Earlier this week I published “A Beginner’s Guide to VC” on the Mattermark blog. There were a number of people who reached out to ask me to add more resources explaining certain business verticals. There is no possible way I could fit them all into that one post, and, so, I decided to make lists of great introductory resources to give investors, journalists, entrepreneurs, researchers and the otherwise curious a jumping off point to learning more.
Here, I want to talk about marketplace businesses. When you sit and think about it, most of the sites and apps we regularly interact with are a form of marketplace. There are, of course, companies like Ebay, Amazon, Etsy, and a number of marketplace platforms (Shopify, Magento, and their peers), but there are other marketplace categories. The online travel booking industry, on-demand services like Lyft and Uber, real estate sites like Zillow, and even consumer review sites like Yelp and Zocdoc are all incarnations of the marketplace idea.
So, we all use marketplace services to some extent, but unless it’s your job to analyze or grow these kinds of businesses, it’s surprisingly easy to not think about how and why marketplaces work and grow. Well, for those who want to learn more about marketplaces – whether you’re starting from ground zero or are just looking for extra reading material – I have some recommendations on where to start.
Without further ado, here’s that list:
Boris Wertz & Angela Tran Kingyens’s Book
Start with this excellent (and pleasantly short) e-book from VC firm Version One. Authors Boris Wertz and Angela Tran Kingyens explore the theory and practice of marketplace businesses while providing tactical advice on determining the business model, getting over the 2-sided-market problem and sustainably growing the business. The book’s concluding sections unpack the rise of new kinds of marketplaces (on-demand, community-driven, and decentralized marketplaces are all examples) and get into the nitty-gritty of metrics and dealing with investors.
Bill Gurley’s List of 10 Factors To Consider
Bill Gurley, general partner of Benchmark Capital, oversaw the firm’s investments in Ebay, Yelp, OpenTable, GrubHub, Uber, Zillow and many other leading marketplace businesses. Needless to say, he’s seen a lot, and in 2012 he did his best to condense some of those observations into a list of 10 factors to consider when evaluating digital marketplaces. Although this was written by a VC for an analytical audience (other VCs, journalists, commentators) entrepreneurs would do well to consider some of the factors he brings up. Some of the highlights include: frequency of purchasing activity, network effects, payment flows, and whether technology has the opportunity to add value.
Rishi Dean’s 7 Marketplace Design Patterns
At the time of writing, Rishi Dean is the head of product at Sittercity, a marketplace that connects child care professionals with parents. He’s thus spent a lot of time thinking about designing and scaling products and marketplace businesses, and he’s shared some of his thoughts on his blog. Like Gurley, Dean devised his own framework for thinking about consumer marketplace business models in 2013, which borrows and adds on to Gurley’s work. But I think Dean’s best work on the subject is from September, 2015.
In “The 7 Marketplace Design Patterns” Dean provides an analytical framework that categorizes marketplace businesses across three dimensions:
- Whether the marketplace is for commodity goods/services or something more “experiential”
- The degree to which consumers must consider their decision to use the marketplace .
- Finally, the degree to which the marketplace operator can predict the frequency of a given user’s transaction.
For each of the seven design patterns he gives example companies and goes into some detail about the tactical and strategic considerations marketplace operators (or investors in said operators) should keep in mind.
For those interested in the ecosystem of on-demand marketplaces, another post from Dean delves into 6 qualitative factors to account for when analyzing on-demand marketplaces.
Did you find this post interesting? Was there something I missed? Feel free to reach out and let me know.