The marketplace business model is one of the most dominant business models underlying the consumer internet. Here are a set of slides (also below) that outline the major factors in selecting an industry and designing the service, so as to increase your likelihood of success with this model.
Consumer marketplace models
I recently gave a talk at CustomMade.com, where I’m an advisor, on some of the key factors of building marketplace businesses. There are certainly great resources for this all around the web, the best I’ve ever read is by Bill Gurley of Benchmark, which was recast by Nir Eyal and Sangeet Paul Choudary. While Gurley’s 10 factors are incontrovertible, I wanted to include a higher order framework around these to account for the different phases of a venture from selecting an industry, to gaining initial traction, to scaling the platform, and then finally to looking for untapped opportunities. As marketplaces all adhere to an underlying economic model, many of Bill’s point and my own overlap with one another, as well as with my previous post on creating durable competitive advantage.
So, this deck provides a greater overarching framework, as well as some new ones, as 11 factors in designing and executing consumer marketplace businesses. Here are the main points, with the slides delving into more detail.
Selecting an attractive industry
1) Big Market Opportunity as defined by the total amount that the platform will potentially transact
2) Ripe for disruption via technology-enabled consolidation of a fragmented, or agent-driven, market
3) Natural network effects whereby groups interact for mutually reinforcing benefit
Gaining initial traction
4) Overcome cold start or the “chicken & egg” by locking in scarce, incentivizing the “sell side”, and providing an easy way for them to onboard and “activate”
5) Strive for liquidity by properly segmenting disparate groups, avoiding price dispersion, and differentiating from substitute products
6) Price smartly to capture value commensurate with what you create by subsidizing the most price sensitive side, aligning your source of revenue with the value, and taking into account your marginal costs
Protecting & growing the platform
7) Control the lifecycle of the customer relationship by intermediating the transaction, to avoid defection and increase switching costs
8) Scale efficiently as you move across new verticals, geographies, or other market segments
9) Build a “moat” to ward of competition and avoid envelopment from horizontal platforms
New opportunities ahead
10) Mobile will unlock new markets as we can now “follow” our customer and create new markets based on proximity, right at the “moment of truth”
11) Social / Trust is a key factor in unlocking value from marketplaces based on high-consideration P2P services; the “competition” here today is offline, where pople navigate their trusted network, so reputation and the social graph may unlock new opportunities.
Link to slides: http://rdean.me/11VyIcE