An Essential Ingredient of Success for Consumer Internet Companies
Find a large and rapidly growing host platform or entity and engage with them to provide mutual benefit and leverage.
One of the most fundamental challenges in starting and building a marketplace business is scaling your business quickly and efficiently on one or both sides. Frequently, businesses run into a ‘chicken and the egg’ type of problem, unable to build either enough supply or demand, discouraging growth. Ultimately it’s a liquidity problem, and the goal is to scale without spending a fortune on sales and marketing. Often taking advantage of a market insight or new platform before an incumbent is able to react. One strategy that works is hitching a ride on a large and rapidly growing host company, providing mutual benefit and leverage, and using it to your advantage. Done right, you can hitch a ride to get to scale much more efficiently than other avenues.
Almost every great consumer internet business did this in one fashion or another. It enabled them to get rapid and often geometric growth for a period of time. YouTube made their videos embeddable on Myspace, and many other platforms, so that users discovered their videos for free. Growth took off from there and famously led to an acquisition by Google and YouTube has continued to grow. Paypal focused on eBay PowerSellers, eventually making PayPal ubiquitous on eBay. Using this approach the company acquired thousands of merchants cost effectively. Airbnb famously focused early on with Craigslist to build the marketplace as quickly as possible.
We started Trulia, a small start-up, in a Stanford library, competing in an established industry with well funded competitors. We knew that people were starting their online real estate search on Google, then going to sites that were poorly designed and lacking in unique and valuable content, acting as simple lead generation platforms.
From the beginning, we decided to focus on providing more information to consumers than anyone else to ensure our site ranked as highly as possible in Google search results. We made Search Engine Optimization (SEO) part of almost everything we did at Trulia in the early years. We hitched a ride on Google and became one of the leading sites. In fact, prior to going public we didn’t have a consumer marketing budget. This advantage enabled us to go back to real estate brokers and agents to get more content (home listings) and ultimately revenue, because we were providing a valuable, targeted audience. Many other services like Tripadvisor, Yelp and Wikipedia also focused on SEO early on with great success.
But just like any good hitchhiker, you need to know when to get off and control your own destiny. There are even more examples of companies that are long forgotten that misjudged this distribution strategy and while they got early traction, they failed to evolve and figure out how to predictably and independently drive long term growth.
Today it appears that search, social and mobile are largely saturated and while important customer acquisition platforms are typically very hard for new companies to efficiently achieve scale. However, messaging applications and possibly virtual reality, if it gets enough users, present promising scale platforms where new services can hitch a ride.