Building a Marketplace
In the past few years while building YPlan I have spent a lot of time analysing and looking at a variety of other marketplace businesses. I’ve been talking to their founders, customers and suppliers trying to understand how to build a successful marketplace. In the process I have received a lot of questions about the intricacies of building it, hence wanted to share some thoughts and patterns which seem to be common across startups that try to become leading marketplace in their respective verticals.
Marketplaces usually develop and grow following these three steps:
- Innovative proposition.
- Exhaustiveness of supply.
- Search, personalisation and relevancy.
Step 1: Innovative proposition
Innovative propositions and services which weren’t available before are nowadays enabled by new technologies. HotelTonight is a great example of a service that allows booking hotel rooms on the go at the last minute. It’s got an interesting and attractive customer proposition — you land in a new city and immediately get yourself a best room from a curated selection of hotels in two taps on your mobile. It’s been enabled by ever growing smartphone penetration — last minute on-the-go booking services like HotelTonight, Uber or Lyft couldn’t even exist without smartphones.
Step 2: Exhaustiveness of Supply
Marketplaces literally live or die by how well they balance supply and demand. Right after a marketplace attracts curious early adopters it has to continue growing further. At this stage it hits “chicken and egg” problem. Balancing supply and demand becomes increasingly important. If there are no buyers, no one will be willing to sell. Respectively, if there are a lot of buyers but no sellers, buyers will not return to a platform. Most of the successful platforms ‘hack’ supply side first in order to focus on the demand side. At this stage it’s all about becoming the most reliable source of whatever you’re selling for your customers.
Step 3: Search, personalisation and relevancy.
Having exhaustive supply enables serving a customer well. A platform that yields personalized search results serves a customer even better. Personalisation improves relevancy and further increases customer engagement. If not by the help of technology, then editors manually ‘curate’ selections of products to satisfy certain customer sub-groups or showcase products and a platform in the best possible way.
A good example of a well curated and personalized marketplace is Airbnb. It intrigues customers by showcasing unique stay options at tree houses, castles and boats, although a typical average customer usually opts for a simple studio room. However, seeing tree houses inspires to explore further and creates a perception of exhaustiveness and completeness — a customer gets a sense she will always be able to find what she’s looking for.
Above is a quick look at the growth stages of a successful marketplace business. In the next post I will talk in detail about one of the most challenging elements of building a marketplace — reaching exhaustiveness of supply and ways to achieve it. Stay tuned.
