23 Sep Trust engagement in marketplaces with low-value transactions
When we look at the reasons why people should pay for a subscription in your marketplace, things look very different for your product team compared to your end-users on one of both sides of the marketplace. This is why I came up with a metric for the sweet spot of conversion from voyeur user to engaged user.
The sacred pillars of 2 sided marketplaces are:
To make sure both audiences of your marketplace want to work with your mediation service, you need to make sure you understand the elements that create trust in the real-life relationship where the transaction takes place.
For example, if you have a marketplace in fulfillment in logistics, the real-life scenario happens between shipping companies and traders of goods. If you go one level lower from business to the humans behind these businesses, there is a great example of that in the famous Tulip Fever movie which describes how the first stock exchange market in the world was formed. The traders were checking the barrels from top to bottom just to make sure that the quality of the merchandise they would buy is the same for the entire shipment. This ensured that money was well spent and that trust was build between the 2 parties so they can work together again in the future. It probably took more than a few cargos of goods before 2 people could form a relationship in which they would not need to spend that much time in checking every barrel because as soon as there was a breach of trust, that would affect both of them and break the commercial relationship for good.
In marketplaces that are managed more, you see that the automation level is quite low and the steps to acquire trust are still done more in the traditional way than not. The trust function plays a crucial role in the managed marketplaces where the risk is higher and as such, very big promises are made to keep both supply and demand trusting the system.
There are rules and community best practices that create a way of working on a platform in favor of the people who are present here. Making sure you have your rules made transparently and democratically bottom-up together with your community makes your marketplace more successful at creating a long term relationship. This increases the frequency of usage and engagement on the platform of your community. This leads to the next point on my list.
People come on your marketplace for a specific “job to get done” or a need they have and you advertise to satisfy it through your service. Your marketing and branding are essential in this case because you risk losing a lot of trust and community if you are not delivering on your brand promise.
Let me explain what that anatomy of convenience can look like:
- The same audience- supply everywhere my audience will need to access it! -you promise global access to accommodation around the world, but your supply is limited to the US market only. That was the case of Airbnb in 2012. They struggled to build liquidity in the EU market and they knew they would never be able to truly build a global supply unless they would be present in the European market. But building that supply meant they needed to use some pretty bombastic clickbait PR titles in the media so they can get Europeans to start listing their homes on the website. Then the convenience of having a global platform and not having to switch from a US platform to an EU platform when traveling went smooth. Uber has almost the same situation as you can hail an Uber pretty much everywhere in the world now despite the company starting in only one zip code in NYC.
- not mixing job to get done with too many verticals and confusing the demand with your board offerings — I see this all the time with platforms that want to expand too fast their offering and they dilute the key value proposition for their initial adopters. It’s super important to pinpoint what is your key value proposition and to which side of the market do you need to still keep it happening to not lose the momentum of the flywheel. Fivver, for example, offered a pretty solid value for the freelance community in times when people were just starting the “digital nomad” life. Now when everything is more democratized and spread, the value of such broad marketplaces is very low. The convenience is diluted when you mix too many offers with too many freelance verticals.
- not getting the main “job to get done” right — this is especially painful for the starting marketplaces that haven’t figured the market fit yet. They think they are solving a problem of their customer but in fact, they are merely getting the real need met. One such example was a car-sharing service in China that discovered more than 80% of the cars they had rented were not moving from the parking spot. They looked into the data only to realize that people were using the cars for completely other reasons than to “move around” which is the main reason to build a car-sharing service. Once they realized this, looking more into how people were using the cars, from the ones that were not moving, they narrowed down to users who were in specific areas of the city and realized more than 90% were in front of office buildings when rented. Some of the users were having lunch breaks there, some were having private phone calls just outside of their office, some were taking a nap. The reasons were diverse but these people needed a place to zone out from their offices. If you can’t figure out why your people use your service but you still make money, it doesn’t mean you have hit the convenience part right. It’s a convenience that can’t even be replaced with some other service just yet because you don’t know if that will really work but in the meantime, it’s just cannibalizing your business.
- Marketplaces that don’t do enough managing of supply and demand- this one can be a deal-breaker for an audience that comes from very traditional industries. Let’s take the example of human resources. People are not a commodity so you can’t deal with human resources as a transaction that is worth a specific amount of money and try to monetize on that. Also, focusing on the wrong side of the marketplace to nurture the needs of the users could make you fail miserably. If you only focus on the demand side, you will have pretty engaged employers, but their CLV ( Customer Lifetime Value) will not help you grow too much in other geographies and you get stuck in a market where you depend on the demand for how much your company can grow. If you focus on talent instead, talent is rather fluid and might not seem to bring revenue at all since the money comes from employers. You need to start thinking of building a relationship with your talent pool and put them back in the driving seat while keeping in mind that if you only make it valuable for 1 single transaction you will lose too much money for too little ROI. The role of convenience becomes that of a single point of transaction for multiple touchpoints on the customer journey of these 2 audiences.
This last one is inspired by Point Nine Capital and its article on the functions of a marketplace. People come on your marketplace to find out opportunities that are not in their reach that easily. They also want to shorten their customer journey and optimize their experience of choosing from multiple suppliers or options in one place. Marketplaces need to reinvent their content all the time to be relevant for their audience.
The dynamics of discovery has a few elements that make it work well for the audience:
- understanding the frequency of fresh content for both sides of your marketplace- in a human resource marketplace, just like in Airbnb for example, you need to have new jobs ( or new accommodations) to attract new candidates ( or new travelers). Also, your supply side is rather switching depending on how much liquidity you have in that segment. We can say that you are a broad job board or accommodation website if you cover a lot of “supply” in one market, but then if you don’t have enough candidates or travelers, the supply is not the employers and hosts. They become the demand and you need to focus on bringing the real supply to them. The frequency of the new content depends on many aspects but it is mainly addressing side of the marketplace that is harder to get and how often they would engage in a transaction with your marketplace. For a talent that is looking for a job now and will find something on your job board, it might be that the next time they need your service is in another year ( hopefully for them) from now. Whereas on Airbnb, if you travel this month, it doesn’t exclude the option to travel again next month using the same website. So the need for new content in the job board case needs to have a constant adjustment to between the demand and supply to be simultaneously relevant for one another and at the same time available on the platform. Much like a peer to peer selling platform where if I look for an antique chair to buy today and there are not antique chairs today on the marketplace, I will not find what I need there and might be looking for the certainty of discovery in more niche marketplace than OLX or Marktplaats( acquired by eBay) or Amazon and then I look on Catawiki which is a dedicated marketplace for auctions and pieces of content that are rare to find. This type of niche marketplace would serve my purpose better. In human resources, this type of mismatch is called the “unicorn jobs/ talents” which if you happen to discover you monetize, but if not, you will lose a lot of time and effort looking to satisfy.
- understanding the type of engagement they have with the content — most of the marketplaces that don’t convert are not monetizing traffic coming from their increased efforts to produce content because they have a lot of window-shoppers. People come on your platform to use the element of discovery but the transaction happens offline and they either find ways to trick your system or they simply bypass you altogether. This happens a lot with Linkedin for example because they diluted their value proposition for candidates. People applying through Linkedin to jobs don’t feel much more sure of their result with Linkedin as they would if they apply directly on the platform of the employer. Linkedin makes money from the posting of the job and monetizes more the pool of talent a company can reach than the match and the hire they can provide. That’s why a lot of employers use Linkedin as an employer branding channel to supercharge their presence for the relevant talent they can nurture in time. But for marketplaces without a global reach and local relevance, the supply and demand will saturate at some point. Especially for a mature business that has top of mind in the awareness of both sides of the marketplace, the company will fail to bring new matches at some point. That tipping point must be the point where the conversion point of the transaction with these users changes. The company I work for has reached that point. The local supply is pretty much all on our platform. It goes the same for the employers. But the best matches are monetized still like employer branding. The candidates don’t do more than windowshopping on our platform because the employers don’t pay for our services more than they would for an employer branding channel. Despite developing the best matching algorithm for candidates relevant for a job, we don’t monetize the hire yet as we should. That’s where the engagement needs to change. This makes me come back to the main topic of the article which is trust! Both sides of the marketplace need to trust your service to deliver on their needs.
This was initially published on Medium where you can read the full version if you’re interested in more on the topic.