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Lessons from Three $B+ GMV Marketplaces
acrowdedspace.com
Jackson Square Ventures | Confidential | 3
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On Feedback
Observation
Solution
5 StarFeedback Systems areBad
Grade Inflation
Lots ofUnused Signals
Meet ArpadElo
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Virtuous Cycles
People spend lots of time here
Butit’sineffective
Attract OptimizeScreen
People don’t spend much time here
Butit’svery effective
Retain
Expel
Quality is never static (will increase or decrease)
Don’t waste too much time screening; Invest in O.R.E
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Feedback and False
Signals
0% 20% 40% 60% 80% 100%
Yelp
oDesk
Amazon (Books)
Amazon (Toys) 5
4
3
2
1
5 star systems do not provide granularity
Ask for private feedback, 3 point scales, and use behavioral data
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Real World vs 5 Stars
5 star systems do not reflect reality
Consider a different approach
RealWorld 5 StarDistribution
1 2 3 4 5
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Feedback for Bad
5 stars can separate the bad sellers
But do very little to identify the best
5 stars separatebad. 5 StarDistribution
1 2 3 4 5
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Feedback for Good
Arpad Elo developed a system for scoring 2-person competitions
It results in a more real world distribution
ELO Ratingsseparate
good.
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Relative vs Absolute
Humans are bad at assessing absolute value
But we’re extremely good at assessing relative value
How good isthis football
team?
Which one of these teams is
better?
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Finding Signals
You won’t be able to separate the good by user feedback alone
Need to use behavior and marketplace actions
If I choose Jeannie, she should move upand
Romany andJamieshould move down.
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Signals of Progression
Look for meaningful signals
User feedback is often too subjective
Rapidcareeror rateprogressionis a great
indicator ofquality!
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Signals of Repeat Usage
Actions speak louder than words
Ask your doctor what she would do rather than what she recommends
Repeat purchase rateor durationis a
strong indicator!
“The psychologist Gerd Gigerenzer has a simple heuristic.
Never ask the doctor what you should do. Ask him what
he would do if he were in your place. You would be
surprised at the difference”
― Nassim Nicholas Taleb, Antifragile: Things That
Gain from Disorder
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User Authority
Some users feedback is more valuable than others
But we treat it all the same
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Feedback Incentive
Users have little incentive to rate accurately
Unless you tie it back to the user experience
Rate this provider:
Do youwant to workwiththis
provideragain?
Yes No
Helps themarketplace
Helps thebuyer
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Feedback Conclusion
Takeaways:
• Bewarefalsesignals
• Look forbehavioral signals
• Ditch the 5 stars
• Develop your normal curve
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On Pricing
Goal of everymarketplaceshould betoincreaseefficiency inthe
world.
Fees extracted<< efficiencygained.
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Pricing
Three primary models for marketplaces
Each has their own pros and cons
Freemium SaaS Ads / Lead Gen Transactional
• OftenB2B
• Workswell whenyouhave
mixedusage (casualvs
professional)
• Worksif accessisessential to
business
• OftenB2C
• Workswell if big imbalance
in supply/ demand
• But,isfatallyflawedw/
misalignedincentives
• Generally worksthe bestand
hasthe mostaligned
incentives
• Butcan’talwaysdoit
becauseofdisintermediation
orvery high prices
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Match Types
Upwork,Craigslist
Airbnb,Zillow
Uber,Rev
SupplierPicks
Commodity
Increasing
Fill Ratio
AND Rake
Buyer
Buyer
Buyer
Supplier
Supplier
Supplier
Buyer Picks
Variety
Double Commit
Complex, custom stuff
Marketplaces evolve to increasing fill ratio
Supplier picks is easiest way to approach 100%
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Frequency of Purchase
Size of
Transaction
Plumbing
Vertical
(HighFrequency)
Vertical
(HighPrice)
Horizontal
Locksmith
Sporting
Goods
Furniture
Flights
Hotels
Taxi
Meals
Homes
Cars
Clothing
Horizontal
B2B
Horizontal vs.
Vertical
Verticalize (buyer picks for high price) / (supplier picks for high frequency)
Or group categories in horizontal; Or build a B2B platform
Supplier Picks
High Transaction
Rake
B2B
FreemiumSaaS
BuyerPicks
Lead Genor Low
Rake
Double Commit
Low Rake
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50%
0%
20%
High Rakes --Managed marketplace, monopoly
(iOS), opacity
Tiny – Long term, regularwork,users meet in person,
paymentoff-platform
Med – Quality control, insurance,compliance, scheduling
and availability
Low – Transparentfees, buyerbeware, high price goods /
services
Rake Factors
High rake not necessarily better, just different
More marketplace management – more rake
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Disintermediation and
Dynamic Pricing
Time
Perceived Value
Total
PerceivedValue
FlatFee
Disintermediationhappens
here
Users seek the best financial outcome
Either increase value or decrease fee over time
SteppedDiscounts
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Payment Timing
Paying sellers fast is consistently the best thing for seller happiness
Pay fast. Pay reliably. Assume some risk and guarantee payment.
Pay Fast
High NPS.
High Loyalty.
High Retention.
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Optics in Pricing
People often ask the question, “who do you charge?”
While it’s a stupid question, it does matter
Buyer Seller
Pays $100 Receives
$80
Rakes
$20
Who paidthe fee?
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Optics in Pricing
These are all equivalent
But create different levels of happiness
Buyer Seller
Pays$100 Receives$80Rake$20
Invoice
Services $80
MarketplaceFee $20
Earnings
Services $80
Invoice
Services $100
Earnings
Services $80
MarketplaceFee $20
Invoice
Services $90
Access Fee $10
Earnings
Services $80
MarketplaceFee $10
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Pricing Conclusion
Takeaways:
• Pay people fast
• Choose the rightmatchtype andmodel
• Consider more dynamic pricing
• Optics matter