NFX Marketplaces Scorecard 28 Elements of a Great Marketplace - James Currier, NFX

Summary

The 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

00:00

📈 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.

05:02

💰 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.

10:02

🔄 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.

15:02

📊 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.

20:02

🛍️ 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.

Keywords

💡Marketplace Scorecard

The Marketplace Scorecard is a tool created to evaluate and analyze the strengths and weaknesses of various marketplaces. It serves as a checklist for investors and startups to understand which elements are advantageous and which are not. In the video, the speaker emphasizes its use in assessing economic advantages and transaction frequency.

💡Economic Advantage

Economic Advantage refers to the financial benefits that users gain from participating in a marketplace. This can include increased revenue or cost savings. For example, Square allows flea market vendors to accept credit card payments, thus boosting their daily earnings, while Airbnb enables homeowners to earn money by renting out their space.

💡Transaction Frequency

Transaction Frequency measures how often transactions occur within a marketplace. High-frequency transactions are beneficial as they generate more consistent revenue. The video cites examples like food delivery services and ride-sharing apps, which have frequent, daily transactions that drive their success.

💡ASP (Average Selling Price)

ASP, or Average Selling Price, is the average amount of money spent per transaction in a marketplace. Higher ASPs typically result in more significant revenue per transaction. Examples from the video include Airbnb with a $500 ASP and Outdoorsy with a $1,400 ASP, compared to lower ASPs in marketplaces like Poshmark.

💡Fragmentation

Fragmentation refers to the presence of many small, independent participants in a market, which can be advantageous for adding value and avoiding dominance by a few large players. The video highlights that marketplaces with high fragmentation, like those with many boutiques on Farfetch, can more effectively increase revenue for individual participants.

💡Disintermediation

Disintermediation occurs when users bypass the marketplace to interact directly, thereby removing the marketplace's role as an intermediary. This can be a significant risk for marketplaces, as described in the video with examples like home cleaning services, where repeat customers might arrange services directly with cleaners.

💡Chicken-or-Egg Problem

The Chicken-or-Egg Problem in marketplaces refers to the challenge of attracting both supply and demand simultaneously. A marketplace needs enough participants on both sides to be functional. The video mentions strategies to solve this problem, such as initial subsidies to one side to kickstart the market.

💡High Volume Acquisition Channels

High Volume Acquisition Channels are methods used to attract a large number of users to a marketplace efficiently and affordably. The video discusses how platforms like Facebook have transformed user acquisition, allowing for targeted and scalable growth, which is essential for marketplace success.

💡Take Rate

The Take Rate is the percentage of each transaction that the marketplace retains as revenue. The video explains that an appropriate take rate is crucial for the sustainability of a marketplace. It can vary widely, with some successful marketplaces operating with take rates as low as 1.4% and others with much higher rates.

💡Asymmetries

Asymmetries in a marketplace refer to imbalances between supply and demand. Recognizing these asymmetries helps in focusing efforts on the more challenging side to balance the marketplace. The video provides examples like Outdoorsy, which had a surplus of demand but a limited supply of RVs for rent.

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