I bet you have never heard of Uber!
What do Uber, Amazon, and Airbnb have in common?
All of them are marketplace businesses.
What is a marketplace in the corporate world?
A marketplace is any business that has 2 or more distinct customer groups, which form the supply and the demand and the marketplace in the middle facilitates a business transaction between the 2 groups.
1. Uber has drivers and riders.
2. Amazon has consumers and third-party sellers.
3. Airbnb has hosts and guests.
Why are marketplace businesses such as Uber, Amazon, and Airbnb some of the most valuable companies in the world?
The answer is: a myriad of factors contributed to their ultimate success. What we can say is that they have all deployed various sneaky tactics to capture the hearts and minds of millions of customers so that they go to them and not to the competition.
Now that everybody knows about them, it is way easier for them to continue to thrive. However, the real question is: how did successful marketplace businesses begin?
→ Raise your hand right now no matter where you are reading this article if you think beginnings aren’t easy.
The founders of big marketplace businesses would agree with you.
However, I will present to you 3 tactics they used to gain the initial traction…
Tactic number 1 to start up a multi-sided marketplace is to fake the activity.
When Reddit was founded, it didn’t have any users. Of course. Reddit is a social news platform and a discussion forum and is a two-sided marketplace with content creators on the one side and content consumers on the other side.
In the beginning, the founders of Reddit created numerous fake accounts. They asked and answered hundreds of questions on topics they wanted to see on Reddit. When some inquisitive web surfers stumbled upon Reddit, they had the impression that Reddit had numerous users and was already established so they opened their account.
Speaking of faking the activity… PayPal, when it started, figured out a clever way to ramp up the demand for its payment services. Employees at PayPal created an algorithm, which ordered items on eBay and requested to pay for them using PayPal. This bot generated thousands of orders and this created artificial demand and encouraged sellers to sign up with PayPal.
Tactic number 2 is: to subsidize one side of the marketplace; most notably, the supply side.
In the beginning, Uber didn’t employ drivers as freelancers but as regular employees. This meant that they were paid a fixed salary every month regardless of the number of miles they drove that month. This attracted a lot of drivers initially.
Tactic number 3: restrict the target market.
For example, Facebook started with Harvard university students. Then, it was rolled out to other colleges, and then it conquered the world. Amazon started selling books only. Uber started in San Francisco. Then, they expanded to other major cities. Then, the world. The common denominator in all of these cases is to make sure that the business model is successful on a small scale. Only if it is, you can expand to other geographies or adjacent market niches.
And there you have it. 3 tactics for anyone who wants to start a marketplace business.
1. Fake the activity
2. Subsidize one side of the marketplace, most probably the supply side
3. Restrict the market
If you wish to learn about many other tactics the marketplace juggernauts have employed to acquire initial users, check out the book “How to Kickstart an Online Marketplace: The Foundations for Success”.
I wish you the best of success!
