Investment in The Coconut Industry by Nancy Cheruiyot
Fundamentals of Consumer Marketplaces - Rishi Dean
1. Fundamentals of consumer marketplace
business models
[ 11 factors to identify and execute successful consumer marketplaces ]
rishi@rishidean.com
www.rishidean.com
Presentation to CustomMade
Jun 20, 2013
2. Outline
Background + economic underpinnings
Select an industry
Execute the model
Protect & grow the platform
Opportunities ahead
2Rishi Dean – www.rishidean.com
6. Your best bet to make $1 billion
~20 years of consumer internet
24 public companies >$1B, 2x acquisitions
~2 multi-billion dollar companies / year
2/3 are “marketplace” businesses Source: James Slavet,
Greylock
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10. 2-sided network incentives
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Demand Supply
1) Initial
Adoption
1) Initial
Adoption
2) Same-
side
Effects
2) Same-
side
Effects
3) Cross-Network Effects
Why do buyers initially
adopt?
Phase 1: Initial Adoption
Why do sellers initially
adopt?
How do more buyers help
one another?
Phase 2:
Same-side Effects
How do more sellers help
one another?
Increase in liquidity
Phase 3:
Cross-side Effects Increased liquidity
Strategies forTwo-Sided Markets
HBRARTICLES |Thomas R. Eisenmann, Geoffrey Parker, MarshallW.Van Alstyne | Oct 1, 2006
Platform
11. Consumer marketplaces are a
special case of these platforms
Strategies for Two-Sided Markets
HBR ARTICLES | Thomas R. Eisenmann, Geoffrey Parker, Marshall W. Van Alstyne | Oct 1, 2006
11Rishi Dean – www.rishidean.com
12. …almost every successful
tech business is a
platform, many of those
are marketplaces
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Characteristics of good industries
Big
Ripe
Plentiful
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Addressable customers
Frequency of transaction
Transaction size
Potential amount transacted via the
platform is large
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Consolidate fragmented
markets
Economic empowerment
Deliver new enhanced
experiences
Markets primed for disruption
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“Ownable” network effects
Groups who interact
More users = more value
Scale matters
Can own it
19. 3 keys of gaining initial traction
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Adoption
Liquidity
Pricing
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10x value proposition
“Prime the pump”
Lock in scarce supply
Attract users and provide instant utility
Onboarding +
Activation
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Liquidity: users can find what
they’re looking for
Substitutes
Price dispersion
Market segmentation
Pricing
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Capture value commensurate with
what you create
Sources of revenue
Side of subsidy
Payment scheme
Output costs
24. 3 levers of sustainability
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Control
Scale
Competition
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Control of the customer lifecycle
Intermediate the
transaction
Avoid defection
Repeat behavior
Data cycle
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Scaling up within and across
segments
Markets & segments
New market setup
Low friction vs.
leverage
Community-driven
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Creating long-term advantage
Winner take all?
Share or fight for
control?
Threat of envelopment
Switching costs
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Mobile
Follow the customer
Location / Proximity
Immediacy
“Moment of truth”
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High-consideration P2P services
Trust first
Offline first
Reputation
Social graph
31. Takeaway: “Ownable Network
Effects”
Backbone of the internet & the most lucrative consumer biz model
Select an attractive industry
Big market by expected total transaction volume
Ripe for technology-enabled consolidation
Plentiful to attain and own the network effect
Gain initial traction
Adoption: overcome “chicken & egg”
Liquidity: expectation you can find what you’re looking for
Pricing: capture value commensurate with what you create, but allow for growth
Sustainability
Control: ensure value across all touchpoints of customer lifecycle
Scale: Cost-effective expansion into new markets / segments / verticals
Competition: Create a “moat” around the castle with high switching costs and lockout
Opportunities ahead
Mobile: Always on systems for ad-hoc marketplaces based on proximity & affinity
Social /Trust: Unlock high consideration P2P verticals
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33. Additional Resources
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HBRArticle: Strategies forTwo-Sided
Markets (Oct 1, 2006)
BillGurley’s “Above the Crowd” Blog
Sangeet Paul Choudary’s “PlatformThinking“
Blog
34. I’m here to help
34Rishi Dean – www.rishidean.com
Email: rishi@rishidean.com
Blog: rishidean.com
Twitter: @rishidean
Editor's Notes
Marketplace models, connecting buyers and sellers
Been on the ground floor of many startups, shaping and growing themBeen in big companies and little ones, and involved in different capacities with all typesSeen the good, the bad, and the uglyMade some many mistakes, which I’ll share, so you don’t have to
The internet has proven to be an unprecedented medium to connect individuals and enable markets to be formed that would otherwise be prove to be too inefficient, if not impossible, to exist in an "offline" capacity. One such dominant online business model is the person-to-person (P2P) marketplace, whereby individuals can connect with other individuals across geographic distance to provide goods & services to buyers. There are many such examples that form the basis of many companies matching long-tail supply and demand.Helping to make inefficient commerce efficientProviding economic opportunity and empowerment to their sellers/hosts, enabling them to earn meaningful income
Number of people who will transact:% addressable / obtainableto go online at allLikelihood of marketplace success and penetrationFrequency of transactionFrequent purchase cycles (Yelp, GrubHub, OpenTable, Uber) Marketplace is a utility Easier to build brand awareness and referral growthAverage transaction sizee.g. CustomMade vs. Sittercity
Consolidate fragmented markets via technologyExcess capacityFriction / Opacity: middlemenProviding economic opportunity and empowerment to their sellers/hosts, enabling them to earn meaningful income“Found money” for suppliersDeliver new or enhanced experiencesWorkflow efficienciesTransparency
Does user n+1 have a better experience than user n?
Many platforms have little use until critical mass is achievedMarquee or exclusive access to supply
Conversion Rate: A conversion range of 30-60% is a reasonable expectationSubstitutes: The harder it is to find a good elsewhere, the lower the conversion rate may bePrice dispersion: The variation of price across sellers of same good) is a sign of the inefficiency of your market, and in turn, illiquidityMicro market variation: within (sitters and nannies) can also cause illiquidityThe higher your average selling price, the lower the conversion rate may be
Can capture value commensurate with what you create (i.e. you can “tax” / charge for it)Where is the revenue coming fromSearch vs. ListTransactionWho is being “subsidized” by the platformFor optimal revenue subsidize the most price-sensitive group
How do you define your market & sub-markets?What is the setup to go from one market to another? In some markets signing up suppliers is relative easy. In others, it can be a painfully slow process that requires lots of touch and local presence. High friction supplier signup can be a barrier to entry if you are able to build a successful marketplace, but hard in the early stagesCommunity-driven, populated with passionate users who evangelize the service – can you aggregate demand?Platforms upon which their community of users continually expands into new verticals
“Always on”Sudden / private marketplaces based on proximity / placepayments
Groups who interactA system that greatly improves interactionAdoption creates value for users – gets better as others use it, without action by ownerSolved chicken & egg problem – can prime pump, get usage by groups. Many such systems have little value until broadly useScale matters, and you can get leading scaleCan own, and deter users from moving to lower cost alternativesCan tax – i.e. you can charge for it