Catering to multiple audiences
In my current startup, we cater to two different audiences – student renters and property managers. Anytime you are creating a marketplace for two or more parties to transact business you are looking at a multi-sided market.
Here’s what I’ve learned about how to win in multi-sided markets over the last two years as a startup founder:
1. Balance
One of the typical problems that multi-sided markets face is the problem of balance between the consumer and the vendor. If you bring shoppers (consumers) into a beautiful mall (marketplace), and all the stores (vendors) are empty, then your consumers won’t come back.
Conversely, if you build a wonderful mall and invite tons of top vendors to be a part of your marketplace, you’ll probably get the question “Well, how many shoppers do you have?”
It’s tough to get one without the other, so what should you do?
The theories of multi-sided markets tell us that in a multi-sided market, there is usually one side of the market that is subsidized, meaning they get access to the market at little or no cost. These are generally your consumers – what the vendors want access to. The other side of the market generally bears the burden of the market financially. These are the vendors that want to get access to the consumers through the marketplace.
If you get consumers to come to your marketplace, but don’t have products to offer, they’ll instantly be frustrated that you wasted their time. In general, businesses looking to create a marketplace must focus their early efforts on building the vendor side of their business so consumers see something when they come in.
Here’s a list of marketplace companies and what their vendor side looks like:
- Ebay – anyone that wants to sell something online – including individuals, small, medium, and large businesses
- Airbnb – anyone that has a room or home they’d like to rent out for short periods of time
- Comfy – student housing property management companies or individuals that own rentals for college students
- Visa – merchants to receive credit cards
- Elance – freelancers that want to sell their services online
- Homejoy – companies that clean homes
2. Tactics
How do you get those vendors into your marketplace? This is much more difficult, but here are a few tips for you based on a few industries I’ve consulted for and worked in.
- Networking – if you already have a network in a given industry, this is a great opportunity. The goal here is to get enough people onboard that the consumers that come to your marketplace find what they need.
- APIs – for those who don’t know, an API is a way to communicate with a website or app. If I were looking to create a marketplace for solar panels, I would look into every website currently selling solar panels. I’d then find out whether or not they have an API or a reselling program – I know you want all the profits yourself, but let me finish! You may be able to use those APIs to pull product into your new website. Your product may be physical solar panels, or digital information like apartment listings. This gives you a base to start with – once you turn some heads you can do some better things.
- Conferences – attend industry conferences talk with the right people and find who you would need in a marketplace.
- Cost – you have to make it worthwhile for the vendor to take a chance on your marketplace. Especially in the beginning, be very careful about how you charge the vendors, and how much. See below for additional details.
3. Monetization
As mentioned before, the consumer in a marketplace will normally not be charged, or will only be charged a small amount. This is because the consumers are an essential part of the product you are offering. As the company that creates the marketplace, you generally make your money from the vendors that want access to your consumers. Depending on your business model, charging the vendors can be either dead simple or very hard.
Let’s start with the easier pricing models. Amazon operates a marketplace. Amazon knows whenever something is purchased. They actually facilitate the transaction. Last summer, I put my first ebook for sale on Amazon. It was great! No up front costs for me as the vendor, and I only pay Amazon when I make money on my book. This “pay for performance” model is ideal because you are involved in the actual transaction. The friction associated with bringing customers onboard is reduced significantly by only charging when they make a sale, instead of a monthly fee for access to a platform that may not even bring them any sales.
Things start getting more difficult when you aren’t actually tied into the transaction that occurs. Maybe you provide leads, but there’s no guarantee that they close. Just providing leads – especially with large transactions – may work for you, but it leaves you open for disruption. If someone can come in and figure out how to get closer to the actual transaction, then they could potentially offer a more viable solution to your vendors.
If you can’t tie into the actual transaction, you may want to try one of these other options:
- Cash back incentive to consumer for reporting the transaction. Rent.com has done this by offering a cash back reward to renters that report their lease signing to the company.
- If you are going to charge a monthly fee, make it based on some sort of performance. If you don’t send at least 10 leads in a month, the customer doesn’t have to pay. Just be wary of the definition of a lead!
- Integrate with vendor software packages to find out about the sale. This is a great option in industries that use widely adopted tools available through the internet.
Creating these marketplaces can be time consuming and extremely difficult, but people do it because the potential reward can be huge! Disagree? Think Uber, Airbnb, Visa, and a whole lot more. When you have the consumers, the vendors are willing to pay to get access to them.
