[Four Insights on Building a Marketplace]
The Marketplace business model has been the poster child in the startup scene for well over a decade: AirBnb, Uber, Lyft, Thumbtack, OpenTable, just to name a few. And some like Craigslist, eBay, and Alibaba are old enough to buy a drink in most places around the world. Why are marketplace a good business? And how does one go about starting a marketplace? If you want to learn more about marketplace or eventually start your own, this is the post for you:
- The Pros of a Marketplace Business: because you host a place for supply to meet demand, the tech barrier is very low, one can essentially run a marketplace business just with a simple website. Moreover, the nature of connecting supply with demand means you don’t have to carry any inventory, this in exchange gives you the ability to scale faster. Lastly, Network effect is the key to marketplace business. Once you start the flywheel of supply or demand, with some form of moderation, the next supplier will bring in more demand that’ll bring in more supply or vice versa.
- Cracking the Infamous Chicken or Egg Problem: So do we start with supply first or demand? Eight out of ten times a marketplace begins with onboarding the supply end first. Simply because the supply side has nothing to lose by being on the marketplace. But if there was an abundance of demand and a lack of supply, by not being able to make ends meet will lead to loss of demand and create a negative network effect.
- Building a Healthy Supply Side to Start Your Marketplace: First thing to do is to limit the size of your marketplace. It might seem counterintuitive but by limiting your market size to say “Taipei city only”,“XX district only”, or even “XX category only”, you will have a much easier time creating a solid stream of supply for customers to tap into. The goal here is to make sure when the demand side comes to your marketplace, there is plenty of supply for them to stick around. Your can onboard your supply side like most customer acquisition channels: direct sales, referral program, word of mouth, subsidization/discount, marketing, offline events etc.. you get the idea.
- You’ve Got the Supply Side Sorted, it’s Time to Bring in Demand: the key here is to execute, test, measure, and repeat. There are multiple channels to test for the Demand side but don’t expect them to work on the first try. You can start off with paid channels, but what you are really looking for is organic growth within these channels. This is a sign that your marketplace is indeed solving a problem and providing value. Again, you want to keep iterating until this happens.
If you are trying to build a fast growing marketplace and want to learn how, AppWorks Accelerator is now accepting applications for its next AI/blockchain only batch (AW#20). Final round deadline is 12/16 >>>http://bit.ly/2DSbpMB
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by Jack An
Analyst
[Photo description: Craigslist while being one of the oldest marketplace on the internet, was pulled apart by multiple marketplace startups that bought users a better experience and service.]
