Online marketplaces such as eBay, Gumtree and Amazon are becoming some of Australia’s most popular shopping destinations. Although the number of online marketplaces is increasing, there are a few things you can do to build a successful online marketplace.

This article focuses on three things you can do to create a successful online marketplace:

  • assess viability;
  • develop a point of difference; and
  • build your brand.

Step 1: Assess Viability

Assessing viability is a vital step when you are forming the ideas for your marketplace. Like in all businesses, financial viability considerations include:

  • how you will pay for fixed and variable expenses before you start making money; and
  • when you will break even.

You will need to attract both service providers (“sellers”) and customers. In addition, you need a strategy to scale both at a similar rate to ensure that your incoming cash flow balances your expenses.

The beauty of marketplaces is that you do not need an inventory of products or services to start selling, but you do need willing customers and sellers. Think about how you will attract both parties.

Some ideas to attract parties are:

  • make it free to sell through your marketplace. You may take a commission of sales to make money. Sometimes a free trial period can assist you in gaining the velocity you need;
  • offer customers credit to purchase products or services through your marketplace; or
  • offer referral bonuses to people who refer paying customers or sellers to your marketplace.

Step 2: Identify a Point of Difference

You do not necessarily have to be the first business to have a great idea but you need to execute it better than your competitors. Ask yourself these questions:

  • what target market is your marketplace focusing on;
  • do your sellers and customers save time and money by using your marketplace;
  • is there another added convenience for customers using your marketplace? For example, do you facilitate bookings and payment through your site;
  • do you provide broad market access for sellers; and
  • are you occupying a niche market that solves a problem?

Are you building trust by:

  • enabling reviews so that each party can decide whether to engage;
  • preventing fraudulent transactions by being a Limited Payment Agent;
  • having policies that set rules about how sellers and customers should behave when interacting;
  • verifying users through identity and background checks;
  • banning users who misuse your site; and
  • having Marketplace Terms and Conditions in place as a legally binding contract between you, sellers and customers?

Step 3: Build your brand

Building your brand and reputation can be organic. However, there are practical things you can do to promote your business and make people return to your site.

Firstly, your marketplace should promote an enjoyable customer experience from the outset. This includes your website user interface and the purchase journey for the customer and the seller.

You can also build your brand by protecting your name and logo with a trade mark. These are the identity of your business. As you build your goodwill and market reputation, you will want to ensure that you have the exclusive rights to use your trade marks.

You should think about this as early as possible, as trade mark applications can take between seven to nine months to be approved by IP Australia (the registering body).

Legal Needs Checklist

There are a few legal aspects you will need to take care of to ensure that your online marketplace is legal and law-abiding. These include the legal aspects concerning your:

  • business structure;
  • trade marks;
  • website terms of use and privacy policy; and
  • marketplace terms and conditions.

Business Structuring

If you anticipate that your marketplace will grow, you will want to minimise your risk. This includes limiting your personal legal responsibility if things go wrong. Make sure you have the right business structure in place to reflect your goals for the future.

Trade Marks

You should protect your name and logo with a trade mark early on so that as you build your brand, there is no risk of a competitor copying these.

Website Terms of Use and Privacy Policy

Two key legal documents any online business needs are a website terms of use and a privacy policy. Your website terms of use outlines the rules for interacting with your site. Equally important, your privacy policy outlines to users:

  • what information you collect from them; and
  • how you store and manage this information.

Marketplace Terms and Conditions:

For some marketplaces, the terms and conditions will be the contract that sellers and customers agree to when:

  • signing up to create a listing;
  • browsing the site; and
  • making a purchase.

For some, it is the sales contract for the purchase of a product, service or experience. Regardless, it is imperative to have well-drafted marketplace terms and conditions in place to protect you as the host and limit your legal responsibility.

Key Takeaways

There are many commercial and legal steps and decisions to make when launching a successful online marketplace. In particular, you should consider the:

  • viability of your idea;
  • point of difference your marketplace offers;
  • protection of your brand;
  • legal requirements, including:
    • business structuring;
    • trade marks;
    • website terms of use and privacy policy; and
    • marketplace terms and conditions.

If you have questions about setting up an online marketplace, get in touch with LegalVision’s e-commerce lawyers on 1300 544 755 or fill out the form on this page.

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