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Four key factors that shape every marketplace

Four key factors that shape every marketplace

There are four key factors that shape every marketplace:

  • network effects;
  • type of supply;
  • incentives;
  • size and frequency of interaction.

Understanding those factors — and structuring your platform accordingly — can make the difference between a wildly successful marketplace and one that never gets off the ground.

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2. Homogeneous vs. Heterogeneous Supply: Is your startup a search marketplace or a matching marketplace?

Another factor that dictates the dynamics of the marketplace tremendously is the uniqueness of your supply.

Airbnb offers heterogeneous supply, meaning that each listing is unique. This creates a competitive moat — it is hard to replicate that supply — and an inherent advantage to Airbnb. H...

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1. Type of Network Effects: How will your marketplace grow?

1. Type of Network Effects: How will your marketplace grow?

All marketplaces exhibit a form of network effects, where each additional user on either the demand side or the supply side enhances the utility of the network for all users. 

Airbnb has global network effects because travel is global. Companies like DoorDash and TaskRabbit have root densit...

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Definition of a marketplace

Simplistically, a marketplace is a place where buyers and sellers meet to conduct commerce. In the online setting, that definition still holds true — online marketplaces give buyers a choice in what they would like to buy and sellers a variety of people to sell to. I classify Airbnb as a search m...

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Homogeneous vs. Heterogeneous - continued

Heterogeneous - search marketplaces, guests are responsible for finding their desired listing. Once you have unique supply, it is up to the product team to build a compelling demand-side product experience that simplifies search, creating as much of a one-click purchasing experie...

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4. Size and Frequency of Interaction: What are the unit economics of your marketplace?

The size and frequency of interaction in a marketplace are paramount to its health. Frequency of interaction determines how much liquidity there is on the platform. . Larger-dollar transactions are better for the platform because they generate more economic activity. Some businesses are high doll...

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Advantages and Disadvantages of marketplaces

Advantages:

  • They involve low capital costs, as inventory is brought to the market from the suppliers.
  • The market can self-correct by offering more of the good or service as buyers demand it more, making each marketplace function like a mini economy.

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3. Two-Sided Incentives: How will you keep both buyers and sellers in the marketplace?

3. Two-Sided Incentives: How will you keep both buyers and sellers in the marketplace?

There are two broad incentives to keep transactions on the platform: trust and convenience.

Technology can bridge trust by offering:

  • Identity Verification —Can I trust them?
  • Revie...

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26 reads

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liviu

My interests are many and eclectic. Product guy.

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