As an investor, I love marketplace businesses — from craigslist and eBay to Etsy and Kickstarter, digital platforms that empower individual seller / entrepreneurs are one of the opportunities I love most.
But last week’s Padmapper brouhaha — and Amanda Peyton’s dead-on analysis — were an important reminder of just how hard functional marketplaces are to build.
No matter what your marketplace sells — it could be taxi rides (Uber), or local services (TaskRabbit / Zaarly), or illegal drugs (Silk Road) — the ONLY way you survive as a market-maker is to obsess about market clearing above all else.
If your market gets buyers and sellers to a transaction faster and better than anyone else, you win. Everything else is just lipstick.
Uber is a beautiful product, but their secret weapon isn’t design, it’s frictionlessness — making it as effortless as possible to get a ride from one place to another in a big city. Uber also understood that, to win in local these days, you need to put boots on the ground in every city you’re targeting, touch sellers and buyers personally for a while, and spread credits around very liberally to prime the market pump.
AirBnB is a delight to use, but they didn’t win because of pretty design — they “borrowed” craigslist’s market clearing capacity, using super-aggressive tactics, to boostrap themselves into a leading position. “Fair” or not, the AirBnB team understood that all the UI in the world can’t save a market that doesn’t clear, and they used every trick they could think of to hack that fundamental problem — successfully.
Back to Padmapper, several influential commenters claimed that it wasn’t “fair” of craigslist to stop them from drafting off craigslist’s market-clearing capacity in order to build their own marketplace. Let’s be honest — which among you would stand idly by while a competitor pulled an AirBnB on a valuable segment of your business?
craigslist isn’t a public utility, it’s a business (and a damn good one, awful UI aside), and has every right to act in its own interest to defend its franchise.
Markets that clear are insanely valuable and “sticky” — craigslist hasn’t innovated on anything but spam management for 10 years, the site is ugly as sin and loaded with scammers, spammers and freaks — but they singlehandedly destroyed the newspaper business in the U.S. because they built the best, cheapest, fastest-clearing local commerce platform on the planet!
I’m an investor in several businesses with marketplace characteristics — examples include AppFog, a Platform-as-a-Service provider with a strong add-ins marketplace; Bonanza, a selling platform for fashion and accessories vendors; Estately, a market-clearing enabler for residential real estate; and GroupTalent, a marketplace for elite teams of software developers — and am always on the lookout for more. The first smell-test for any new marketplace deal I look at is: do the founders understand the importance of market clearing? If the answer is “no”, or even “not sure”, my interest dies immediately.
Enabling the success of others is one of the most satisfying opportunities the Web has to offer, and the economy is loaded with inefficient, opaque market segments that desparately need a better market-clearing mechanism. If you choose to attack one of these opportunities, do me a favor: print a huge banner with one word on it — “craigslist” — and hang it in the middle of your office where eveyone on the team can see it.
Make it pretty, make it social, make it mobile, but above all — make sure it clears.