The Two Types of Marketplaces
There are two types of marketplaces that need to be considered.
High Variation, Low Engagement
The first is a high variation, low engagement marketplace.
Examples of these are Airbnb, the marketplace for short term rentals, and Seamless, the take out food delivery service.
For Airbnb, a typical person stays a few nights in multiple cities. “In New York, Airbnb visitors stay on average 6.4 nights.” For each city, the user must return back to the platform to book the other cities. Their interface even promotes travel amongst other cities and different experiences — living in a yurt, yacht, castle, or island.
For Seamless, the user must go back to the platform to order each meal. Since people’s appetite change frequently, they order from Seamless everytime.
Low Variation, High Engagement
On the other hand, we have a lower variation, higher engagement platform. Two examples are Tutorspree, the tutor matchmaking platform and StyleSeat, a marketplace for hairdressers.
Let’s play out an example for Tutorspree. A parent hired a tutor from the platform to tutor their child on SAT Math. The engagement would last 10 weeks. The parent is grateful to Tutorspree for matching her with a great tutor, but might not want to pay the inflated price which includes the site’s fees. So the parent negotiates with the tutor to take their payments off the platform. This allows the parent to pay less and for the tutor to make more, just because they are not paying Tutorspree their cut.
Same goes with hairstylists. Most women do not want variety when it comes to their hair. As we pointed out in the past, women want consistent quality. So when they find the stylist that is skilled enough to cut their hair, they stay with them. There is nothing that is stopping from a customer to go directly stylist, bypassing StyleSeat. StyleSeat did it’s job of matching. There is no reason for the client to go back onto the platform.
Protection
There are ways to prevent these sorts of things from happening. Instead of penalizing both parties for circumventing the platform, one must make the platform something that can’t become obsolete. The tutoring company WyzAnt gives an examples, “Like many other marketplaces, WyzAnt generates revenue by taking a piece of each transaction, with the percentage it takes based on a sliding scale, depending how often the tutor uses WyzAnt. In addition, by offering profiles, payment processing and some basic CRM tools, the company wants to be an easy way for tutors to run their businesses, market themselves and manage usually tedious operational pains, like scheduling and collecting payments.”
A company, WithCoach.com, recently launched and it hit all the defensibility points of a high engagement business. With Coach promised a product that helps independent workers manage, market and grow their businesses, so they can focus on what they love doing most. It positions all of it’s defense as “efficiency” by having a unified dashboard, where you can schedule and collect payments with a simple workflow. Their bet is that all of this convenience will keep tutors (and their transactions) on the platform.
Types of marketplaces, market forces, defensibility — these are all things that are necessary to think about when planning any marketplace business. Setting up a scenario where you offer more value to the parties on the platform rather than penalize seems to be a better route.
If you liked this post, you might also like:
If you liked the overall message of this post, feel free to get in touch with us. We do speaking engagements — http://www.citadinesgroup.com/#contact.
