money and common disappointments.
- Decide on Primary, Secondary and Auxiliary Monetization Methods
This one would have been part of the ideation and marketing research, but for the fact that we are dealing with developing a SaaS-enabled marketplace.
To reiterate, your final ideal-world product may monetize traffic in every known way across all parties: vendors, mediators, and end-users, and you will have to be very selective at the beginning. However, the primary source of monetization should be able to both ensure a steady stream of premium users and provide some understanding of the profitability of the concept as such.
Focus on your initial one or two major primary revenue streams, so that you have enough to burn through to reach the other modes of money-making.
- Project Specification & Documentation
At this stage, it’s best practice to set all of your findings in black and white, with roadmaps and deadlines and budget expectations. This set of documents will serve as the beacon through operational chaos, as well as a pitch deck for potential investors.
- UX UI Design
Wireframes and prototyping processes help the key project stakeholders to finally embody their idea into something tangible and tweakable.
It’s the time to both: create an intuitive app design that resonates with your User Persona, as well as focus on elaborating on your major milestone feature that is a core differentiating factor for your product.
Solution architects will also start their job of selecting the tech stack that best fits your purpose and budget, as well as proposing architectural solutions for the software product.
- Development & Testing
During the development stage your frontend developers and backend developers work in collaboration to embody the UX/UI design into code. QA testers will oversee the quality of code in a continuous manner, as the features are released. A project manager guides the process and coordinates it from the perspective of aligning to the product owners expectations, deadlines and budgets.
- Launch, Scaling & Maintenance
The software deployment stage is usually executed by a DevOps engineer who has an understanding of the architecture, development intricacies as well as operational particulars. Once the platform is deployed onto a cloud or hybrid environment so that your app is available to public users, it’s time to test it with live users and perfect it.
The scaling, maintenance and upgrade functions are critical to SaaS product development.
A properly planned application architecture will allow it to scale seamlessly without any downtime, high availability, or huge cloud cost hikes. An experienced cloud solutions engineer will ensure the paid for consumed capacity closely follows the actual consumed compute capacity.
Maintenance and upgrades come at a cost, so it’s vital you budget 20-25% of the total development cost to further finetune your software product as the user feedback starts pouring in.
Beyond this point, it’s more about marketing and promotion, acquisition, application optimization, customer satisfaction, service delivery for any SaaS or marketplace developers.
SaaS-Enabled Marketplaces Examples
As one of the most natural processes of emergence of a SEM is its evolution from a SaaS or from a marketplace, there are multiple examples of hybrid solutions and the boundaries get blurrier by the day. Potentially, every known marketplace may develop a SaaS-native revenue stream and vice versa.
Booksy is a marketplace to book beauty services in the neighborhood. When it comes to mobile apps, the brand has a business-facing application and a customer-facing one.
The beauty professionals can manage the entire booking process via the platform, offer their services and even have a set of marketing features to better handle the customer flow.
Users can find, review, and book the needed beauty service in their area with ease, add it to the calendar, and receive reminders.
OpenTable is another SEM example where a venture started as a table booking software offering only to grow into a marketplace later.
Users use the marketplace to search and book a table at a restaurant of choice according to specific search parameters.
Must-Have Features for SaaS-Enabled Marketplace
While the finite quality and quantity of features is defined by the industry, geography, market saturation, and user pains and gains, there are a standard set of modules that the majority of these hybrid products have:
- Product Management
- Cataloging & Categorization
- Commission Management
- Inventory Management
- Order Management
- Payment Processing
- Promotion Management
- Shopping Card Management
- Loyalty Program Module
- Ratings And Reviews
- Merchant Management
- CRM Or Customer Management Features
Naturally, this variety of features is costly to develop, but it allows for an array of additional ways of monetization, like merchant and transaction fees, listing fees, and premium placement fees.
Costs of Building SaaS Marketplace
As any software product, a SaaS marketplace can cost anything from $10,000 to $100,000 , depending on these factors:
- The complexity of a project
- The choice of a tech stack, programming languages, and cloud service solutions
[there are open source alternatives for many technologies, and the cloud solutions need a weathered cloud architect to procure just the right tools with the right instances in the right zones for cloud cost optimization]
- The rates charged by your software development partner
[this will depend on the team’s location. North American and EU-based teams are the most expensive, Indian and LatAm talent are cheaper yet debatable quality of delivery, while Eastern European and LatAm talent pools offer the best value-for-money]
- The engagement model
[this parameter establishes both your bounds of responsibility and pricing. Time and material, project-based, and team extension are the most popular contracting standards].
- The extent of product readiness
The best way to get a more specific pricing for your project is to place a few requests for proposals in your markets with software development companies like Dev.Pro. The more detailed your RFP is, the better the chances that you will be taken seriously by the outsourcing teams, and the more precise estimates you will receive.
A bonus feature of having a thorough RFP is that if you do come to the stage of actually contracting a short-listed IT development company, you may rely on the final budget to be no more than 10-20% off the estimate. A vague request for a commercial offer leads to vague results that change en route.
Expanding a Single-Feature Software Solution Into a SEM
During the SEM development, once the initial set of core features is built, deployed and launched, it’s time to expand them into the hybrid model of SaaS-enabled Marketplace.
For example, a product that started with a marketplace may want to start to extend into offering their end users taking advantage of the marketaplce’s specific features on a monthly subscription basis.
A SaaS-first product, on the other hand, may want to build on the traction they gained on the freemium model and provide opportunity for other businesses to take advantage of the solution and start trading on the platform as the merchant.
This evolutionary stage is an ongoing process for any ecommerce platform out there, be it a SaaS, marketplace, or a hybrid SEM format. As customer feedback comes in, new features get built, tested and deployed, new tools are being added to the tech stack, new markets are being tapped into by the acquisition team. So you are never really done with development.
However, given that the hybrid model has more user personas, features, revenue streams and overall architectural complexity, it takes a strain on app’s security, scaling, cost optimization, DevOps. It’s critical that your software development partner can offer a solid experience SaaS or marketplace development to support a smooth process.
Are you considering developing a marketplace with SaaS enabled features in EduTech, FinTech, FoodTech, InsurTech, retail, or HealthTech? Discuss your project with the Dev.Pro team — we have the experience to make the experience as frictionless and streamlined as possible in this fast-paced environment.
FAQ
A Software as a Service product can be a marketplace too — or at least have some marketplace features, like a vendor portal, merchant management, ecommerce integration, powerful search and filtering, recommendation engine, review management, product management, invoicing, and sales analytics.
SaaS-enabled marketplaces are now made in a cloud-native manner with a multi-cloud marketplace broker. This architecture will feature several agents servers, local databases as well as system DB. Each of the servers will also have their own runtime environments.
