Henry Moulton

Scrappy Notes on Web Marketplaces

November 29, 2017


My first memory of using a new marketplace was during the London 2012 Olympics, Uber had just arrived in London. Uber were running a marketing campaign - every time Great Britain won gold, Uber was free in London for an hour. I’d heard about Uber because they gave everyone free rides at a tech conference that year.

This was back when the only cars available was the Lux category. If you want a great long read more about Uber morphed from the Lux category to focusing on UberX, check out How Uber Conquered London.

Anyway, my little brothers and I were heading up to Wembley Park on the tube to watch an Olympic football game.

Checking Twitter I see two gold medals to Great Britain. I think one was in kayaking and another five minutes later a gold in swimmming. I double check Twitter, and yep, Uber’s free for two hours.

I somehow convince my brother’s to get off the tube at Knightsbridge station. Baby bro’s wondering why we’re loitering outside Harrod’s. I tell them “Guys, I just ordered a car to come pick us up via my phone, and it’s going to take us all the way to Wembley for free”. Baby bro was like “Dude stop, it’s probably a scam, no one can order taxis from an app, you probably got scammed”.

A few minutes later a silver Mercedes S Class pulls up. TVs, magazines, bottles of water and Uber swag. The Driver gets out and says “Henry?“. Little bro and I are watching Olympics coverage on the TVs in the back. Baby bro is in the front speechless.

Anyway. Of all the software products out there, I’ve always loved marketplaces.

Examples of Successful Marketplaces (there’s many more)

TaskRabbit acquired by IKEA (Taskers and Clients)

Uber (Drivers and Riders)

Upwork (Freelancers and Clients)

Amazon (Buyers and Sellers (kind of))

YouTube (YouTubers/Content Creators and Viewers)

YPlan acquired by Timeout (Events Partners and Event Attendees)

Craigslist (Listers and Sellers)

Kickstarter (Early-stage Companies and Investors)

Etsy (Craftsmen and Buyers)

Fiverr (Freelancers and Clients)

Udemy (Teachers and Students)

Airbnb (Hosts and Travellers)

Ebay (Buyers and Sellers)

HotelTonight (Hotels and Travellers)

Marketplace Pros

  • On the consumer side, when they work, they’re disruptive in a cliche sense. They democratise the ability for anyone to find the best match for X.

  • On the provider side, allowing people to generate income in a more independent fashion than a full-time job is a Good Thing for some people.

  • They’re complex, there’s two sides (or more) types of users, there’s UX considerations for both sides. There’s marketing, types of language, economic incentives, market liquidity and matching algorithms. Search, Discovery, Sorting, Filtering, Auctioning. Driving acquisition, retention, referral. You have to figure it out for both sides.

  • They create monopolies through network effects. You have to go on to own the market where you’re starting your platform. As a result, they’re competitive af. As a result, they often end up innovating in design and product.

  • They’re a natural product of the internet’s ability to let anyone communicate, anywhere, but they focus around a single use case.

Common Product Features

Payments - Currencies

Payments - Escrow

Trust, Reputation and Reviews

Admin Management Panel

Booking Calendar

Profiles

Listings

International Language

Messaging

Search

Recommendations

User Authentication

Flagging Bad Behaviour

Support

Common Economic Mental Models

Liquidity

Supply and Demand

Loss Leader

Monopoly

Network Effects

Barrier To Entry

Unit Economics

  • CLTV (Customer Life Time Value)
  • COCA (Cost Of Acquiring a Customer)

Tracking Growth

Pick your North star, often building supply side. If you can’t attract demand side in an efficient, cost effective way you probably don’t have a business.

AARRRR Metrics

  • Acquisition
  • Activation
  • Retention
  • Revenue
  • Referral

Marketplace Transaction Lifecycles

Online marketplaces use the internet to connect buyers and sellers and allow them to transact with the marketplace being the middleman.

Transactions can be fairly complex but they’re the common factor of a marketplace and the interactions are a key part of making a retentive product.

It is the job of the marketplace to figure out how to make the transaction as easy for the buyer as possible, while still allowing the seller to profitably continue doing business on the platform.

On the buyer side, this is about making a delightful user experience through making thoughtful product decisions with respect to the service being purchased

For example, the transaction facilitation of an Uber ‘Ride’ is much different to that of an Airbnb ‘Stay’.

Uber Ride:

  • Open app
  • Choose price point
  • Choose pick up location
  • Request
  • Uber’s matching algorithm executes, parameters of location, rating, and “driver thirstiness” creates a matching between rider and driver.
  • Car arrives, or either party cancels
  • Car goes to destination
  • Rider leaves
  • Both parties rate each other
  • Uber charges attached card and takes commmission
  • Driver is paid at the month’s end

Airbnb Stay:

  • Open app
  • Choose location via geographical search
  • Filter using a multitude of factors, with price taking a big weight, but other factors such as amenities, number of people etc
  • Select places and engage in messaging the host
  • Book a final place
  • Host handles stay
  • Rating
  • Traveller might stay with the same host again

Likewise Airbnb is very different to Fiverrr or Upwork.

Perhaps the factor here is looking at how homogeneous the product or service is being offered.

You don’t really care which UberX car picks you up, you just want one ASAP. But you do care about choosing your Airbnb Place.

This leads into another factor being price. By building a bigger monopoly, economies of scale should allow you to have better pricing than your competitors.

Data Analytics

Because you need to create a monopoly, you need a great buying experience. This means designing the product around a ‘happy path’: where the buyer gets what they want while has to exert the minimum amount of cognitive overhead (doing stuff like clicking the UI). Savvy data-driven marketplaces will track the data recorded in the ‘events’ of user interaction (clicks, scrolling, hovering, typing), guess where they can improve the product, and release a new slightly different version.

Starting by talking to your users, making intelligent decisions that prioritise the user experience is the general rule.

References

Lessons Learned Scaling Airbnb 100x 2017

Social Proof Is The New Marketing 2011


Thanks for reading! If you have any comments, questions or feedback please get in contact. Have a nice Thursday.


I'm Henry Moulton, a software design and development freelancer living in London, UK.

My portfolio will be online soon.

I'm on Twitter and LinkedIn, and for years I've been collecting bits of the internet I found interesting on Tumblr.

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