Building a Marketplace — Supply Exhaustiveness
How to reach exhaustiveness of supply? That is one of the most complicated and at the same time most interesting steps to figure out when building a marketplace. This is the reason why all marketplaces frantically measure their supply coverage levels and try to improve it continuously. For example transportation startup Lyft is known to measure the length of passenger pick up times. The conclusion they have reached is that a seemingly small difference between 4 minute and 12 minute pick up time results in a big impact on business. You might think it would reduce amount of rides taken by maybe three times or so? Well, if a customer gets upset with a long waiting time once or twice she simply switches to a competitor — the actual outcome is really about having a business or not having a business.
Even though there are multiple ways to reach exhaustiveness of supply, these four seem to be the most common ways to do it:
- Choose a very narrow vertical first.
- Hack your way into supply.
- Lock-in suppliers by architecting an easy to use SaaS solution for them.
- Build supply substitute if you can’t get actual supply first.
Choose a very narrow vertical first
Narrow verticals are easier to execute because you need to perfectly satisfy a single need well instead of solving a variety of problems. At the same time it makes it easier for customers to understand what problem you are solving for them. Famous example is Amazon, which started by selling books, instead of trying to become a store of everything at the very beginning of their lifetime. Another good example is TaskRabbit vs. Instacart — Instacart is a subset of what TaskRabbit could do for customers, but since it’s confined to a narrow vertical Instacart can deliver a much better experience when it comes to grocery shopping. It’s also very clear what Instacart does, while TaskRabbit is supposed to do a lot of different things that confuses customers and doesn’t stick in their minds as a solution to a particular problem.
Hack your way into supply
Given the typically enormous scale of supply necessary to be exhaustive perhaps there are certain ‘shortcuts’ that could be exploited using a mix of scraping, spamming and tech-driven automation? One of the famous examples is Airbnb and the way they’ve built initial apartment base (supply) by using Craigslist. Usually these are short-lived hacks, but in certain cases they can provide a much-needed boost to supply and help transition a company towards a more sustainable growth model.
Lock-in suppliers by architecting an easy to use SaaS solution for them
SaaS — software as a service — could be built for the suppliers to help them solve certain problems they might have. It locks suppliers in before you start connecting demand and supply. A good example is Wahanda. They’ve started in UK as a beauty deals business. Now they have successfully evolved into a SPA marketplace. To build their supply base they’ve acquired Salonium, which has built an appointment reservation SaaS tool. They gave it away for free and SPAs started using it instead of pencil and paper to keep track of their client appointments. Wahanda collected that appointment data to understand when and what types of treatments are available at all SPAs. Then Wahanda was in a position to go to SPAs and offer to bring in new customers using Salonium data. Wahanda could offer that because they could deliver their customers access and easy bookings for the largest selection of SPAs in the UK. Had they tried building both supply and demand at the same time it would have been more difficult or outright impossible because customers would have had very few SPAs to choose from.
Build supply substitute if you can’t get the actual supply first
Last but not least there’s usually a way to get all supply by simply scraping content from a variety of sources. This is usually non-transactional content — in other words you can at best manipulate and display it but you can’t allow customers to ‘buy it’ on your platform. Maybe you can redirect customers to where it was scraped from and take an affiliate fee from transactions, or maybe you can build some interesting customer proposition on top of that content that isn’t transactional at first, but could be converted to transactional later. A good example in music space is Songkick. It provides a service that allows customers to buy tickets to the concerts of their favourite bands. However Songkick started off as a tool to track your favourite music artists and bands, notifying when the band is playing nearby. They could have started with all artists / bands immediately as their performance schedules are relatively easy to get (that’s way easier than striking commercial agreements with every single promoter of every single artist across the world to sell tickets for them). This allowed them to build a significant demand base that had a very strong intent and interest in seeing the artist live. Having that demand base has put them in a much better bargaining position to get into selling tickets for some of the bands.
It is not surprising that all of the ways to reach supply exhaustiveness mentioned above heavily rely on technology as their core enabler. New marketplace businesses have to displace existing incumbents, hence they have to be nimble and grow quickly to become market leaders. They simply cannot afford to have large teams of people or try to replicate step-by-step what existing incumbents are or have been doing. Instead they typically find ways to leverage technology to scale much faster. Successful marketplaces enable supply by employing ‘growth hacking’ (Airbnb), content scraping (Songkick, Lyst, Gametime), integrating via numerous fragmented suppliers using APIs and taking affiliate fees (SeatGeek, Lyst) or selling SaaS to gain supply foothold first (Booking.com, Wahanda). Once supply challenge has been solved the rest of the task — demand generation — becomes a whole lot easier.