They must ensure systems are in place to tackle critical mass with matching efficiency, while focusing on liquidity, and not just user growth.
By Vidya Hattangadi
Organisations, these days, like to sell their products online through e-commerce platforms and in traditional brick-and-mortar stores. The interaction with customers changes in online and offline modes. While there are some fantastic benefits of selling online, especially low distribution costs, in an offline mode the interaction with customers becomes easier.
As for customers, ordering products online becomes easier. Amazon, Flipkart, mobile apps such as Uber, Airbnb, Swiggy, UberEats, etc, have become part and parcel of people’s lives. The number of people who go out to buy things has become smaller. On one hand, as more easier consumers’ lives have become, on the other hand, marketplace companies are struggling with complexities.
What is a marketplace company? It’s a platform that connects buyers and sellers of a specific product or service. These companies tend to challenge the status quo of an industry because of their complexities.
Marketplace firms are unique because they aren’t just serving one base of customers. They connect buyers and sellers, service providers and consumers. They have to make sure both sellers and buyers experience good product and service of each other. They need to hit liquidity as fast as they can, and are often challenged by chicken-or-egg dilemma—whether to first create supply or create demand, and then balancing transactions at volume.
Some marketplaces have existed for a long time. They vary in size and focus, but all marketplaces share certain features. Over the past two decades, we are seeing the rise of some massive and extremely lucrative online marketplaces. Typically, on an e-commerce site, product and service information is provided by multiple third parties, whereas transactions are processed by the marketplace operator.
Liquidity is most important: The amount of transactions conducted on a market platform is one of the most important features of a successful two-sided market. It is about the health of the business; to function well, there must be significant mass, and a proper balance, of buyers and sellers. Too few sellers or too few buyers will be let down by lack of variety and high prices as buyers move quickly for what limited items are available. Getting the buyer-seller ratio right in a global consumer two-sided market is a huge task. Ensuring a global pool of buyers is essential where the vast selection of available merchandise and top sellers across the world come for the large pool of eager buyers and requires always-on 24/7 mindset.
Systematic processing is vital: Buyers and sellers continuously look for a better and reliable structure. Let’s take Airbnb. It’s an American company that operates an online marketplace and hospitality service for people to lease or rent short-term lodging—holiday cottages, apartments, home stays (bed & breakfast) and hotel rooms to participate in or facilitate experiences related to tourism such as walking tours, and make reservations at restaurants. The company does not own real estate or conduct tours; it acts like a broker that receives percentage service fees in conjunction with every booking. Like all hospitality services, Airbnb is an example of collaborative consumption and sharing. The company has over 4 million lodging listings in 65,000 cities and 191 countries, and it has so far done over 300 million check-ins.
As a marketplace curator, they hire people to continuously find and feature best apartments for temporary stays and eliminate the shady ones. It is very difficult to eliminate shady apartments because going to the grass-roots levels globally is tough. Generally, the best listings are surfaced first as a result of both manual paperwork and algorithmic curation.
Feedback is very important: While Uber has earned an impressive reputation over the years, it has also faced criticism over a few scandals. Some customers have complained that drivers had cheated them out of money and the worst complaint is incidents of female customers being sexually assaulted by drivers.
Things like these have a negative brand impact. Uber faced hassles over such issues.
Most cab services apps have ratings systems built somewhere into the process for both buyers and sellers. So Uber, Ola, Flywheel and other service providers ask both drivers and passengers to rate their experience at the end of a ride. To actually make this data valuable, however, companies have to use ratings almost invisibly to filter out bad users and continually improve service. But it’s a fact that users don’t want to spend time on ratings and reviews. Customers expect the company has already removed poorly-rated drivers from the system; they assume that a driver with lower than a 3-star rating on Uber will not exist. But drivers weed out abusive or deceitful passengers with their ratings.
Enabled by algorithms: Marketplace companies are technologically-driven because, for them, data is everything. They keep track of what customers are browsing and buying. The goal is to improve conversion rates. Internet merchants are teeming with mind-boggling flow of data. For example, Paytm has about 30 lakh visitors every day with an almost equal number of page views daily. Algorithms help it crunch data on customer preferences and increase sales. Algorithms are the base for all online transactions—payment, ordering, shipping, feedback … everything. Algorithms strengthen e-commerce companies because huge money is spent on customer acquisitions and deep discounts.
In conclusion, for moving from an early adopter to a mainstream audience, marketplace companies must ensure the systems are in place to tackle critical mass with matching efficiency, while focusing on liquidity, and not just user growth.