The Genesis Of Marketplaces
How does one kick-start a platform connecting service providers to consumers of that service?
Unlike content-intensive platforms, the value in services platforms is not in the availability of content but in the availability of service providers and the platform’s ability to match a consumer with a service provider interested in providing a specific service within a certain time frame. This nuance allows services platforms to leverage an alternative strategy to solve the chicken-and-egg problem.
Yelp is an online local search platform that allows consumers to search for businesses, read reviews and make decisions accordingly. Yelp started with not one chicken-and-egg problem but two. As a review site, it needed reviewers as well as readers, but as a local commerce platform, it needed merchants as well as consumers to participate. Yelp’s solution to the second problem has served as an interesting lesson for many local commerce startups that followed.
Yelp started with a searchable directory of local businesses and used that
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to gather consumer search intent. Once there were enough consumers, it pitched relevant consumer interest on the platform to merchants. With numbers backing the sales pitch, the businesses were brought on board to claim their listing and advertise for related search terms. Over time, this built up the producer side of the network.
The Yelp model is particularly interesting because the staging of the two sides did not require expensive incentives, and did not need to be coordi- nated in quick succession as consumers would get value from Yelp’s search engine and reviews, even when the merchants were not on board. In this manner, Yelp offered a compelling standalone value proposition.
The model, however, is not as applicable to most other local commerce platforms because they do not necessarily offer a standalone value prop- osition like directory search. Most similar platforms exist for the purpose of matching consumers to service providers and having them transact.
They need both sides to be on board for interactions to ensue.
However, with a few tweaks, the essential principles of Yelp’s model can still be applied to a broader range of platforms and marketplaces.
yelp’s model tweaked
Yelp’s model can be tweaked to offer a more generalized solution to the chicken-and-egg problem, for any platform seeking to match service providers with consumers. The following strategies emerge as we tweak this model:
• Step 1. Source supply proxies
Supply proxies are data points that represent true supply but which are not created by the producer. The platform, hence, does not own the supply side yet. Instead, it intends to have producers come in and claim their supply proxies, eventually creating true supply on the platform.
• Step 2. Provide a superior interaction experience
The platform does not simply act as a directory of service providers.
It provides a superior producer-consumer interaction – discovery, navigation, personalization – which is handled much more elegantly
than at the source, from which these supply proxies are picked. Yelp provided a better search experience than yellow pages, and overlaid that with high-quality user-generated reviews and, hence, a reliable mechanism for ascertaining merchant reputation.
• Step 3. Gather consumer activity
Unlike Yelp, these platforms cannot afford to wait till consumers come on board and remain engaged. Consumers are looking to interact with the producer right away. To stage participation, these platforms should try to encourage actions that allow consumers to stay engaged and express their interest in a particular service without requiring a service provider instantly.
• Step 4. Invite producers showing them relevant leads and activity Producers come on board when they see activity and indication of intent from consumers. To ensure they do, the friction required for the producers to come on board should be as low as possible.
• Step 5. Provide a better transaction experience
As in step 2, ensure that the post-discovery transaction is a more desirable experience than the experience through substitute channels.
This ensures that both consumers and service providers repeatedly participate on the platform.
Startups often employ this model to piggyback off Craigslist’s listings to start new platforms, as we note in the case study that follows. In an inad- vertent comedy of errors, Justdial, India’s largest local commerce platform, sued rival, Infomedia, when it found that Infomedia was stealing listings from Justdial. It figured this out by deliberately introducing false listings into its database that did not exist elsewhere. Once those listings showed up on Infomedia, Justdial had enough evidence to back its claim.
platform scale imperative
Platforms often leverage supply from existing sources to power a better interaction between producers and consumers. This strategy works best when a platform is the first player in a new category. If the platform is a follower, consumers are unlikely to wait for producers to show up on a
new platform when producers are already participating on another one.
This strategy also does not support on-demand use cases very well. Such use cases are best supported by the platform itself, acting as a producer through a captive base of partner producers.