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Required reading for marketplace startups: The 20 best essays

The current generation of marketplace startups has been incredibly successful. Airbnb, Lime, Uber, Lyft, Instacart, etc. I’ve been doing a broad survey of the best writing on this topic and wanted to share my list of 20 best links I’ve seen.

Marketplaces at Andreessen Horowitz
We look at a lot of marketplace startups at Andreessen Horowitz @a16z – and we fund a lot of them! – so it’s great to compile all the best thinking.

To lead off this list, my colleague @jeff_jordan has an awesome preso that covers everything from the marketplace “wheel” – network effects, and how they’re different than ecommerce products. Amazing, thoughtful preso. Must watch.https://www.youtube.com/watch?v=n57UaE08h7A

Solving the Chicken and Egg problem of marketplaces
Now let’s get to the links. First, here’s a series of links on the “Chicken and Egg” problem of marketplaces. How to do you get the initial liquidity to get the flywheel turning? Here’s a few links on the topic.

1. Josh Breinlinger (early oDesk) on “Liquidity Hacking.” Couple ways to do it: Provide value to one side: offer portfolios, community, tools. Find aggregators: Physical aggregators (like campuses), enterprise clients, supply aggregators, or scrape listings. Narrow the problem: geo, niche, vertical. Curate one side. Read the whole thing here: https://pando.com/2012/11/20/liquidity-hacking-how-to-build-a-two-sided-marketplace/

2. Here’s a nice podcast from Casey Winters (ex-Pinterest/Grubhub/etc) and Brian Rothenberg @bmrothenberg (VP Growth at Eventbrite) who talk about: The “chicken and egg” problem for marketplaces. Horizontal vs vertical. Online to Offline. https://news.greylock.com/paving-the-way-to-marketplace-liquidity-76c8e7854cad

3. Eli Chait (ex-OpenTable) on all the ways to boostrap a chicken and egg problem. Single player, Fill seats for suppliers, Create a marketplace where the buyers are sellers. Read the whole thing here: https://blog.elichait.com/2018/04/09/how-the-100-largest-marketplaces-solve-the-chicken-and-egg-problem/

4. Anand Iyer (ex-Threadflip) writes about using trust throughout the product: Ratings, Curation, Customer service, Mobile first, Good onboarding, Frictionless Payment, Social proof. http://firstround.com/review/How-Modern-Marketplaces-Like-Uber-Airbnb-Build-Trust-to-Hit-Liquidity/

5. Jonathan Golden (ex-Airbnb) on bootstrapping liquidity, adding host guarantees, reacting to competition, user experience. https://medium.com/@jgolden/lessons-learned-scaling-airbnb-100x-b862364fb3a7

Current trends in marketplaces
Next topic, the current crop of marketplaces has gotten huge for a reason. They’re doing a lot different, but going more “full-stack,” building deeper tools, etc. One important label is the new “market network” concept

6) Another by Casey Winters (ex-Grubhub) on how new marketplace companies are evolving: 1) connect buyers and sellers, 2) own the delivery network, 3) own the supply (managed/verticalized). http://caseyaccidental.com/three-stages-online-marketplaces/

7. Anand Iyer (Trusted) again, talks about the evolution from leadgen/search-based marketplaces to full-stack where the platform helps manage: 1) customer UX, 2) supply software tools, 3) retention/frequency, 4) transactional model, 5) trust/safety/risk, 6) pricing mgmt + guidance. Read the whole thing here: https://medium.com/@ai/the-evolution-of-managed-marketplaces-3382290963b2

8. James Currier (of NFX) pens one of the classics of the last few years, defining the term “Market Network” – multiple participants, SaaS tools, with transactions at the center.

Key differences: 1) Market networks target more complex services. 2) People matter – complex services mean each client is unique and not interchangeable. 3) Collaboration happens around a project. 4) There’s unique profiles of people involved. 5) Long term relationships between participants. 6) Referrals flow freely. 7) Increases transaction velocity and satisfaction. Re-read the whole thing here: https://www.nfx.com/post/10-years-about-market-networks

9. Andrei Brasovean (Accel) gives a comprehensive list of Marketplace metrics. https://medium.com/@algovc/10-marketplace-kpis-that-matter-22e0fd2d2779

Here’s the list: GMV, net revenue, gross margin / contribution margin, MoM growth rate, Market share, Liquidity, AOV, Items per basket, Messages, NPS, User reviews, Cohort retention, Repeat orders, Whale curves, Sector/Geo/Product concentration, Fragmentation, CAC, Channel scalability, Channel mix, LTV, LTV/CAC, Unit economics, Burn rate. A lot more detail in the essay.

10. Borja Moreno de los Rios, ceo of Merlin, writes one of my favorite articles where he has a bunch of graphs/concepts on measuring liquidity: https://techcrunch.com/2017/07/11/marketplace-liquidity/

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11. Angela Tran Kingyens (VersionOne) on a Marketplace metrics dashboard. GMV, revenue, Seller/supply metrics (engagement/overall), Buyer metrics (engagement/overall). https://versionone.vc/marketplace-kpi/

Product strategy for marketplaces
Finally, I wanted to add a section for overall marketplace strategy – how do you know you’re in the right vertical? What is a network effect exactly? How to think about frequency and retention?

12. Me! @andrewchen (ex-Uber). A few years back, I wrote this about Uber’s virtuous cycle around acquiring more drivers, keeping the marketplace in balance, and how to think about the hyperlocal nature of the product. http://andrewchen.co/ubers-virtuous-cycle-5-important-reads-about-uber/

13. My colleague Jeff Jordan again (a16z, on the Airbnb/Lime/Instacart boards) on how marketplaces must nurture and manage perfect competition. Gives a sense on why B2B marketplaces often don’t work: https://a16z.com/2015/01/22/online-marketplaces/

14. a16z has also put together two amazing resources on Network Effects. Defining them, case studies, strategies for building them, etc. https://a16z.com/2016/03/07/all-about-network-effects/

15. More from Jonathan (ex-Airbnb) on defining a marketplace, global network effects (versus root density), homogeneous/heterogeneous supply, two-sided incentives, size and frequency of interaction, unit economics: https://medium.com/@jgolden/four-questions-every-marketplace-startup-should-be-able-to-answer-defb0590e049

16. Another from Casey on 4 strategies to win on low frequency marketplaces: 1) SEO (expedia model), 2) Better/cheaper (Airbnb), 3) Insurance (HotelTonight), 4) Engagement (Houzz). http://caseyaccidental.com/low-frequency-marketplaces/

17. Two writeups on TaskRabbit which are worth reading. The first, from Leah (founder of TaskRabbit, now an investor at Fuel) visualizing the building blocks: https://www.fuelcapital.com/stories/2017/12/7/the-anatomy-of-a-marketplace

Also, the Reforge team collects key learnings from TaskRabbit as a case study: 1) Fixed pricing. 2) Faster txns, 3) Going vertical, 4) Raising enough VC , 5) Reputation systems, 6) Gig economy verticals are a power law. https://www.reforge.com/blog/taskrabbit-marketplace-growth

18. Bill Gurley (Benchmark) has a classic: 10 factors to evaluate with marketplaces: 1) New Experience vs. the Status Quo, 2) Economic Advantages vs. the Status Quo, 3) Opportunity for Technology to Add Value, 4) High fragmentation, 5) Friction of Supplier Sign-Up, 6) Size of the Market Opportunity, 7) Expand the Market, 8) Frequency, 9) Payment Flow, 10) Network Effects. http://abovethecrowd.com/2012/11/13/all-markets-are-not-created-equal-10-factors-to-consider-when-evaluating-digital-marketplaces/

19. Josh Breinlinger (early oDesk) on the ingredients for a successful marketplace: 1) recurring 2) episodic 3) standardized work 4) little trust required 5) non-monogamous. http://acrowdedspace.com/post/73232464154/the-ingredients-for-a-successful-marketplace

20. Worth a mention – not an essay, but The Perfect Store is a behind the scenes look at eBay that I read a long time ago that is great. https://www.amazon.com/Perfect-Store-Inside-eBay/dp/0316164933.

Re: Uber, I’ve read everything out there about Uber but there’s nothing good yet. @mikeisaac’s upcoming book is the one to watch.

I’m still collecting/curating my list! So if you have clues for other great pieces, please let me know. Also interested in books if I’m missing anything.

More ideas/thoughts welcome! I read every reply :)

[Originally tweetstormed, with some edits, at @andrewchen. Follow me there for more!]

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