NFX Marketplaces Scorecard 28 Elements of a Great Marketplace - James Currier, NFX
Summary
TLDRThe managing partner of a venture firm, nFX, introduces the 'Marketplace Scorecard'—a tool used to evaluate the potential of startups. With over 50 marketplace investments, the scorecard assesses 28 key elements, such as economic advantage, transaction frequency, and market asymmetry. It guides investors and entrepreneurs in identifying strengths and weaknesses in marketplace business models, emphasizing the importance of a sustainable economic advantage and the challenges of managing two-sided platforms.
Takeaways
- 📈 The speaker is a managing partner at nFX, a seed-stage venture firm with a focus on marketplace businesses and a tool called the 'Marketplace Scorecard'.
- 📝 The Marketplace Scorecard is a checklist used to evaluate the strengths and weaknesses of new startups, particularly in the marketplace sector.
- 💡 The Scorecard consists of 28 elements that help identify the economic advantages, frequency of transactions, and other critical factors for both supply and demand sides of a marketplace.
- 💰 The importance of providing an economic advantage to both supply and demand sides is emphasized, as it is crucial for sustainability.
- 🔄 The necessity to control the payment flow to avoid disintermediation and ensure the marketplace's role in transactions.
- 🔢 The significance of understanding the average selling price (ASP), transaction frequency, and market fragmentation for a successful marketplace.
- 📈 The Scorecard helps in identifying asymmetries in the market, which can be leveraged to grow the business.
- 🛑 The challenges of multi-tenancy and the need to avoid it where possible, as it can lead to marketplaces losing profitability.
- 🚫 The need to solve the chicken-and-egg problem effectively to establish a balanced marketplace.
- 💼 The importance of market size (TAM) and the potential for market expansion through software and marketplace dynamics.
- 📉 The caution against high take rates that may not be sustainable, and the need to find an appropriate take rate for the specific marketplace.
Q & A
What is the purpose of the marketplace scorecard created by the speaker's firm?
-The marketplace scorecard was created to provide a checklist for evaluating the positives and downsides of various marketplaces. It helps in making investment decisions and assessing new startups.
How often does the speaker's firm use the marketplace scorecard?
-The firm uses the marketplace scorecard weekly when talking to new startups and considering investments.
What is one of the key elements the scorecard evaluates regarding marketplaces?
-One key element is whether the marketplace provides an economic advantage to either the supply or demand side.
Why is high frequency of transactions important for a marketplace?
-High frequency of transactions is important because it indicates regular use and can lead to increased revenue and sustainability for the marketplace.
What does ASP stand for, and why is it significant in evaluating marketplaces?
-ASP stands for Average Selling Price. It is significant because higher ASPs generally lead to higher revenue, but even marketplaces with low ASPs can be successful if they are structured correctly.
What is the advantage of having high fragmentation in a marketplace?
-High fragmentation is advantageous because it means there are many small suppliers or buyers, allowing the marketplace to add value and avoid being dominated by large players.
Why is it important for a marketplace to control the payment flow?
-Controlling the payment flow is crucial to prevent disintermediation and ensure the marketplace retains its role as the intermediary.
What is disintermediation, and why is it a concern for marketplaces?
-Disintermediation occurs when buyers and sellers bypass the marketplace after their initial transaction, leading to a loss of revenue for the marketplace. It is a concern because it can undermine the marketplace's business model.
What does the term 'multi-tending' refer to, and how can it impact a marketplace?
-Multi-tending refers to users participating in multiple similar marketplaces. It can negatively impact a marketplace by reducing user loyalty and making it harder to sustain growth and profitability.
What role do financial products play in enhancing a marketplace?
-Adding financial products, such as credit or insurance, can increase a marketplace's take rate, improve liquidity, and provide additional value, making the marketplace more profitable and competitive.
Outlines
📈 Introduction to the Marketplace Scorecard
The speaker introduces themselves as a managing partner at nFX, a venture firm with a focus on seed-stage startups, particularly marketplaces. They discuss the creation of a 'Marketplace Scorecard'—a tool used to assess the viability and strengths of new marketplace startups. The scorecard consists of 28 elements and is applied weekly in their office to evaluate potential investments. The speaker emphasizes that no marketplace is perfect and that the scorecard helps identify positive and negative aspects of each opportunity.
💰 Importance of Economic Advantage in Marketplaces
The speaker delves into the first elements of the scorecard, focusing on the provision of economic advantage to both supply and demand sides of a marketplace. Examples such as Square, Craigslist, Airbnb, and Poshmark are given to illustrate how these platforms offer financial incentives to their users. The speaker stresses the necessity of an economic advantage for sustainability, suggesting that without it, a business model may not be viable.
🔄 Frequency and Average Selling Price (ASP) in Marketplace Dynamics
The speaker discusses the significance of transaction frequency and average selling price (ASP) in marketplace success. They use Farfetch and Poshmark to explain high-frequency transactions and how they can significantly increase revenue. The importance of ASP is highlighted, with examples like Poshmark's low ASP and high ASPs from companies like Ribbon in the real estate market, emphasizing the need to understand how a marketplace functions with different ASPs.
📊 Fragmentation, Market Size, and Control Over Payment Flow
The speaker addresses the benefits of market fragmentation for adding value and the challenges of competing with established players like Amazon and Macy's. They also discuss the importance of having a large user base and controlling the payment flow to prevent disintermediation. The speaker provides insights on solving the chicken-and-egg problem of marketplace growth and the strategies employed by companies like Hired and Tutor.com to avoid being disintermediated.
🛍️ Marketplace Asymmetries and Multi-Tenancy
The speaker explores the concept of asymmetries within a marketplace, explaining how understanding which side of the market is easier to acquire can be crucial for success. They use Upwork and Lending Club as examples to illustrate demand-side marketplaces. The speaker also discusses the challenges of multi-tenancy and the importance of solving for the 'white-hot center' of each side to drive overall market participation.
🚫 Avoiding Multi-Tenancy and Solving Complete Needs
The speaker advises against multi-tenancy due to its complexity and suggests focusing on solving the complete needs of one side of the marketplace. They provide examples of Poshmark expanding its offerings and Honeybook creating tools for creative professionals to illustrate how platforms can capture more of their users' time and needs.
🌐 Market Size, Expansion, and Acquisition Channels
The speaker discusses the importance of market size and the potential for market expansion through software and marketplace dynamics. They highlight the stories of Lyft, Uber, and Airbnb as examples of companies that have significantly expanded their markets. The speaker also emphasizes the need for high-volume acquisition channels and the role of Facebook and TV in user acquisition.
💳 Appropriate Take Rates and Market Homogeneity
The speaker addresses the concept of take rates in marketplaces, debunking the myth that a minimum of 10% is required for a successful marketplace. They discuss the importance of finding an appropriate take rate based on transaction volumes and the homogeneity of market participants, using Lyft and Uber as examples of highly homogeneous markets.
🚫 Avoiding Market Pollution and Adding Financial Products
The speaker talks about the challenges of market pollution, where undesirable elements can hinder marketplace growth, and the need for mechanisms to mitigate this. They also discuss the potential of adding financial products to a marketplace to increase profitability and user retention, emphasizing the transformative effect this can have on a business.
🔄 Subsidizing Marketplaces and Balancing Liquidity
The speaker explores the strategy of subsidizing one side of a marketplace to stimulate growth and address the chicken-and-egg problem. They caution against spending without regard to unit economics and emphasize the importance of using incentives to balance liquidity throughout the growth process.
🤔 Distinguishing B2B and B2C Marketplaces
The speaker differentiates between B2B and B2C marketplaces, noting the challenges of corralling B2B participants due to their understanding of economic incentives and tendency to defect. They suggest that while B2C marketplaces are driven by convenience and price, B2B marketplaces involve more complex motivations that can impede marketplace support.
📈 Three-Sided Marketplaces and Network Effects
The speaker advises against three-sided marketplaces due to the increased complexity of managing three different businesses simultaneously. They discuss the case of Fit Mob, which pivoted upon realizing it was a three-sided marketplace. The speaker also touches on the topic of network effects, mentioning that different types require different strategies.
🛠️ Utilizing the Marketplace Scorecard as a Thinking Tool
The speaker concludes by emphasizing that the Marketplace Scorecard is a tool for thorough analysis rather than a strict metric for investment decisions. They discuss the dynamic nature of marketplaces, the need for constant adjustments, and the complexity of managing incentives and interfaces throughout different stages of a marketplace's lifecycle.
Mindmap
Keywords
💡Marketplace Scorecard
💡Economic Advantage
💡Transaction Frequency
💡ASP (Average Selling Price)
💡Fragmentation
💡Disintermediation
💡Chicken-or-Egg Problem
💡High Volume Acquisition Channels
💡Take Rate
💡Asymmetries
Highlights
Introduction of the 'Marketplace Scorecard', a tool created to evaluate the strengths and weaknesses of marketplace businesses.
The importance of providing an economic advantage to both supply and demand sides of a marketplace to ensure sustainability.
The significance of high transaction frequency for the success of a marketplace, illustrated with examples like Farfetch and Poshmark.
The impact of average selling price (ASP) on marketplaces, with examples ranging from Poshmark's low ASP to high ASPs in real estate transactions.
The role of market fragmentation in adding value to a marketplace and avoiding competition with established players like Amazon.
The necessity of controlling payment flow to prevent disintermediation in marketplace businesses.
Strategies for solving the chicken-and-egg problem in marketplaces, with a reference to an article on NFX essays.
The challenge of avoiding disintermediation and the importance of establishing mechanisms to prevent it.
Identifying asymmetries in the marketplace to understand which side is easier to acquire and how to exploit these differences.
The concept of 'white-hot center' and finding the most engaged subgroup within a marketplace to drive overall adoption.
The risks of multi-tenancy in marketplaces and the strategies to mitigate them, such as loyalty programs.
Approaches to solving the complete needs of one side of the marketplace to increase loyalty and engagement.
The importance of market size (TAM) and the potential for small markets to grow rapidly with the right approach.
The role of market-expanding properties in growing the potential of a marketplace beyond its initial size.
The challenge of developing high-volume acquisition channels for marketplaces and the reliance on platforms like Facebook.
The significance of an appropriate take rate for a marketplace and the variability of what can be considered appropriate.
The impact of homogeneity on marketplaces and the importance of understanding the needs of both supply and demand sides.
Strategies for avoiding 'pollution' in marketplaces as they scale and the importance of maintaining quality.
The potential for adding financial products to a marketplace to increase profitability and customer loyalty.
Discussion on subsidizing marketplaces to stimulate growth and the importance of unit economics in such strategies.
Insights on the differences between B2B and B2C marketplaces, with a focus on the challenges of corralling B2B participants.
The complexity of three-sided marketplaces and the advice to generally avoid them due to the increased difficulty in management.
The use of the 'Marketplace Scorecard' as a thinking mechanism for evaluating and exploiting opportunities in marketplace businesses.
Transcripts
[Music]
okay great
and I am a managing partner at a seed
stage venture firm called n FX and we
are based here in San Francisco we've
got an office in Palo Alto and also in
Tel Aviv and I have been doing startups
since the 90s and have invested in over
50 marketplaces and over the years
seeing what makes for a great
marketplace led us to create the
marketplace a scorecard to give us a
checklist and to give you guys a
checklist just to go down and we
actually use this weekly in the office
as we're talking to new startups as
we're thinking through investments we're
making and so we just published it
recently and I wanted to walk through
and answer any questions about it that
helps us frame what the positives and
downsides of some of these marketplaces
are no marketplace is perfect they all
have challenges so what you want to do
is identify what elements are good or
easy or in your favor and what elements
are not and that's what the scorecard is
here for it helps you think stuff
through that's all it is okay by the way
we we put this up and we had a few
hundred people score their marketplaces
and everybody scored almost a hundred
percent so self-reported data on this
tends to not be pretty accurate all
right so we're investing one two three
million we've done 50 market plays
you've heard of some of the marketplaces
we've invested in and let's go through
the 28 elements of the scorecard you can
see a lot of this on nfx essays where
we've got a bunch of articles about
marketplaces and one not okay number one
and two of the 28 the first thing we
look at is are you providing an economic
advantage okay is there money reasons
for the supply to be using your system
for instance Square suddenly I can take
money from a credit card if I'm a flea
market vendor this is an economic
advantage to me I just make more money
during the day if I'm on Craigslist I
can now sell that damn couch instead of
throwing it out and letting someone take
it off the sidewalk
all right that's an economic advantage
for me on the supply side can you give
an economic advantage to the demand
side you know you look at Airbnb oh I
guess I could leave my house for the
night go sleep with my girlfriend to go
make 400 bucks that's an economic
advantage for me
the Poshmark oh I've got this closet
full of crap I can sell it on Poshmark
and make some money and buy some more
clothes all right these are economic
advantages that each of these
marketplaces advantage to either side of
the market our point is if you can't
create economic advantage if you're just
creating an experience that's much
better but there's no economic advantage
our argument is that it will be
unsustainable so if you can't find the
economic advantage for one or both sides
find a different business reconfigure
the business until it works all right
scorecard number three and four how high
frequency is the transaction so far
fetch on the supply side if you are one
of the 700 boutiques that's on there
this is pretty frequent that you're
selling something through far fetch the
far fetch marketplace really enables
your boutique to increase your revenue
thirty fifty one hundred four hundred
percent than just having a store okay
because there's such high frequency and
then on on the supply side if you're a
driver you can drive for ten hours and
be making money the whole time so the
frequency of you using the marketplace
could be every day it could be every
hour of every day that's very high
frequency on the supply side same thing
could be true on the the demand side one
of the reasons that everybody likes food
delivery is because of the high
frequency all right the average order
value is actually quite low and the
margins tend to be quite low but the
frequency is so high with eating that
everybody over and or - everybody has
tried to start with food delivery that's
the only reason why and then same thing
with posh Mart people are buying clothes
two three times a week many of the
people are on their app seven eight
times a day okay so the frequency there
is high notice if your marketplace has
high frequency or low frequency item
number five in the score card
what is the ASP okay so if you've got a
posh mark got a pretty low ASP okay it's
not great tap a low ASP it's better to
have a high SP just make more money
however posh marks probably gonna go
public for many billion dollar pretty
soon here even with a low you just need
to understand how you have to make your
marketplace function when you have a low
ASP Airbnb obviously doing better with
500 bucks outdoorsy the RV come
because they're renting out for three or
four days in a row they've got $1,400 as
their ASP and then you've got worthy you
know a company selling diamond rings and
whatnot about $10,000 and of course
ribbon is doing home transactions
$400,000 ASP alright because they're
doing residential real estate that was a
big ASP so where are you in that
spectrum
okay the higher the better typically
number six through seven on the
scorecard do you have high fragmentation
all right this is good this is less good
hard hard for you and if you come to us
with something like that we're gonna say
yeesh that's hard you know here's Amazon
and here's Macy's good luck to you right
they're gonna they're gonna whip you
around okay so you want fragmentation so
that you can add value to the market
otherwise the suppliers or the demand
are gonna whip you around okay
items eight through nine of the
scorecard do you have a high number of
users this is different from
fragmentation this looks similar in
terms of the graphics but it's different
right there's a lot of people who can
use a lift because they can get in a car
and they can sit there they can look
cool they look out the window it rains
they don't care it blows they don't care
it's cold they don't care right then you
go over to bird
okay well I'm on a hill I can't really
use this little scooter to go up this
hill I can't use it in Chicago in the
winter right I I have a bad hip so I
can't use it so the number of people who
can use a bird is lower than number of
people can use lift be aware of how many
people on either side can actually do
your thing that you're proposing item
number 10 on the scorecard do you
control the payment flow this is pretty
simple
make sure the money flows through you
we've had some people come to us and I
said well we're gonna get to that later
I'm like now you need to get to that now
if you don't control the money flow
you're gonna get disintermediated you
get pushed around number 11 on the
scorecard have you solved the chicken or
egg problem or can you solve the chicken
or egg problem is it pretty clear you
can it's always a challenge for these
market places we've got an article on FX
essays that talks about this
in nineteen ways of solving the
chicken-or-egg problem that we've
accumulated over the years so you can
read through that checklist to see if
you can nail one or more of those but
you know you either solve this or you
didn't and so that that's an item on the
checklist we look for items 12 through
13 let's get through that there's a
mistake 14 avoid disintermediation okay
so we had we have these situations where
you know you connect a home cleaner to a
homeowner and job 1 is fine but job 2
now they're friends they don't need you
anymore
you've been disintermediated don't be in
that situation or if you're giving
lessons for for guitar this is a problem
because the guitar teacher gets to know
you and you can just determine it the
the marketplace so figure out how much
you're being distributed and how to
avoid that okay you've got to stop them
from doing that homejoy was the problem
I was mentioning hired had an
interesting situation where the person
would get hired the engineer would get
hired by the company and hired had no
way of knowing so hired started sending
started proposing that they would give
$150 bottle of champagne to the person
when they got hired so they go yeah I
just got hired like oh thanks very much
here's 150 bucks
hey corporation give me 15,000 all right
so I was a clever way to start blocking
some of the determination and they have
many programs to do that because hired
isn't it particularly is in a
marketplace that's easy to to keep from
being disintermediated same thing with
tutor comm all of these face
difficulties there okay item 15 through
16 on the scorecard do you find
asymmetries in your market all right
which side is easier to get in my first
20 minutes with talking with a
marketplace company that comes in to
talk to us I am trying to figure out as
a supply-side marketplace or demand side
and what I mean is is the demand side
harder or the supply side harder if it's
demand side it's a demand side
marketplace okay is one easier than the
other typically it is it's hard to find
one where they're both the same level of
difficulty
okay but if you look at something like
an up work or a Lending Club it turns
out it's a demand side
plenty of people who want to loan people
money there's lots of organizations that
are proposing to loan people money on
Lending Club but they just can't find
enough people to take those loans okay
they have a demand-side marketplace
you'd think that wasn't the case but it
turns out that's true and then you have
that's right so if the demand side is
harder I call it a demand side
marketplace because let's forget about
the supply for now let's just solve for
the man okay and and you know so yeah
that's it and so you've got a company
like uber or open table or outdoorsy the
issue with outdoors you this RV company
there's 16 million RVs in the u.s. you
think oh there's plenty of supply but it
turns out there's only 50,000 for rent
and there's 35 million people trying to
random RV all right so it's massive over
demand for the lack of supply so this
was a supply-side marketplace and so
when we met them they didn't know that
and we showed them that and then we
showed them how to go get that and now
that is raised at 350 million dollars so
they're doing they're doing well with
that because they figured out this huge
asymmetry and that was very helpful to
them the asymmetry was really helpful so
find your asymmetries another thing we
also talked about is can you find the
white-hot center of each side the
asymmetry is not only from one side to
another like this but there's an
asymmetry inside of the side all right
there's a group in there that is much
more the white-hot center and if you can
get them going the rest of the side will
come on board typically okay so look for
your asymmetries asymmetries can be
helpful right number 17 through 18 avoid
or block multi tending all right
tried to find up simpler term for this
because multi tending sounds too
complicated but this is important you
can still build a big business with with
really easy multi-tenant because you see
this on the supply side all right and
you even see it on the demand side it's
really easy for both sides of this
marketplace to have multi toning maybe
maybe that's why both companies are
losing about billion dollars a year
maybe that's why goober is adding the
airline miles
loyalty programs which is a desperate
attempt to get profitable which is what
the airline's used in a desperate
attempt to get profitable we'll see okay
we'll see over time what happens but
multi tending is hard try to avoid if
you
can't figure out how to stop it those
guys can't 19 through 20 solved do you
solve the complete need of one side the
complete need so there's a bunch of ways
of doing this so Poshmark
started out with women's used clothing
and to make that work they had to add
the shipping now they've been adding
men's they've been adding children's
they've been adding other features and
services to their platforms so that a
buyer of fashion always thinks to go to
Poshmark solving their complete needs
company like honey book creates a stools
so that their creatives you know the
millions of creatives who use honey book
are doing their proposals their calendar
or the contracts or payments or
inventory if you're missing some of
these then they might have to use other
tools they might not be on you for six
or eight hours a day but honey book has
gotten to the point I have you got to
the point where the users are on their
six or eight hours a day solving the
complete need of one side of the
marketplace adding a profile could be
completing their full needs house has a
beautiful profile for all the
professionals on there it's really their
best profile online and so people are
very loyal to house they make a lot of
money with those people advertising to
increase their rankings like in Google
all right and then giving them high
liquidity if you give someone too much
liquidity then they never need to go
anywhere else you can essentially get
their loyalty and give all their needs
by giving them so much business they
don't need to go anywhere else these are
multiple ways of solving one side's
complete needs we too often see
companies that only solve a piece of
someone's needs and therefore they can't
capture the rent they can't really
capture the marketplace all right number
21 what's your size your market everyone
says all the VC say oh I only invest in
giant Tam gotta have a total addressable
market that's huge then I'm interested
and that's generally true that's
generally true that's why most of the
VCS say however we got a star on it and
the star is because what we've seen is
that smallish markets can really bleed
quickly if you find the white-hot center
you know you start with books and then
your Amazon and then the networking side
you start with college photo-sharing and
now your Facebook like you can start
with small
things and they quickly bleed okay so
yes we need a big Tam but if you've got
a story about where you start small and
then grow big that also makes sense so
don't always believe that it's got to be
a giant Tam story all right
number 22 out of 28 do you have any
market expanding properties can you
think about how your software in your
marketplace will actually take the
market place and make it much larger
than it is we all know the story about
lyft and uber
I always put lifts up first not only
because I was an early investor but
because they actually beat uber to the
market by 30 days uber copied them
within 30 days Hoover's genius was their
aggressiveness not their creativity and
then Airbnb have massively expanded the
market okay number 23 and 24 this is
what it is
most of the time companies can't figure
out how to have high volume acquisition
channels for one side and if you can't
figure that out you're not gonna go
anywhere if you have figured out an
affordable high volume acquisition
channel you might go build a business
around it you might actually start with
this and then build the business around
if you don't have this you're in trouble
okay so we're always looking for this
and in the last 8 years of course it's
been Facebook right Facebook has
transformed our ability to buy
geographically and $50 increments it's
been amazing it's been an amazing
transformation a lot of big businesses
have been built just on Facebook that's
gonna end at some point when it gets ARB
doubt but right now it's still working
because the free growth channels have
disappeared you've got to figure out
generally how to buy stuff these days
although there are going to be some more
viral applications there are going to be
some ways you're gonna find that
word-of-mouth will kick off because of
something unique or special interesting
you're doing but in general what we've
seen over the years is it getting harder
and harder to buy and the paid channels
are getting better and better a
particularly Facebook okay and don't
forget about TV if you're the first one
to TV you win people are still on TV
four hours a day four hours a day
flat steady okay 25 of 28 on the
scorecard do you have an appropriate
appropriate take rate some people say oh
well if you don't have at least 10% then
there's no
real marketplace that's not true we've
seen good market places down at 1.4
percent basically transaction volumes
right if you're doing multi-billion
dollars a year you can have a pretty big
business at 1.4 percent 10 percent is
good 20 percent is good 30 for these
tend to be really hard to sustain what's
you're doing managed marketplaces but
can be done okay so find an appropriate
take rate sometimes your marketplace you
can't find an appropriate take rate
doesn't work just the whole thing breaks
so you need to find an appropriate one
but different but different levels can
be appropriate for your market number 26
of 28 homogeneity
all right look at each side do they all
have the same needs right on lift have
the same need I want to get in the car
and I want to get out of a car at a
different point pretty homogeneous
drivers pretty homogeneous the
homogeneity on the lift and uber system
is clearly extreme okay but then you
have other marketplaces like
architectural services where the you
know it's very heterogeneous what people
want okay very important to understand
how heterogeneous or homogeneous each
side is can you number 27 can you avoid
the pollution okay once you get going
you're going to face a lot of a lot of
pollution if it's working well and are
there effective mechanisms for reducing
that pollution if sometimes what happens
is these marketplaces get into the
second or third round of their growth
and they hit a wall because they can't
figure out how to get all of the the
desperate people inside out of there a
sad example was daily strength about ten
years ago which is a marketplace for
information about health care and what
happened was the depression people
started bleeding into all the other
spaces right so they were supposed to be
in the depression area and then but they
kept bleeding everywhere just trying to
get attention trying to try to have
someone talk to them because they were
desperate and it just drove all the
people away from the marketplace in the
marketplace shut down because they
couldn't you know this was sort of a
real challenge and the last one on that
we look for now is can you add financial
products to your marketplace all right
whether you're adding extra low supply
chain financing can you add credit cards
can you add insurance can you add
vendor financing what are the financial
products that you can add your
marketplace that are going to increase
your take rate to increase your
liquidity increase the value of the
business these can either transform your
marketplace or they at least make it
more profitable and if other
marketplaces can't copy you on this
because of the complexity of it or
because you get there first you can just
run away with the market this is a
really great lever and we're always
looking for this and we're looking at
marketplaces and that is the end of the
marketplaces scorecard are there
questions yeah so the question is about
subsidizing the marketplaces at the
beginning to try to get the flywheel
going and you know this is one of the
chicken-or-egg
this is one of the ways of solving
chicken-or-egg it's on the list of 19
ways of doing stuff it's it can be a
really good idea as long as your ASP is
high enough from your frequencies high
enough the problem that that many of
these marketplaces are encountering is
that they're able to raise the venture
capital on the TAM size and then they
just start spending without regard to
the unit economics and they get in
trouble but in general you know
subsidizing one side of the other really
helps with micro adjustments on the
marketplace right - to tune liquidity
for this month or this week while you're
growing you know because you've you know
it's it's never it's never easy on both
sides and so you're gonna want to use
incentives to to try to balance that
liquidity on either side throughout the
process and one thing I will say to you
guys is one of the metaphors that's been
really useful for me and the companies
I've worked with is these marketplaces
are hard to fly so imagine you're a
fighter pilot right and you're flying an
old you know plane from the 20s it's
just more you know you're flying a 747
but these things are like flying one of
those f-117 s or whatever that are you
know radar they can't be detected by
radar
they only work when you're you're really
adjusting the controls all the time
really quickly and that has to do you
have to do it on a weekly basis I mean I
watch parsh mark from the first days the
complexity of running that
of a business is extraordinary in terms
of your data acquisition and then your
decision-making constantly changing how
much you're incentivizing one side or
another how much you're revealing you
know the phases you go through what the
interfaces are you've got to constantly
change these marketplaces over time
because they're like humans they are
different things at different stages of
their life cycle and and I think you
need to to understand the complexity of
that and and sanitization is just one
lever you have to to make these things
fly right right these things are hard to
fly yes sir yeah are there signals on
b2b versus b2c this list that we pulled
together is so far I mean it'll probably
35 two years from now instead of 28 we
keep adding to it but this is
comprehensive for both you know the
thing the thing would be to be that I
mean name the number of big b2b
marketplaces doesn't take very long
there's not a lot of big ones and the
reason is that the people on both sides
of a b2b marketplace understand their
economic incentives too well and so
they're always trying to get around you
and they're hard to Corral because
they're very suspicious they can see
into the future
consumers don't care consumers are doing
all this for convenience in price
businesses do it for convenience price
but they have longevity they have status
they have a whole lot of other reasons
that they get involved and those can
prevent them from supporting your
marketplace and so we've seen very few
really big b2b businesses that's that's
what I would say about that is to be
aware that corralling people on the b2b
side is harder and they will defect them
to certainly mediate much faster than on
the consumer side
yeah so the question is about
three-sided marketplaces and general
avoid them and the reason is it's hard
enough to build two different businesses
the problem the reason marketplaces are
hard is that they evolve and you have to
fly them well but it's also that you've
got to build two businesses at once the
for the supply and for the demand when
you have three-sided you then have to do
it the complexity goes up dramatically
so we've seen a few like fit mob where
they had they thought it was a
marketplace between exercisers consumers
who wanted to exercise and then trainers
but it turns out it's a three sided
marketplace between trainers exercisers
and the locations where they're going to
be exercising you actually needed a room
particularly in the places where it
snows and it's cold outside which is
most places and in the US and so once
they discovered it was a three sided
marketplace they had to pivot the whole
company so it's it can be done and once
you get it it's super defensible but
it's hard one of the things that we look
at is there and we'll talk about this
later today as inside of marketplaces
where you actually look at adding nodes
to your network when you don't need to
have them so for instance you could
create a two-sided marketplace and then
keep adding new nodes to them the
three-sided marketplace is such that you
need three sides to make it work in that
case it's really hard if you can create
an inside a marketplace where two is
enough and the business is going then
you can add three four five six
different types of nodes onto your
marketplace that becomes interesting it
becomes more of a market network and we
think that's very promising but that's
that's different because you don't you
only need to choose hard enough
typically any yeah oh
yeah we just right now we're just coring
one two five on each one it's pretty
simple
we yeah and we just go down to 20 and
then we can score them up and like
ultimately it's not like we get to a
number and then decide to invest or not
it's really just a thinking mechanism
which is what I said at the beginning
like it it's just a checklist for you
guys to go through and make sure you're
being thorough and and finding things to
exploit like these symmetries and stuff
like that do you treat a marketplace
differently than a social network or
yeah we do so we have identified 13
different network effects and if you
look at the network effects map on the
website you soon see different colors so
there are direct network effects which
are in blue and then there are these
two-sided marketplace network effects or
platform network effects which are
really different and they've got really
different play books so yeah we do treat
them differently but yeah they're
startups in their business and weird
ologist people so there's a lot of
similarities too but yeah there's
definitely different play books for each
type of network effect and then yeah
yeah it gets it gets complicated
time's up so thank you so much
[Applause]
you
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