3 Key Elements of Every Good Consumer Marketplace

Having looked at hundreds of consumer services and marketplaces, I have found that there are three main ingredients for success that stand out. Note: Bill Gurley once did a great post on the 10 Factors To Consider When Evaluating Digital Marketplaces which is also a great read. However, to sum things up more briefly, I believe that there are just three overarching characteristics — 1) a good hook, 2) provider liquidity, and 3) building 2-sided stickiness. Let’s look at four sample companies — Zillow, Houzz, Avvo and Uber — to see how each company has employed these strategies:

Hook

A good consumer hook is essential in “luring” users to your service. A good hook implies an attractive user acquisition funnel which helps get the flywheel going.

Zillow — Aggregated home data, multiple listing service (MLS) data, created the Zestimate valuation tool, and crushed PR by doing things like showcasing celebrity homes and creating real estate market indices and reports for media and government use.

Houzz — Built a visual discovery + photo tagging experience for consumers before ever bringing on service providers to the platform. Offered an addictive “Pinterest for the home” experience that ended up becoming quite viral.

Avvo — Real-time Q&A with actual lawyers. Users can ask a question to real lawyers and get an answer in minutes. Powerful features like this really grab the attention of consumers.

Uber — A “magical” experience where you press a button on your phone to summon a car. The service in and of itself is a terrific hook.

Provider Liquidity

The next step is building service provider liquidity. Using the same example companies:

Zillow — Used a massive inside sales force to sign up real estate agents, thus completing the flywheel. Acquiring real estate agents drives value for consumers which then makes the marketplace more attractive for additional real estate agents. As the service improves for both supply and demand, the cycle can continue indefinitely. Zillow has made several key acquisitions to further bolster their leadership position, most notably Trulia and StreetEasy.

Houzz — After first acquiring a large and engaged user base, Houzz then introduced service providers into the platform. This further improves the value proposition for consumers and was a no-brainer for interior designers, home re-modelers, etc.

Avvo — Similar to Zillow, Avvo acquired lawyers in order to create their virtuous cycle. More lawyers created a more interesting marketplace for consumers which in turn attracted more lawyers.

Uber — If you haven’t noticed yet, most marketplaces are supply constrained. The key to scaling Uber’s business is to hire and retain as many quality drivers as possible. As more drivers are acquired, users have less wait-time and can use the service in more geographies. As demand grows, the service becomes even more attractive for drivers.

2-Sided Stickiness

Once the network is up and running, it’s necessary to continue building stickiness into the platform for both the supply and demand.

Zillow — For consumers, Zillow continued to strengthen their product in home listings but also extended deeper into rentals, mortgages, discovery and many other key areas. For agents, Zillow’s stated strategy has been to provide tools to real estate agents in order to make them more engaged with Zillow’s platform. Such tools include website creation, marketing and leasing tools, agent hub, etc. Zillow has made several acquisitions to provide more value for agents.

Houzz — Broadening out from just visual tagging and ideabooks, Houzz has introduced a variety of new offerings such as an ecommerce marketplace, new design content and advice, and direct access to home professionals. On the service provider side, Houzz has been building a number of interesting features such as widgets/slideshows to add Houzz content to websites, advertising solutions for relevant offline providers, Houzz profiles for professionals and a site designer for Houzz pros to quickly spin up custom websites with Houzz content.

Avvo — Aside from free Q&A, Avvo also offers consumers a terrific service for researching hard to understand legal topics. Users can also search Avvo’s directory of lawyers (with reviews and ratings) and do a 15-minute call with a lawyers for $39. In the future, Avvo is also likely to add packaged legal services so that consumers can do things like create a will for a flat fee and get all the necessary forms digitally in one fell swoop. For lawyers, Avvo offers a free profile builder, performance websites for attorneys, sponsored listings and display ads, as well as a marketing software suite for lawyers to help manage their business.

Uber — Uber has continually tested new and exciting services for consumers. Initially starting with Uber Black, the company has moved into other price points like Uber X, Uber Taxi, Uberpool, Uber SUV, etc. Aside from extending into other forms of transportation, Uber has also been testing out food delivery, groceries and other consumer services with much fanfare. For drivers, Uber has been doing a number of things to improve acquisition and retention of drivers. One example of this is the recently announced Xchange Leasing program, a flexible leasing program for an already flexible job.

Parting Thoughts

The three key elements of good consumer services and marketplaces extend far beyond these four companies. This framework works for many other marketplaces such as TripAdvisor, Yelp, Priceline, Etsy, Instacart, AirBnB, Instacart and others. It even applies to much larger companies such as Netflix and Amazon. Think about it!

Originally published at mahesh-vc.com on August 17, 2015.