In the early stages of a marketplace, should you focus more on supply or demand?

Edited excerpt from How to seed your marketplace by Boris Wertz:

The earliest days in a marketplace are a tricky time. There’s a chicken and egg problem when it comes to supply and demand: customers need supply, and suppliers need customers. But it’s nearly impossible to ramp up supply and demand in lock step.

We’ve found that in most cases it’s best to focus on building up the supply first. That’s because there’s more incentive for a seller to invest their time in the early days. There’s zero motivation for customers to stick around without any inventory.

So how to you go about seeding supply? There are four common strategies:
1. Identify unique inventory for which the sellers have no current marketplace
2. Convince existing inventory to list on your platform
3. Pay for inventory
4. Aggregate readily accessible inventory

(1) I think this only holds if the cost to suppliers of appearing in your marketplace is low, for example if they can sell the same merchandise through other channels as well. If, in contrast, you require exclusivity from suppliers, then you’d better deliver sales to them by nailing the demand side.
(2) Cf. How marketplaces can build a competitive moat.

Three pieces of advice if you’re building a community, platform or marketplace

Edited excerpt from 16 product things I learned at Imgur by Sam Gerstenzang:

1. You can A/B test individuals, but it’s nearly impossible to A/B test communities because they work based on a mutually reinforcing self-conception. Use a combination of intuition (which comes from experience), talking to other community managers and 1:1 contact with a sample of your community. But you’ll still be wrong a lot.

2. Public forums are not a useful way to get feedback, but are a useful way to get buy in from the community. This is true of both online and offline communities.

3. Communities are unpredictable. Don’t take the community’s criticism too personally or you’ll become afraid of change and slow. Instead, be open, thoughtful and move quickly.

How marketplaces can build a competitive moat

Edited excerpt from Marketplace dynamics: buyer mindshare is key to building a moat by Boris Wertz:

Most marketplaces start off by providing a unique supply of products/services. Demand follows supply, and so the flywheel of supply and demand begins.

However, as a marketplace gains popularity, its supply inevitably becomes less and less unique, as your suppliers seek out opportunities on other marketplaces and competitors look to grab a piece of the pie that you discovered.

In order to minimize the impact of these competitive dynamics, a marketplace can adopt two strategies: protect the supply and protect buyer mindshare.

When it comes to supply, you can give your sellers little reason to seek out other marketplaces. For example, you can lower listing/transaction fees for unique inventory, tie sellers to your site through reviews (which cannot be transferred to other marketplaces), or find some other innovative model like Uber’s leasing model.

Yet while these strategies can slow down the drain of your unique supply to other marketplaces, they won’t stop it altogether. It’s much more effective, and important, to win buyer mindshare.

You need to have the right product mix to become a frequent destination for your customers and build a brand that captures the mindshare of your target audience.

Six strategies for marketplaces to build stickiness

Edited excerpt from Marketplace 2.0: How to engage and keep your users by Sangeet Paul Choudary:

Marketplaces often focus entirely on moving buyers towards purchases and sellers towards listing more products/services. This transaction-only focus is often at odds with creating stickiness and repeat usage. These are the key mechanisms by which marketplaces can move to an engaged and ‘sticky’ experience:

1. Reputation Systems: When a seller is committed to improving and maintaining their reputation on a marketplace, they cannot afford to participate on multiple marketplaces.

2. Collections: A wishlist or wardrobe feature on a marketplace allows buyers to collect listings and items of interest. As a buyer spends more time creating and customizing a collection, they are less willing to duplicate and reinvest the same effort onto another platform.

3. Personalized Feed: Tailoring content suggestions based on a buyer’s past transactions leads to higher retention.

4. Influence: Seller-centered marketplaces allow sellers to brand themselves, build a following and create influence. Sellers regularly push out content on their wares. The more buyers subscribe to one’s content, the larger the broadcast of one’s next chunk of content.

5. Workflow management: Service marketplaces are building out SAAS tools to incentivize the parties to complete the transaction online, for example by providing additional workflow management tools such as call management and invoicing.

6. Substituting transactions with subscriptions: Marketplaces that can offer a fairly guaranteed form of service, often move from an a-la-carte transaction model to an all-you-can-eat subscription model. Subscriptions keep buyers locked-in to the platform.

Marketplace mistakes

Edited excerpt (some rewriting, reduced list) from 14 Marketplace Mistakes That Are Killing Your Startup by Tristan Pollock:

1. Poor risk management. Ensure you win the trust of your customers, and watch out for  their safety.

2. Smart risk management without self-promotion. Let your customers know about your marketplace protections early in the dialog.

3. Not building a movement. Capture brand equity for your company early on.

4. Not regulating your community. Moderate and curate a lot, especially early on in the life of your company.

5. Over regulating your community. The more you relinquish control to the community, the better the experience, the more engaged the community, and the faster you can scale.

6. Focusing too broadly.

7. Over optimizing on price (setting your rev share too high).

8. Getting the balance wrong between quantity and quality.

10. Preventing disintermediation instead of adding value.

11. Over catering to supply customers. Sellers are the most vocal. Buyers are silent judges of your success: treat them well and they’ll spend money, otherwise they’ll just silently disappear.

12. Thinking marketplaces are easy exits. Marketplaces take much longer to reach product-market fit, liquidity, scale, and are often a 5-10 year venture before you’ve nailed it.

(1) Thank you Asi Segal for the tip.

The three factors that make platforms successful

Edited excerpt from Part 1 of 2: Should you build for the Apple Watch platform? by Bubba Murarka:

Over the years I’ve been using a framework to evaluate new platforms based on my observations from working at Facebook and Microsoft, two companies responsible for creating, managing, and at times, mismanaging great platforms. The framework involves three factors and associated questions:

Technology enablement — Can something be done that wasn’t possible or easy to do before? Adding GPS to smartphones, to give you my favorite example of technology enablement, has spawned multiple new killer applications, like Waze and Uber, that weren’t previously possible.

Distribution — How does the platform help you gain new users and engage existing users? Any entrepreneur will tell you, “they will NOT come if you build it”. Over time as distribution (nee Marketing) has primarily moved to digital channels, ownership of customers has shifted to the platform owners instead of traditional intermediaries like retailers, wholesalers, etc.

Business model — Does the platform provider have a clear business model that you can align with to sustainably share in the value created? If a platform owner isn’t thoughtful about aligning its business model with developers, it’s possible for tremendous value to be quickly created and destroyed as developers abandon platforms quickly.

Platforms must enable evolution, not just creation

From Apple’s Cut From App Sales Reached $4.5 Billion in 2014 by Brian Chen:

The real success of the Apple App store is not the money, but the way it has changed the software industry. Apple provides a stable open platform for developers and hundreds of thousands of developers to create innovative solutions, and more importantly maintain them.

Contrast that with Enterprise software (the industry I work in) that struggles to release 1-2 upgrades to an app per year, that are so complex that users need classroom training to use it.

(1) You rarely get products right the first time; success comes from iteration and evolution. Ergo, a successful platform must enable rapid iteration and improvement.
(2) Our experience with Seeking Alpha’s mobile apps: Google’s platform allows for faster iteration and evolution than Apple’s.
(3) Thank you Eli Hoffmann for the tip.