In the sharing economy, the challenges faced by owners of marketplaces are more complicated than that of traditional e-commerce businesses. Given that an online marketplace is a platform service, owners need to acquire users from both supply and demand sides. A classic chicken-and-egg problem surfaces in this scenario: since one cannot exist without the other, which do you seek to acquire first – customers or service suppliers?
Ideally, companies will wish to focus as possible on both. However, this is an unwise decision since many startups and small companies are working with limited resources at hand. The most important thing for you to do at the initial phases of creating your marketplace is hence to focus on growing your supply base, by getting merchants to list their products on your marketplace.
In order for a marketplace to function, there must be sufficient suppliers offering the goods or services before the platform can be opened to customers. It is essential for you to strategize how to acquire suppliers in order to ensure that they are the right ones that you are looking for.
Where do you start from when sourcing for suppliers? One way is to tap into existing platforms where your target users – both suppliers and buyers – are likely to be active in. This can include offline and online destinations, such as Facebook groups or online forums, where people sharing similar interests congregate. These platforms facilitate discussions which allows potential suppliers to promote their products, and for buyers to share information on reliable places to acquire that particular type of goods and services. Such information are useful resources you can utilize when sourcing for your marketplace suppliers.
Etsy and Airbnb are examples of companies which benefited greatly from pursuing such strategies in their early growth period. Etsy, the online marketplace for handmade and vintage goods, adopted an offline approach as the founders started off by visiting craft fairs across the country, sifting out potential craft vendors to set up an online store on their site.
On the other hand, Airbnb recruited property-owners to list on their property-rental site by poaching suppliers from Craigslist and capitalizing on its massive user base. The founders created a software to hack the classifieds site and access the contact information of property owners, pitching to them to list on Airbnb as well. This strategy provided Airbnb with a ready supply of homes.
How then do you convince these suppliers to list their services on your marketplace? You must be ready to prove that you can offer them something better than the existing market options, as with the case of Airbnb. Upon seizing the contacts of suppliers, the founders created a system which allowed people to list their properties on both Craigslist and Airbnb at the same time, and distinguished themselves as a better alternative to the scam-prone, more impersonal platform.
The improved user experience hence served as an incentive for property owners to switch to Airbnb, despite Craigslist being a more established leader in short term property-rentals.
While the ultimate goal of your marketplace is to achieve a scalable business model, it is crucial for new businesses to understand that relying on the word-of-mouth and adopting non-scalable strategies may be essential for their earlier stages of growth. Emphasis must be placed on creating a great experience for your initial customers, even if it means adopting measures that are not scalable in the long-run.
When ridesharing app Uber was first launched, they did not immediately allow drivers to use their own cars. Instead, the company prioritized customer experience by starting out with black cars driven by professional drivers, and rely upon customers to do the marketing for the company by spreading news of their great experience to their peers.
Airbnb too utilized a non-scalable solution to their initial problem of slow growth. The founders noticed a similar pattern across their unpopular listings – whereby the property owners were posting subpar photos of their listings, which paled in comparison to glamorized hotel room shots. Their solution to the problem was non-technical but extremely effective: rent a $5,000 camera, travel to the listings and replace the amateur photography with beautiful high-resolution pictures. The result was instantaneous as a week later, their weekly revenue had doubled, and eventually this led to the development of Airbnb's professional photography service.
One of Airbnb’s top Wish Listed destinations and properties around the world.
Photo credit: Airbnb.
During your marketplace launch, be sure to make use of timing and sequencing to maximise the success and impact of your service. When strategizing for your marketplace launch, trying to attract as many customers as possible should not be your only priority. Your strategy should also revolve around how to acquire the right type of customers and how to provide them with the best experience.
Before launching your services, it helps to have an already engaged audience or community that is aware of and interested in your marketplace. This can be achieved via interacting with your target buyers through simple content marketing, such as actively contributing on blogs and niche forums or creating email lists to garner subscriptions. The founders of Etsy had in fact made use of such online platforms to understand the crafting community and build their online presence upon launching their marketplace. Such moves can also help you better grasp the habits and preferences of your potential marketplace users.
Many successful start-up stories utilized the formula of launching in situations of high demand and low supply for their services, which showed us the importance of sequencing when determining how your marketplace should expand. Uber was able to acquire large groups of customers at one go by launching at the right venues and timings – they started off in cities where there was high demand but low supply of taxis, and held promotions during events that drew big crowds, which translates to a high demand for rides.
Similarly, Airbnb launched their rental services amidst a local hotel shortage in Denver, which was accommodating 80,000 convention goers of the 2008 Democratic Convention. This strategy guided their following moves of expanding into cities hosting major events and conventions.
There are additional benefits associated with launching in situations of high demand and low supply. Such scenarios draw in customers who resorted to using your service as a last resort, and hence possess lower expectations and are more forgiving towards the new service. In addition, existing suppliers are unlikely to see you as a threat and take retaliatory actions, due to their lack of capacity to accommodate the surplus in demand. This is when your marketplace should seize the chance to strengthen your foothold in the market.