Jump-starting a marketplace can be a real challenge for entrepreneurs. They face a classic chicken or the egg problem. Without enough supply, there’s very little reason for consumers or buyers to show up, and without strong consumer demand, suppliers are generally reluctant to sign up, or they will lose interest if consumer demand takes a long time to show up.
Jump-Starting a Marketplace
Most successful marketplaces have jump-started their business by focusing first on the supply side of the equation and constraining their activities either by geography or by category. DoorDash, for example, started its service in the Palo Alto area before expanding to other markets. In fact, it didn’t even sign up any restaurants. It simply placed restaurant menus on its website and ordered on behalf of the consumers. Later, as it received funding, DoorDash hired a sales force to call on restaurants and sign them up market by market. Once they had the restaurants signed up, they started the campaign to attract consumer demand. Similarly, Instacart scraped the inventory of a Safeway store and placed the items on its website so that consumers could place grocery orders from its site. Later, as it got traction, it was able to sign up agreements with major grocery chains.
Rover started in Seattle and remained focused on Seattle for a period. It helped that the founders were located in Seattle. The Seattle area is a high-tech, dog-friendly city (especially with employers like Amazon that are very supportive of pet owners) with lots of working professionals who go on frequent business trips and vacations.
Build Your Own Supply
This is a strategy that Udemy employed in the early stages of its business. It built its own courses and marketed them extensively. This obviously was not a scalable strategy, but it provided significant proof points to attract other course creators to the Udemy platform. Another similar strategy that Udemy employed initially was to identify courses that were created under the Creative Commons license. They brought these courses into Udemy and made them available as free courses. In this way, Udemy added hundreds of free courses to its listings.
Find Providers in Other Marketplaces and Business Directories
Existing marketplaces like Craigslist are prime marketplaces for picking off providers. In fact, as mentioned earlier, Airbnb used this strategy to build out its supplier base. It emailed all the people who listed their homes on Craigslist to get them to also list on Airbnb. Of course, your marketplace has to deliver a significantly better functionality and experience to get these providers to switch over. For example, Airbnb provided a significantly better visual user experience and created trust through its insurance program.
Be aware that Craigslist knows now that startups are poaching its providers. It has likely put up roadblocks to stop other companies from scraping its site for data on marketplace providers.
Google and Yelp are also good sources for finding listings of different types of providers. You may need to build a web crawler as Thumbtack did to gather information on different providers in various categories.
Single Player Mode
Another strategy to build the marketplace is to build out only one side of the network without requiring the other side. As mentioned earlier, OpenTable initially sold a hardware and internet solution to restaurants that was primarily a table management and customer management solution. The solution was useful to restaurants on its own and didn’t require OpenTable to drive customer demand for restaurant reservations. Once the company had signed up the top restaurants along with fifty to a hundred other restaurants in a city, it would start promoting the OpenTable app to consumers to drive demand for its restaurant customers. After OpenTable succeeded in establishing critical mass in its initial markets, it expanded to many other cities in a nationwide push. Today, OpenTable is the dominant restaurant reservation app in the United States and in many international markets.
Apple and Google initially launched their phones with their own built-in apps. Only after both platforms had gained critical mass with consumers did they introduce the notion of an app store where third-party developers could sell their apps. At that time, third-party developers were eager to develop apps for the iOS and Android app stores since they would gain access to hundreds of millions of consumers. Today, both app stores have millions of apps that consumers can download to their phone.
Building a healthy ecosystem is critical to the success of a platform. Prior to iOS and Android, the Symbian operating system was the de facto market leader in the smartphone market. Symbian was formed as a joint venture between various phone manufacturers. As a result, it had to customize its OS to various handset makers’ needs. This made it significantly more challenging for app developers to create a single app that worked on all Symbian systems. They had to customize their app for all the different hand-sets in the market. To make matters worse, the wireless carriers controlled what apps could be installed on each phone. This made it much more difficult for Symbian to attract widespread app support and create the network effects to ward off potential challengers. Fortunately, Apple and Android (to a lesser extent) provided a consistent API (application programming interface) that worked across all handsets. The carriers no longer had control over which apps could be installed on their devices. It is not a surprise that iOS and Android soon became the dominant operating systems in the market.
This piece is excerpted from Winner Takes All: Case Studies in How Online Marketplaces Are Creating Modern Monopolies by Shirish Nadkarni.
Shirish Nadkarni is a serial entrepreneur with proven success in creating multiple consumer businesses that have scaled to tens of millions of users worldwide. Nadkarni was the co-founder of Livemocha, the world’s largest language learning site with more than 15 million registered members from more than 200 countries, which was acquired by RosettaStone in 2013. Prior to Livemocha, Nadkarni was the founder of TeamOn Systems, a mobile wireless email pioneer that was acquired by BlackBerry in 2002.
Nadkarni is also the author of Winner Takes All: Case Studies in How Online Marketplaces Are Creating Modern Monopolies and the award-winning From Startup To Exit: An Insider’s Guide to Launching and Scaling Your Tech Business.
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