Fundamentals of Consumer Marketplaces - Rishi Dean
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11 factors to identify and execute successful consumer marketplaces
![Fundamentals of consumer marketplace
business models
[ 11 factors to identify and execute successful consumer marketplaces ]
rishi@rishidean.com
www.rishidean.com
Presentation to CustomMade
Jun 20, 2013](https://image.slidesharecdn.com/rishideanconsumermarketplacefundamentals-130622190340-phpapp02/85/fundamentals-of-consumer-marketplaces-rishi-dean-1-320.jpg)
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Fundamentals of Consumer Marketplaces - Rishi Dean
- 1. Fundamentals of consumer marketplace business models [ 11 factors to identify and execute successful consumer marketplaces ] rishi@rishidean.com www.rishidean.com Presentation to CustomMade Jun 20, 2013
- 2. Outline Background + economic underpinnings Select an industry Execute the model Protect & grow the platform Opportunities ahead 2Rishi Dean – www.rishidean.com
- 3. My Journey Started / Ground Floor Advise / Volunteer Currently 3Rishi Dean – www.rishidean.com
- 4. Marketplaces are the foundation of the internet 4Rishi Dean – www.rishidean.com
- 5. Pipes vs. Platforms?* Inspired by: @sanguit http://platformed.info/wh y-business-models-fail- pipes-vs-platforms/ 5Rishi Dean – www.rishidean.com Dominant Offline “Create & push” B2B / B2C Dominant Online “Facilitate interactions” P2P / B2B
- 6. Your best bet to make $1 billion ~20 years of consumer internet 24 public companies >$1B, 2x acquisitions ~2 multi-billion dollar companies / year 2/3 are “marketplace” businesses Source: James Slavet, Greylock 6Rishi Dean – www.rishidean.com
- 7. 7Rishi Dean – www.rishidean.com Key variants Transaction initiator Buy-side? Sell-side? Combo? Transacted item Product? Service? Commodity? Market scope Horizontal?Vertical? Niche? Revenue model Subscription?Transaction?
- 8. The internet makes markets efficient 8Rishi Dean – www.rishidean.com Commerce eBay, Craigslist,Amazon Marketplace, … Auto Uber, Lyft, RelayRides, … Child Care Sittercity,Care, … Dating Match.com, eHarmony, okCupid, … Custom Goods CustomMade, Etsy, … Examples Errands TaskRabbit, Zaarly, Exec, … Travel Airbnb, Expedia, Priceline, … Skills oDesk, Skillshare, …
- 9. But first… Platform economics 9Rishi Dean – www.rishidean.com
- 10. 2-sided network incentives 10Rishi Dean – www.rishidean.com Demand Supply 1) Initial Adoption 1) Initial Adoption 2) Same- side Effects 2) Same- side Effects 3) Cross-Network Effects Why do buyers initially adopt? Phase 1: Initial Adoption Why do sellers initially adopt? How do more buyers help one another? Phase 2: Same-side Effects How do more sellers help one another? Increase in liquidity Phase 3: Cross-side Effects Increased liquidity Strategies forTwo-Sided Markets HBRARTICLES |Thomas R. Eisenmann, Geoffrey Parker, MarshallW.Van Alstyne | Oct 1, 2006 Platform
- 11. Consumer marketplaces are a special case of these platforms Strategies for Two-Sided Markets HBR ARTICLES | Thomas R. Eisenmann, Geoffrey Parker, Marshall W. Van Alstyne | Oct 1, 2006 11Rishi Dean – www.rishidean.com
- 12. …almost every successful tech business is a platform, many of those are marketplaces 12Rishi Dean – www.rishidean.com
- 13. Industry Selection 13Rishi Dean – www.rishidean.com
- 14. 14Rishi Dean – www.rishidean.com Characteristics of good industries Big Ripe Plentiful
- 15. 15Rishi Dean – www.rishidean.com Addressable customers Frequency of transaction Transaction size Potential amount transacted via the platform is large
- 16. 16Rishi Dean – www.rishidean.com Consolidate fragmented markets Economic empowerment Deliver new enhanced experiences Markets primed for disruption
- 17. 17Rishi Dean – www.rishidean.com “Ownable” network effects Groups who interact More users = more value Scale matters Can own it
- 18. Service Design Gaining traction 18Rishi Dean – www.rishidean.com
- 19. 3 keys of gaining initial traction 19Rishi Dean – www.rishidean.com Adoption Liquidity Pricing
- 20. 20Rishi Dean – www.rishidean.com 10x value proposition “Prime the pump” Lock in scarce supply Attract users and provide instant utility Onboarding + Activation
- 21. 21Rishi Dean – www.rishidean.com Liquidity: users can find what they’re looking for Substitutes Price dispersion Market segmentation Pricing
- 22. 22Rishi Dean – www.rishidean.com Capture value commensurate with what you create Sources of revenue Side of subsidy Payment scheme Output costs
- 23. Service Design Sustainability 23Rishi Dean – www.rishidean.com
- 24. 3 levers of sustainability 24Rishi Dean – www.rishidean.com Control Scale Competition
- 25. 25Rishi Dean – www.rishidean.com Control of the customer lifecycle Intermediate the transaction Avoid defection Repeat behavior Data cycle
- 26. 26Rishi Dean – www.rishidean.com Scaling up within and across segments Markets & segments New market setup Low friction vs. leverage Community-driven
- 27. 27Rishi Dean – www.rishidean.com Creating long-term advantage Winner take all? Share or fight for control? Threat of envelopment Switching costs
- 28. Opportunities Ahead 28Rishi Dean – www.rishidean.com
- 29. 29Rishi Dean – www.rishidean.com Mobile Follow the customer Location / Proximity Immediacy “Moment of truth”
- 30. 30Rishi Dean – www.rishidean.com High-consideration P2P services Trust first Offline first Reputation Social graph
- 31. Takeaway: “Ownable Network Effects” Backbone of the internet & the most lucrative consumer biz model Select an attractive industry Big market by expected total transaction volume Ripe for technology-enabled consolidation Plentiful to attain and own the network effect Gain initial traction Adoption: overcome “chicken & egg” Liquidity: expectation you can find what you’re looking for Pricing: capture value commensurate with what you create, but allow for growth Sustainability Control: ensure value across all touchpoints of customer lifecycle Scale: Cost-effective expansion into new markets / segments / verticals Competition: Create a “moat” around the castle with high switching costs and lockout Opportunities ahead Mobile: Always on systems for ad-hoc marketplaces based on proximity & affinity Social /Trust: Unlock high consideration P2P verticals 31Rishi Dean – www.rishidean.com
- 32. “There is no secret ingredient” 32Rishi Dean – www.rishidean.com
- 33. Additional Resources 33Rishi Dean – www.rishidean.com HBRArticle: Strategies forTwo-Sided Markets (Oct 1, 2006) BillGurley’s “Above the Crowd” Blog Sangeet Paul Choudary’s “PlatformThinking“ Blog
- 34. I’m here to help 34Rishi Dean – www.rishidean.com Email: rishi@rishidean.com Blog: rishidean.com Twitter: @rishidean
Notes de l'éditeur
- Marketplace models, connecting buyers and sellers
- Been on the ground floor of many startups, shaping and growing themBeen in big companies and little ones, and involved in different capacities with all typesSeen the good, the bad, and the uglyMade some many mistakes, which I’ll share, so you don’t have to
- The internet has proven to be an unprecedented medium to connect individuals and enable markets to be formed that would otherwise be prove to be too inefficient, if not impossible, to exist in an "offline" capacity. One such dominant online business model is the person-to-person (P2P) marketplace, whereby individuals can connect with other individuals across geographic distance to provide goods & services to buyers. There are many such examples that form the basis of many companies matching long-tail supply and demand.Helping to make inefficient commerce efficientProviding economic opportunity and empowerment to their sellers/hosts, enabling them to earn meaningful income
- Payments: Paypal, SquareAd Supported: Facebook, LinkedIn, YouTube, Google, AOL, Yahoo, Pandora, Hulu, Twitter Others: Dropbox, Evernote, Skype
- Number of people who will transact:% addressable / obtainableto go online at allLikelihood of marketplace success and penetrationFrequency of transactionFrequent purchase cycles (Yelp, GrubHub, OpenTable, Uber) Marketplace is a utility Easier to build brand awareness and referral growthAverage transaction sizee.g. CustomMade vs. Sittercity
- Consolidate fragmented markets via technologyExcess capacityFriction / Opacity: middlemenProviding economic opportunity and empowerment to their sellers/hosts, enabling them to earn meaningful income“Found money” for suppliersDeliver new or enhanced experiencesWorkflow efficienciesTransparency
- Does user n+1 have a better experience than user n?
- Many platforms have little use until critical mass is achievedMarquee or exclusive access to supply
- Conversion Rate: A conversion range of 30-60% is a reasonable expectationSubstitutes: The harder it is to find a good elsewhere, the lower the conversion rate may bePrice dispersion: The variation of price across sellers of same good) is a sign of the inefficiency of your market, and in turn, illiquidityMicro market variation: within (sitters and nannies) can also cause illiquidityThe higher your average selling price, the lower the conversion rate may be
- Can capture value commensurate with what you create (i.e. you can “tax” / charge for it)Where is the revenue coming fromSearch vs. ListTransactionWho is being “subsidized” by the platformFor optimal revenue subsidize the most price-sensitive group
- How do you define your market & sub-markets?What is the setup to go from one market to another? In some markets signing up suppliers is relative easy. In others, it can be a painfully slow process that requires lots of touch and local presence. High friction supplier signup can be a barrier to entry if you are able to build a successful marketplace, but hard in the early stagesCommunity-driven, populated with passionate users who evangelize the service – can you aggregate demand?Platforms upon which their community of users continually expands into new verticals
- “Always on”Sudden / private marketplaces based on proximity / placepayments
- Groups who interactA system that greatly improves interactionAdoption creates value for users – gets better as others use it, without action by ownerSolved chicken & egg problem – can prime pump, get usage by groups. Many such systems have little value until broadly useScale matters, and you can get leading scaleCan own, and deter users from moving to lower cost alternativesCan tax – i.e. you can charge for it