What makes a successful online marketplace
Online marketplaces have become an integral part of our how we discover and buy goods and services, in an increasingly digital economy. The most successful ones such AirBnB, eBay and OpenTable to name a few, have achieved deep liquidity and powerful network effects that make them almost impossible to copy or displace. However, for every marketplace that succeeds there are so many that fail. This reality reflects how hard they are to build and scale. So what makes a marketplace a winner and what can we learn from past experiences ?
I have listed below a collection of five articles on market places. They provide a comprehensive overview of the types of market places that are thriving, some real insights on what drives them, and why some are successful and some aren’t.
– The first reference is a great introduction video on marketplaces and the importance of network effects, by Jeff Jordan (Partner at Andreessen Horowitz) – Market places.
– This is a very insightful presentation by Jonathan Golden in which he describes four key success drivers of marketplaces, based on his experience with AirBnB: network effects, the nature of supply (homogeneous/heterogeneous), two-sided incentives, and transaction unit economics (size and frequency of interaction)- Four questions every marketplace should be able to answer.
– In this article by Eli Chait gives a complete and compelling description on how the top 100 most successful marketplaces created value for their first users and which of the top three most popular “seeding” strategies has been the most effective- How the 100 largest market places solved the “chicken and egg” problem.
-I like this article by Andrei Brasovean, who gives a complete list of marketplace metrics. He groups metrics in ten categories: 1. Scale (GMV, net revenue) 2. Margin (gross margin / contribution margin) 3. Momentum (growth rate, Market share) 4. Activity (Liquidity, AOV, Items per basket) 5. Engagement (Messages, NPS, User reviews) 6. Retention (Cohort retention, Repeat orders) 7. Concentration (Whale curves, Sector/Geo/Product concentration, Fragmentation) 8. Acquisition (CAC, Channel scalability) 9. ROI (LTV, LTV/CAC, Unit economics) 10. Cash (Burn rate). – Ten marketplace KPIs that matter.
– Finally, I would like to recommend this article by Tomasz Tunguz- Pricing for SaaS Enabled Marketplaces– which describes very elegantly and effectively how to decide whether to charge or not for access to SaaS enabled marketplaces. Tomasz presents a list of preconditions for successful freemium strategies, the importance of breakage and how the total addressable market size affects pricing.
