Setting up an online marketplace, sometimes known as a platform, is an exciting way to launch a business. Some of the most successful businesses of late are marketplaces, like Airbnb, Airtasker and Gumtree. In this article, we discuss some key considerations when setting up a commercially viable marketplace.
How Does a Marketplace Work?
If you are creating a marketplace, you are establishing a space where one party who has something to offer can connect with another party who needs that thing. So you may be connecting:
- a service provider with a user;
- a buyer with a seller; or
- peers with peers.
As a marketplace, you will also want to:
- receive payment for providing this service; and
- be involved in any ongoing relationships with them as appropriate.
Keep in mind you will have additional responsibilities as an operator, whether you are simply introducing the parties and then taking a step back, or acting as an ongoing intermediary.
Marketplace Terms and Conditions
Your marketplace terms and conditions is a document that should identify the relationship between you and the consumer, and what responsibilities each party has. It should contain information on five key terms.
Your terms and conditions should contain a description of what the marketplace offers and the role of the operator (you) in the marketplace. Are you simply providing the platform, or are you also providing services?
The terms and conditions should also state that the terms apply to anyone who makes a purchase through, or uses, your marketplace.
2. Collection of Personal Information
3. Payment Terms
Your terms and conditions should contain very clear payment terms, whether you are taking payment:
- to simply be part of the service; or
- when a booking or transaction occurs.
This is discussed in more detail below.
4. Limitation of Liability
Your terms and conditions should also contain terms that limit your liability if something goes wrong. This type of clause will help protect you if someone wants to bring a claim against you.
Effectively, you are a middle-person, and not an actual party to the contract between the buyer and seller.
It is a good idea to provide disclaimers to make clear what you are not providing through your platform. For example, you may not be providing:
- background checks; or
- guarantees on reliability for either party.
But this is not to say that you should allow your marketplace to offer goods or services that are not of a high quality. You can promote quality by allowing users to leave a review of each party. For example, Uber lets both drivers and passengers leave reviews about each other. This encourages drivers to provide a quality service, and passengers to be respectful. If users expect and receive quality from your marketplace, this may encourage them to continue using it.
Choosing the right payment structure can help ensure that you get paid for providing your platform, and therefore maintain a healthy cashflow.
You may choose to charge a fee or take a commission every time someone purchases a product or service through your marketplace. For example, Airbnb takes payment when a guest books and holds that money until right before the guest’s check-in time. It is only at this point that they transfer payment to the host. Airbnb also keeps a service fee from travellers and a host fee for every booking.
Alternatively, you may choose to offer a mostly free service with the option for users to pay more to access a better service. This is a strategy used by classified advertisement marketplace Gumtree. Gumtree allows users to post items for sale for free. But if the user pays a fee, their sale advertisement is promoted to the top, therefore gaining more visibility with potential buyers.
Whatever you decide, make your payment terms clear in your terms and conditions.You can organise payment through providers such as PayPal or Stripe, which can limit the risk of being considered a payment agent (there are complex rules and regulations here).
As a marketplace operator, you are in a position where you can connect two parties who otherwise may not have otherwise found each other. If you set up your marketplace in a user-friendly way and with safe payment options, this will encourage both parties to use your service.
If you want help with setting up a marketplace or drafting your terms and conditions, contact LegalVision’s online lawyers on 1300 544 755 or fill out the form on this page.
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