Last week Tren Griffin did a tweetstorm on a topic that fascinates me – Marketplaces. Marketplaces are beginning to take over from pure play ecommerce businesses. A marketplace is ultimately a network effect in a form of a platform that provides customers with large selection due to suppliers. Without either part of the equation the marketplace wont gain traction and make any headway.
“Network effects” is a frequently used term and it is sometimes confused with having a large customer base. Network effects is more than just a large number of users – they kick in when the value of a product depends on how many other users there are.
When a new user/member is added to the network, it increases the value of the product or service to all other users. This increased value can be in the form of cost reduction (in user acquisition as an example), higher liquidity (in a marketplace), stronger community or deeper relationships (in social networks), etc. (Versionone.vc)
However marketplaces can also be seen as a solution to an offline inefficiency with technology (mobile). Once the marketplace reaches critical mass the virtuous cycle starts. Uber has now reached that stage and am able to do things that dont necessarily scale – offering loans to drivers etc.
One of the most important things you can do is identify and double down on the things that work in your marketplace. As your marketplace starts scaling, there will be many matches and transactions between buyers and sellers. But not all matches are created equal. Identify where things are really clicking (on both the supply and demand side) – this could be in certain geographies, audience segments, price points, and user behavior. (Versionone.vc)