One of the hardest things about marketplaces is that you typically only get a very small rake. 10% of services is common. After transaction fees, you may be left with just 7% of gross services. So, even if you’re doing 100M in gross services, you’re really still doing less than 10M in net revenue. Some marketplace businesses have started monetizing at least in part through higher-margin software fees.
There is a new trend emerging which combines two of the most beloved business models in tech.
SaaS + Marketplace
SaaS (software as a service) models are very well understood and straightforward. A customer pays a monthly fee to be able to use a hosted software solution.
Marketplaces are also very common business models. You simply take a percentage of all the transactions that you facilitate through your platform.
What happens if you combine these things together?
The SaaS gets better.
One of the issues with selling SaaS is that the tools often enable a new use case in the company that the company is not prepared to staff. Take Optimizely as a hypothetical example. They provide a great tool for A/B testing, but maybe the internal resources are not in place to actually design a whole bunch of new landing pages. This creates a hurdle for a company to adopt the software solution that may create longer sales cycles or lower sales conversion.
Now imagine Optimizely + a Designer Marketplace. This becomes more of a complete solution and a company can adopt both the software and the designers to start testing pages immediately. Additionally, it ensures that they will get the full value from the great SaaS tools. This fits with Chris Dixon’s theme of owning the “full stack.”
Not only that, all of the designers on Optimizely’s platform will be very experienced using Optimizely so they can take full advantage of all the features and functionality. They will also likely be product evangelists and can help the classic land and expand type SaaS strategy. Maybe even comp them for upsells of the product within organizations they’re working for.
- Sales cycle decreases
- Sales conversion increases
- Value from SaaS increases
The Marketplace gets better.
The opposite happens sometimes when you start with a marketplace only. Frequently, the marketplace may be a great source of talent, but then software is needed to manage the process and people.
Now imagine a designer marketplace without any software solution. There may be great designers on there, but if you hired them to do A/B testing work, you’d have to figure out an additional software package to use, train them on tool, and get their designs incorporated into your website. Basically, a lot of effort. A SaaS tool like Optimizely makes the company and the designer more productive.
The key to having the SaaS and the Marketplace be additive to each other is that the software must increase the efficiency of the work on the marketplace. People need to prefer working with your tools vs working with other tools. It needs to benefit both the buyers and sellers on the platform.
The SaaS tool may also be an effective lead gen source to the marketplace. If you can make it simple to get design work done through the platform, it will dramatically increase usage of designers. In those cases, it may make sense to offer the software for free to get users into the marketplace. It depends how you want to monetize the business.
- Increased productivity
- Increased volume
I believe the trend towards SaaS + Marketplace will continue.
Up until today — many software companies launched programs to partner with “solutions partners” – typically small consulting shops. The problem with this is that it places the burden of selecting and managing providers on the customer rather than the software company. This is the way software has been sold in the past, but it will change as customers expect more out of their software vendors. Customers expect great software and great integrated services.