https://medium.com/@jgolden/four-questions-every-marketplace-startup-should-be-able-to-answer-defb0590e049
Summary:
- Four questions for marketplace:
- Network Effects?
- Every addition to demand and supply should benefit the whole network
- Global or Root Density NEtwork Effect?
- Global marketplace are more organic
- Homogenous or Heterogenous?
- Q: Is your marketplace a search or matching marketplace
- Heterogenous supply is when every listing is different
- Which means demand has to choose = Huge Cognitive Load
- Technology should make it easy to choose
- Decreasing the number of choices for the demand side by artificially constraining the number of options
- Providing filters to curate available options
- Developing taste profiles of users to adjust search to reveal the most desirable listings up front
- Heterogenous marketplace offers unique Moat - Hard to Replicate
- Two Sided Incentives
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Avoid leakage
-
Buyer side:
- Quality of listings
- Convenience
-
Tech can offer trust:
- Identity Verification - Who is the person? Can I trust them | Both sides
- Reviews - What others think of them
- Assurance - Someone to escalate to
Job of marketplace is to build trust and streamline friction between the buyer and the seller to lower the barrier to commerce, creating liquidity. Core used case has to be strong. For that reason, these types of services work much better using a lead-gen model, where revenue is based on leads and not transactional.
Size and Frequency of the marketplace:
Normally, the larger the transaction the lower the take rate (i.e., the platform’s percentage fee) should be, to disincentivize participants from taking the transaction offline.
Great marketplaces do not simply aggregate a market; they enhance it
They leverage the connective tissue to offer the consumer a user experience that simply was not possible before the arrival of this new intermediary
- New Experience Vs Status Quo:
- Marketplaces should enhance the market
- Create Wow Experience
- Economic Advantage
- Extra money for supply which was hard to monetize
- Cheaper for demand
- Tech should add value
- Workflows enhance experience and make it easy for everyone
- High Fragmentation
- Where there is high fragmentation, higher the value add
- Supply sign up friction
- How to make it easy for suppliers to sign up
- Frequency
- Many failed marketplaces attack purchasing cycles that are simply way too infrequent, which makes it much more difficult to build brand awareness and word-of-mouth customer growth
- Another repeated mistake is attacking verticals where a satisfactory supplier “match” end’s the customer’s need to re-enter the market in search of an alternative.
- Payment Flow
- Be a part of the payment flow. The supplier not only looks to you as a provider of revenue, but they receive that revenue “net of the fee.”
- Network Effect
- Can the marketplace provide a better experience to customer “n+1000” than it did to customer “n” directly as a function of adding 1000 more participants to the market?
7-8/10 is a great start. It's about Execution. Great marketplace execution is more nuanced and less systematic than other venture backed categories, and for every successful marketplace, you will find an amazing entrepreneur that out-executed the many others that had chosen to attack the same market. In addition to great marketplace characteristics, you also need a world-class entrepreneur to make the dream come true.