Recently, we’ve demonstrated how network effects have produced the most valuable tech companies in the last few decades. Many were two-sided online marketplaces. Airbnb. Google (an advertising marketplace). Uber (an Asymptotic Marketplace). OpenTable. eBay. Craigslist. All marketplaces.
It’s a powerful business model.
However, two-sided online marketplaces are as difficult to build as they are rewarding. This was a lesson I learned firsthand as the founder and CEO of Trulia, where I spent ten years of my life — from 2004 to 2014 — building an online real-estate marketplace that merged with Zillow in a $3.5 billion transaction to create the world’s largest online real estate marketplace.
During that time, we were faced with many obstacles particular to a two-sided marketplace business model, with consumers on one side and the real estate industry on the other. But three of the biggest initial problems we faced were also amongst the most challenging. These were:
- How do you build the supply side (i.e. property listings and information) so as to incentivize the demand side ( i.e. homebuyers) from a cold start — the classic “chicken and egg” problem.
- How do you efficiently acquire and retain users with a commoditized supply side (how do you retain a competitive edge amidst an environment of rampant multi-tenanting, wherein it is costless for suppliers to list on other marketplaces).
- How do you monetize an online marketplace when the actual transactions take place entirely offline (especially in the midst of a market downturn).
Our success depended on solving each of these problems quickly and efficiently after raising our initial launch capital of $2.1M. Almost every marketplace will face similar problems in one form or another, but I believe our solutions at Trulia were uniquely effective. By sharing our story, I hope to cut through the vague (and bad) advice out there with a detailed account of how we built a multi-billion dollar, category-leading marketplace in under 10 years; a story which, I hope, Founders will find both interesting and useful.
This essay was originally posted on nfx.com. This is just a sample. Click here for the full essay.
Pete Flint is the founder and former Chairman and CEO of Trulia. In 2015 Pete merged Trulia with Zillow in a transaction which valued Trulia at $3.5BN, after which he served on the Zillow Group board. Previously he was part of the founding team of lastminute.com which was acquired for over $1.1BN. Today, he is a Managing Partner at NFX. Follow Pete on Twitter here.
NFX is a seed and series A venture firm based in San Francisco. Founded by entrepreneurs who built 10 companies with more than $10 billion in exits across multiple industries and geographies, NFX is transforming how true innovators are funded. Follow us on Twitter here.