Changing Your Business Model Series — The Marketplace to The Shared Assets Business Model

In our last newsletter, we covered the Freemium, Advertising, Transactional, and the Usage-Based Model.

Today, we’re looking at the Marketplace, Membership, Franchise, and the Shared Assets Business Models.

Here’s the list of business categories we provided at the start of this series that you can reference as you evaluate the models you might consider changing your business to —

• B2B (Business-to-Business) — where companies sell their solution to other businesses or organizations.

• B2C (Business to Consumer) — companies that sell to individual end consumers and may use retailers or wholesalers to sell to their customers.

• DTC (Direct to Consumer) — companies that sell directly to individual, end consumers.

• B2B2C (Business to Business to Consumer) — companies that sell their solution to other businesses to help those other businesses sell to consumers.

• C2C (Consumer to Consumer) — companies facilitate consumers selling to other consumers.

• B2C2B (Business to Consumer to Business) — companies who sell to the employees of other businesses who then advocate for their employer to buy the original company’s solution.

• B2G (Business to Government, also Business to Public Administration or Business to Public Sector) — companies sell their solution to government entities.

• C2G (Consumer to Government) — companies facilitate consumers directly interacting with a government entity.

Today’s Business Models — Marketplace, Membership, Franchise, & Shareds Asset

The Marketplace Business Model includes businesses that host an e-commerce platform where buyers and sellers can interact and create transactions. Buyers and sellers are not only brought together in an environment to find the products/services that fit their needs the best but are supported by further functionality on the marketplace platform to make transactions a smooth process. This model type can fall under the B2B, B2C, DTC, B2B2C, C2C, B2G, & C2G categories.

The Membership Business Model includes businesses that provide a product, service, environment, and additional benefits that customers have access to for a recurring fee. A Membership model can fall under the B2B, B2C, B2B2C, B2C2B, C2C, B2G business model categories.

The Franchise Business Model includes businesses that come into contract with franchisees who want to use the business’ brand, business model, and product/service to sell to end customers. The goal is to expand the reach of the business model and brand. This business model type can fall under the B2B, B2C, B2B2C, and B2C2B categories.

The Shared Assets Business Model includes businesses that facilitate customers sharing their underutilized assets with other customers who would like to use those assets without owning them. This model can fall under the B2B, B2C, B2B2C, B2C2B, and C2C categories. 

Mapping The Model: Marketplace Business Model

If you mapped out the Marketplace business model, it could look something like the following —

The Marketplace Business Model

Let’s look into some examples.

Marketplace Model Example #1

Classpass is an app for all things fitness, wellness, & beauty. It’s revolutionizing the fitness and wellness industry by bringing together the world’s best classes and experiences into one app. ClassPass’ mission is to motivate people to live inspired lives every day by introducing and seamlessly connecting them to soul-nurturing experiences. It uses the Marketplace Business model to make it easy for people to prioritize their health and wellness. Classpass uses a membership revenue model with 3 membership tiers for Consumer users — 20 Credits (for $45/mo), 38 Credits (for $79/mo), 63 Credits (for $129/mo), 80 Credits ($159/mo), and 125 Credits (for $249/mo). Its B2B or Business customers in Fitness, Wellness, and Beauty can join the Classpass marketplace for free.

Classpass allows its Business customers to join for free because the Fitness, Wellness, and Beauty Businesses serve as incredible marketing tools in themselves. They attract new users to the app and the classes listed on them from these brands. In a mutually beneficial way, these businesses can use Classpass as a free marketing tool where they can reach a large and growing population of potential customers without having to worry about any kinds of upfront fees to be listed on the app. This leads to Classpass being able to provide more value to its Consumer users because more classes get listed by businesses joining the app for free, engagement increases on the app between consumers and Business customers, and revenue increases from the increased number of membership plans from user engagement. Businesses gain the opportunity to convert Classpass customers trying out their services to more permanent customers, they can fill empty slots in their classes/services from being underbooked or from last-minute cancellations so they can generate revenue from the unused space that would have been there otherwise, and they can build brand awareness and recognition in particular market segments that might not have known or tried their services otherwise.

Marketplace Model Example #2

Etsy is the global marketplace for unique and creative goods. It’s home to a universe of special, extraordinary items, from unique handcrafted pieces to vintage treasures. They strive to Keep Commerce Human while helping its community of sellers turn their ideas into successful businesses — connecting them with millions of buyers looking for an alternative. Something special with a human touch, for those moments in life that deserve imagination.

Etsy charges a setup fee for its B2B customers to join the marketplace; a small Listing fee ($0.20) for each product the B2B customer adds to the marketplace; a Commission Fee (6.5%) and Payment Processing fee (3% + $0.25) are charged during each successful transaction (similar to the Transaction Fee Business Model we went over last week); Etsy Ad Fees if purchased by a Seller (15% being standard); Subscription Fees for their brand growing tools ($10/mo); In-Person Selling Fees ($0.20/transaction if a seller doesn’t sync its listings with Square to use its Square reader, if synced there is no additional cost); Shipping/Shipping Label Fees (Variable, based on Seller’s location), Pattern Fees ($15/mo to create a personalized website); and Currency Conversion (2.5% if Sellers decide to list in another currency other than that of their payment account).

Pros of Using the Marketplace Business Model:

• It allows businesses to scale fast. They don’t have to manage inventory or physical store locations. They just act as a platform where buyers and sellers interact and make transactions.

• Because they are focused on being a transaction-facilitating platform, they don’t have to deal with high overhead costs. High overhead costs would have come from acquiring, transporting, and managing a catalog of inventory — as well as physical locations that would need to be maintained and improved over time. There may also be legal or compliance expenses that come with managing large quantities of inventory and physical locations (whether their storefronts or distribution warehouses). In the end, it becomes better to have much better profit margins.

• Marketplace business models can house multiple revenue models (or ways to monetize the platform). A company with this kind of model could have a recurring membership fee that both Buyers and Sellers would have to pay. It could take a transaction fee from both Buyers and Sellers upon a successful transaction. It could have Buyers pay a membership fee and require Sellers to pay a one-time set-up fee and product listing fees — then charge a transaction fee for every successful transaction. It can also provide Buyers or Sellers with the ability to purchase additional value-adding features to enhance their marketplace experience using additional subscription plans, one-time purchases, or additional transaction fees. You can also integrate an Advertising business model into your Marketplace model to sell ad space to sellers who want to promote their brand, product, or service throughout the platform, or through other avenues your company has access to.

• With a digital platform, businesses can offer a wider selection of products/services to Buyers. Their not being in a physical location means they are not confined to the space they have purchased and forced to only present products to customers that can fit in that space. They could show infinite options if they wanted which could allow for them to make a greater amount of revenue.

• It’s easier for Sellers to increase their brand recognition and awareness through a marketplace platform. All of the products/services that Buyers are able to find on the marketplace draw in increasing numbers of new and recurring customers all the time. It becomes a word-of-mouth promo machine for the marketplace company and Seller brands on the marketplace.

• More funding is available for marketing. The money that would have went into other types of overhead in a traditional store or physical marketplace can be invested in marketing initiatives to convert new customers, create customer loyalty, and help make the company a household name.

• Digital marketplaces can collect business, brand, and customer experience-enhancing data. They can then use this data to focus more on providing the best marketplace platform and buying and selling experience to their customers.

• Sellers don’t have to wear as many hats — their role as a business owner becomes a bit easier. They can just focus on providing the best products/services to their customers through the market. They don’t have to split their attention between Product/Service development and every single administrative detail required to distribute them to end consumers or other intermediaries that would otherwise help sell their products/services.

Con of Using the Marketplace Business Model:

• It requires businesses to find and convert 2 types of customers into users of their platform — the Buyers & the Sellers. It’s double the customer discovery and platform experience development workload! A great deal of market research for both Buyer and Seller customer segments will have to be done so that the marketplace platform has the products/services customers want on it, and so there’s a large enough group of interested customers who want to buy from the Sellers.

• You have to be careful when developing the platform and creating a payment process. As neither the owner of the product/service being sold or the buyer, a payment cannot be processed or touched by your company. If your company did, that would be illegal. Marketplace platforms need to utilize a third-party processor to handle payments legally — so the product/service and payment for the items are exchanged between the parties who own them. Research has to be done on the marketplace company’s part to select the best one for their use case. That payment processor can help them collect the compensation from the buyers and sellers using their platform as well.

• Developing the platform may require large continuous investments. Developing and iterating on a marketplace platform is a continuous process and an expensive one — depending on the makeup of a company’s team, what’s being sold on the platform, and the features or capabilities the marketplace has. It’s important for businesses using the marketplace model to keep this in mind and plan for this.

• Customer loyalty to your Marketplace can be a challenge to achieve and sustain. Your marketplace company is competing with actual brands that may list products on your platform. The choice Buyers will have to regularly consider is whether to make their purchase on your platform or on a particular brand’s actual website.

• There is strong competition from today’s well-known marketplace companies. If you are providing similar products or services to what is found on marketplaces that already exist, you’ll be vying for the attention of customers who may already be very familiar with legacy platforms. You’ll need to invest more in differentiation — whether that be in brand, brand experience, and/or specializing in a particular selection of products or services. You’ll have to strategize around how you’ll get a foothold in your target markets and the size of market share you’re targeting.

• Because a marketplace is a facilitator, it doesn’t have as much control over the entire transaction experience. Your company does not directly control the product/service quality that Sellers will provide — and subpar quality will affect your brand’s reputation.

Up next is…

Mapping The Model: Membership Business Model

If you mapped out the Membership business model, it could look something like the following —

The Membership Business Model

Here are a couple examples of this model.

Membership Model Example #1

Netflix is a streaming service that offers a wide variety of award-winning TV shows movies, anime, documentaries, and more on internet-connected devices. Consumers can watch as much as they want, whenever they want for a low monthly price. Consumers can (1) enjoy titles on their Smart TV, through Playstation, Xbox, Chromecast, Apple TV, Blu-ray players, and more; (2) download shows to watch offline; and (3) create profiles for kids.

Netflix plans include — Standard with Ads at 1080p Full HD (at $7.99/mo), Standard with No Ads 1080p HD (at $17.99/mo), and Premium at 4k + HDR (at $ 24.99/mo). On the Standard with Ads and the Standard plans, users are allowed to stream on and download to 2 devices in their household. The Premium plan allows for households to stream on 4 devices and download onto 6. Netflix produces the value it provides to consumers through its creative executives and buyers, its relationships with talent agencies, and its internal creative development team.

Membership Model Example #2

Costco is a multi-billion dollar retailer and membership warehouse club that strives to provide its members with the best possible prices on quality brand-name merchandise. The company has hundreds of locations in 8 countries and provides a wide selection of merchandise, plus the convenience of specialty departments and exclusive member services to create a pleasurable shopping experience.

Costco has 3 membership levels which include Gold Star Membership (at $65/year), Business Membership (at $65/year), and Executive Membership (at $130/year). Gold Star includes a household card and is valid at all worldwide Costco locations. Business Membership comes with a free household card, the ability to add affiliate cardholders for $65 each, is valid at all Costco locations, and the ability to Purchase for Resale, and Executive Membership comes with a free Household Card, is valid at all locations, an Annual 2% Reward on qualified Costco purchases, Additional benefits and greater savings on Costco services, and extra benefits on select Costco Travel products.

Pros of Using the Membership Business Model:

• It allows a company to have more predictable and recurring revenue. Companies are able to better and more securely plan for, and fund, improvements to their products, services, and business overall. The steady revenue from this model allows them to put even more focus on improving their product/service and customer experience, as well as with outreach to potential customers.

• The cost to acquire a new customer is much lower. With this model, you won’t have to spend as much to acquire a customer like how you may have to put forward an expense to re-acquire a customer after they make a one-time purchase. You’re essentially paying one time to serve a long-term customer’s needs.

• Customer loyalty and retention can increase. The ongoing interactions with customers under a membership model has the possibility of creating an even stronger relationship between your company and your customers. And since your customers have regular access to the value of your membership, you also have more access to them to get regular feedback on their experience. You are able to continuously address their concerns and learn how to improve their experience.

• Because of the stronger more regular relationship with customers, it’s easier to cross-sell and upsell. A company with this model can offer additional products/services/environments to partner with a customer’s purchase and add further value to them. They can also offer more upgraded versions of products/services that are at a higher price point to help increase revenue.

• Your model will be data-empowered. By capturing data on the members of your product/service/environment, you’ll gain a deeper understanding of their behaviors and what they value. You can see what the most value-providing aspects of your membership are to them, and those that are not, and iterate on the offerings and overall experience of your membership accordingly.

• The dynamic and structure of a company’s membership offering can make it easier to build community. The company can use the feedback loops it creates with its customers and interact continuously with its customer base to foster an even stronger relationship with them. The brand can create a sense of belonging that leads to increased customer loyalty, relatability, and identification with the brand.

Cons of Using the Membership Business Model:

• Churn rates become top of mind. With this model, companies will have to monitor the amount of customers that stop using their product, service, or environment. Recurring memberships can feel inconvenient to end customers, so companies with this model will have to continuously investigate the reasons for customers leaving.

• To mitigate the risk of high churn rates, companies will need to continually invest in iterating on top of their products/services/environments with additional value proposition benefits to provide ongoing increasing value to customers. With membership models and subscriptions, there is bound to be competition in your market that may be providing a similar offer or new competitors entering your space competing with the value you provide. So, you will need to continually find new ways to provide even greater value within the membership packages you’re offering to stay in lockstep with your customers’ evolving needs and ahead of your competition.

• Dependence on membership fees can be risky. If changes in or pressures from your market or industry require you to decrease your membership rates to attract the customers necessary to keep your business operating or customers from leaving (because they are no longer compelled by the value you provide), your dependence on changing membership fees could leave you vulnerable. Subscription fatigue is a very real issue occurring across many industries. There has been a wave of membership and subscription cancelations. Yes, customer acquisition is important, but an even greater weight that’s ever-increasing in importance is the focus on customer retention with this business model.

  Up next is…

Mapping The Model: Franchise Business Model

If you mapped out the Franchise Business Model, it could look something like the following —

The Franchise Business Model

Franchise Model Example #1

IKEA is a global home furnishing brand focused on bringing affordability, design, and comfort to people all over the world. Their vision is to create a better everyday life for people with big dreams and thin wallets. Inspired by their vision and wanting to have an ownership structure that would give the brand “eternal life”, IKEA’s founder — Ingvar Kamprad — decided the best way to do that was to give IKEA a Franchise Business Model. This would help ensure the long-term growth and development of the IKEA business, while also creating financial stability for its employees and giving franchisees the ability to challenge, test, and explore new markets and ideas that would help continually develop IKEA’s brand. This model allows them to continue to bring the IKEA brand to millions of homes worldwide that desire well-designed, functional, durable, affordable, and sustainable home furnishing solutions.

IKEA is always looking for new franchisees for locations in new and existing markets. Inter IKEA Systems B.V. is the IKEA franchisor that evaluates new candidates. Their evaluations of franchisee fit are based on the potential franchisee’s experience, local market knowledge and presence (showing that they have the ability to set up and operate a store nationally), corporate culture and values, financial strength, and the ability to complete the investment process across a country and in a large-scale retail environment format. If a candidate is chosen, a franchisee signs an agreement with IKEA that grants them the right to operate an IKEA store and/or other sales channels within the IKEA franchise system and methods. Inter IKEA Group collects a 3% annual fee over franchisees’ net sales.

Franchise Model Example #2

Slutty Vegan is a fast-casual vegan hamburger restaurant chain that was started in Atlanta, GA to bring vegan options and food awareness to Atlanta’s West End. Slutty Vegan wanted to open the conversation on vegan food to people in the community that had never considered it before and that had high numbers of hypertension, cholesterol, obesity, and a host of other food-borne ailments. They are known for their bangin’ signature burgers and for the long excited lines people wait in to grab their favorite meal. After opening its first location in 2019, Slutty Vegan began franchising its concept opening 2 additional locations in Atlanta. Their locations now include Ralph David in Atlanta, Edgewood in Atlanta, GA Tech in Atlanta, Spelman in Atlanta, ATL Braves Stadium in Atlanta, Jonesboro, GA, Gwinnett in Duluth, GA, Birmingham, AL, Brooklyn, NY, Harlem, NY, Dallas, TX, and a Baltimore location that is on its way (as of this newsletter).

Pros of Using the Franchise Business Model:

• A company can expand its reach and increase its revenue faster. Franchisees bought into the mission and vision of the brand help establish franchise locations in communities, cities, and countries local to them that would not have known of the company and its product/services otherwise. The Franchisor company is able to grow its team and increase its revenue to an extent that it most likely would not have been able to if it did not use a Franchise Model. Franchisees from different parts of the world or different parts of a country can help communicate to the parent company what products/services are valued most in their communities so that the parent company can benefit from those insights, avoid missing the mark with different diverse customers segments, and be able to serve those communities better according to their local preferences.

• Brand Recognition and Awareness increase. Companies with franchises in a multitude of locations and marketing to those different communities increases the probability of customers, as well as potential customers, recognizing their brand. Word-of-mouth promotion of the brand and people’s increased familiarity with it in their neighborhoods increases the likelihood that people will try out your product/service and become returning customers. The compounded recognition, awareness, and love for your brand can lead to increased verbalized demand from end customers inviting you to their communities so you can know the next best place to put a franchise. It can show there is a real need for your products/services there.

• Establishing the first location and demonstrating its sustained success — or establishing a few locations — can make it easier to raise funds for continued expansion. Investors or financial institutions are more likely to invest or provide financing to assist with brand expansion based on the proof they see in the original location.

• Franchising helps with orchestrating who you will expand with on your team. Franchisees can handle a lot of administrative tasks and operations required to expand the brand. They can hire the necessary teams needed to set your franchises up for success instead of the parent company having to use time and resources to do so.

Cons of Using the Franchise Business Model:

• High initial investment. Funding to franchise your concept could be high. The legal, administrated, and development costs are something to be mindful of.

• Compliance with Federal and State Law. There may be federal regulations and regulations from state-to-state that affect the Franchisee’s setup of and operation in their location. This could be resource and time-consuming to them.

• Legal dispute possibilities. A company with this model needs to be prepared for any legal disputes between themselves and their franchisees.

• Loss of control over brand experience. Since your brand is being implemented by a multitude of people, and not just your one original business team, you are giving away some of your control of the brand experience. Of course, you can put certain policies in place that franchisees must follow to continue to license the brand and do business, but each person who franchises your brand might interpret certain things about your brand differently than you do (even if they agree with the policies you put in place to keep the brand experience as consistent as possible across locations). There will inevitably be differences that occur.

Mapping The Model: Shared Assets Business Model

If you mapped out the Shared Assets Business Model, it could look something like the following —

The Shared Asset Business Model

Shared Asset Model Example #1

Airbnb is a web-based platform and mobile app that allows people who have unused space to host guests who want to use their space. Spaces can include anything from cozy cottages to elegant penthouses, apartments with fantastic interior design to all types of wacky homes with all types of vibes. Since 2 designers (now the founders) hosted 3 travelers who needed a place to stay in 2008, Airbnb has become a place for millions of people to host millions of guests. Platform users can get started by creating a free account to become either a host or guest. For its revenue model, Airbnb then charges a fee to both the host (~3% of the booking) and guest (~up to 14.2%) who create a booking for a space on their app.

Shared Asset Model Example #2

JustPark is a parking app that allows people with unused places to park (whether a driveway, car park, garage, etc.) the ability to offer their parking spaces to guests. They say they are the smarter way to find parking. They make parking quicker, cheaper, and smarter. JustPark charges both parking space hosts and parking guests a fee for parking reservations made on their app. Drivers are charged a transaction fee of £0.49p for bookings valued less than £5 and a variable charge of 10% of a booking value only up to a max of £1.49. For multi-bookings (or transactions with up to 6 bookings in one), a transaction fee of 10% of the total booking value is charged (up to a max of £2.49). Parking space hosts are charged 3% of the price they set for someone to reserve their space.

Pros of Using the Shared Assets Business Model:

• The customer barrier to entry is low. Neither the sellers nor the buyers are scared away by high upfront costs to provide, or have access to, the assets being shared. They can start using it right away and have a frictionless experience choosing the type of shared assets that fits their need.

• It allows companies to scale faster. The strong desire in Sellers to provide underutilized assets for others’ use and the strong desire in buyers to use certain products that they wouldn’t be able to access or afford otherwise creates an attractive win-win scenario that benefits all parties involved and can attract even more users to the platform who want to experience the same. The end result is continually increasing revenue for the company.

Cons of Using the Shared Assets Business Model:

• Continual efforts will need to be invested in maintaining and improving the platform. Building the platform could be expensive depending on the founding team’s expertise. Continual resources will need to be invested in keeping a thumb on the pulse of what users need from the app (in order for the company to stay ahead of what customers would want the platform experience to be like). And because we’re talking about technology platforms, bugs in the system can occur and affect users. So, the company will need to be prepared to put out any fires that come from that to maintain its brand reputation.

• Conflicts can occur between platform users. If there’s an issue between the seller and the buyer, a system for dealing with disputes must be put in place and managed. And since the main company will not be present — like in a person-to-person transaction — the distance can cause a lack of understanding, miscommunications, and negative experiences that could affect the brand’s reputation.

Key Notes About The Marketplace, Membership, Franchise, Shared Assets Models

The models we discussed today have the ability to use a transaction fee revenue model to scale their businesses and create further value. Providing customers with the ease of use that comes with not having to pay as much to start or only pay a percentage of a transaction that they’ve chosen to make is an attractive point to consider when you’re trying to get business going. Business customers and end consumers are more likely to try the product/service and continue to use it.

Another thing to note is that a few of the models we went over today also had to focus on attracting two main customer segments — Business customers and end consumers / Buyers and Sellers. The Marketplace and Shared Assets Models can be very lucrative. Companies just have to prepare and think about how they can address the pain points of both customer groups fully to make the experience of their product/service attractive enough to all parties.

Do you feel you have enough value in your product/service to attract both Business customers and end consumers to give life to a marketplace or shared assets model your thinking about? Are you thinking of changing a Fee-For-Service model into a membership model? Or are you trying to extend the reach of your brand by growing your business and brand through a Franchise Business Model?

Next Steps

We will continue to look at examples of business model categories and the types we covered in our first newsletter over the next several newsletters to help you with your thought process around which business model may be a good fit for your business case.

If you’d like LUSID to help you work through your business model change and strategize around which business model is most appropriate for your company vision, you can set up a free call with us here. We’re excited to learn more about you and your company!

Feel free to reach out with any questions, comments, or additional thoughts you may have at [email protected]. We love connecting with visionary Founders, CEOs, and Leadership teams working on impactful ventures.

Let’s Make Your Vision Your Reality.    

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