Building a Peer to Peer Marketplace: Single User Utility

by asdfasdfasd over 4 years ago

Through the process of building Credport, we've talked to a large number of people running peer to peer marketplaces (especially in the Sharing Economy) and read even more about the topic. One key factor to success is building single user utility into your platform.

The first thing you should focus on in a marketplace is how you're going to get to liquidity. As Simon Rothman says, "Liquidity is the reasonable expectation of selling something you list or finding what you’re looking for...Until you reach liquidity, you’re vulnerable. After, you have the opportunity for dominance."

Liquidity is so important because you generally have one chance to get a new visitor to your marketplace to return. If I'm a buyer and you don't have what I'm looking for, I'm not going to waste my time coming back again. If I'm a seller and I list a good or service that nobody wants, I won't waste any more time providing anything else. If you hope to grow, you need to capture as many of these new visitors as possible by giving them what they want. It's all about supply and demand. If you can't match them, you don't have a marketplace.

So unless you have an amazing marketing strategy and can magically get all the supply and demand you want to show up at the same time, what can you do? The answer is focusing on single user utility. ( HT to Fred Wilson ).

Single user utility is the value you provide to one person in your marketplace even if there is no one or very few other people on the platform. If you can provide single user utility to one side (either the supply or demand), you can bootstrap growth on that one front regardless of how the other side is doing. Eventually you'll hit sufficient scale on the one side, and then can use that scale capture all of the new visitors in the other side.

Airbnb is often cited for using "growth hacking" by cross-posting to Craigslist as a way to drive adoption. Why did this plan work? It was because the posting tool provided single user utility to the homeowners/landlords. Even if there weren't any renters yet on Airbnb's marketplace, by making it very easy to post an attractive Craigslist ad for their existing property, Airbnb attracted landlords to sign up and list their property. Airbnb wasn't necessarily a marketplace for these landlords - it was a free productivity tool. This craigslist hack was all about single user utility. By gaining a significant number of listings through landlords, Airbnb could then attract more and more renters.

eBay is the canonical example of a peer to peer marketplace. While there wasn't true utility at only one user, eBay still provided significant value to anyone listing on the platform even at very small scale. Let's imagine that it's 1995 and you have some old stuff you want to sell (forgive me if I get this wrong since I was 3 years old). Your options are pretty slim - go to a pawn shop, hold a garage sale, ask your neighbors and contacts, or run a classifieds ad. A pawn shop requires the least amount of effort, but probably gives you a bad price (if they even want to buy the things you're selling.) A classifieds ad provides competition, but you only reach the readers of one newspaper, have little space to write any details, and are stuck with the original price you suggest.

eBay's single user utility was a combination of a much larger audience to sell to, ease of use (just put up a listing with a picture), and auction style pricing, which guaranteed a much better price for the seller. As we all know, that combination worked quite well for them. In just 4 months of being online, "AuctionWeb [eBay's first name] had hosted thousands of auctions, and attracted more than ten thousand individual bids." This article has a really great history of early eBay for those interested in reading more.

So in summary, for those trying to build a peer to peer marketplace, focus on providing single user utility at an order of magnitude greater than any existing solution. If any of the value propositions you hope will drive initial growth start with the phrase "Once we have a lot of people...", they aren't value propositions.

Image credit: Edward Boatman, from The Noun Project and http://www.flickr.com/photos/radiomayonnaise/8427631316/

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