Thursday, October 3, 2013

The New Curated Consumer Marketplace Model: 10 Criteria For Success

<collectionp>The Wild West of online marketplaces is over. From 1999 until 2006, eBay and Amazon Marketplaces dominated the field, offering platforms that brought buyers and sellers together. But over the last seven years, more than 20 new marketplace companies have emerged, representing more than $15 billion of market capitalization and ushering in a whole new era of consumer services. This level of innovation is unprecedented.

These new marketplace companies are upending many industries. They are following some of the same rules as eBay and other first-generation marketplaces, but they are adding a new layer of consumer requirements. In this article, I look at what differentiates these new marketplaces and provide 10 rules for success.

Today's consumer marketplace is curated and controlled. This new level of curation and control really depends on the customer promise for a given market as well as the diversity of inventory; see the spectrum of marketplace models:

Airbnb, for example, has so many different types of accommodations, they cannot control price or service levels exactly. RelayRides, essentially the Airbnb for car use, is to the right of Airbnb on the spectrum because they have to control pricing to be competitive. Wello, a fitness marketplace, started out with open pricing and found out they did not have enough differentiation across trainers since they were vetting carefully, so they have now moved to one consistent price and a subscription model for more frequent customers. If a marketplace offers a service that requires consistency in service levels and pricing, it moves all the way to the right like Uber or Yourmechanic, which control pricing, inventory, delivery, quality, and more.

Restriction can mean friction

A marketplace must evaluate every curation and control decision carefully to avoid alienating users. For example, RelayRides started with a strictly controlled model, involving itself in all communication between renters and owners and requiring owners to install hardware in their cars. For casual renters, this bar was too high, so growth was slow.

Realizing they needed to make it absolutely frictionless, RelayRides ditched the hardware and encouraged anyone to create listings. They pivoted to long-term rentals and away from the 1-2 hour, instant mobility options that Uber and Lyft offer at such low expense. Now they are seeing 40% month-over-month growth.

Setting the bar-and raising it

Generally, the more curation, the higher the cost, so marketplaces need high margins to support growth. Airbnb pays for photographers to make their listings both beautiful and consistent. Both Airbnb and RelayRides have to offer insurance to their owners to make the proposition worthwhile. To balance that expense, RelayRides implemented a stringent vetting of potential drivers, rejecting 15% of renters to increase quality and reduce costs.

The stronger a marketplace gets in terms of market share, the more it can raise the bar on quality. For example, Airbnb just hired a hotelier to train their hosts to provide more consistency across the different Airbnb experiences.

The giants pivoted, too

Even eBay has evolved from a completely open platform. From 1995 to 2006, eBay 1.0 did not dictate key elements of the experience such as shipping or payments, or even offer any kind of guarantee. The quality of the pictures and item descriptions varied, and users had to work to find the item they wanted, but buyers were thrilled at the novelty of finding items online.

By 2007, eBay was losing ground to Amazon Marketplaces. I led the eBay turnaround from 2008 to 2010 as senior vice president of We had to transition to a curated marketplace model with strict requirements for sellers. We also introduced a buyer guarantee. And finally, we improved the user experience to ensure we showed the best item from the best seller at the best price for a given query, not simply the auction ending the soonest. This transition seems obvious in hindsight, but it was a big shift at the time that required a whole new search back-end.

Let's explore some common rules for success among these examples:

Source: Forbes

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