Strategies for seeding marketplaces

I just read a VersionOne post from May about seeding marketplaces. They identify four strategies (there’s more detail on each in the original post):

  • Identify unique inventory – sellers who don’t otherwise have an online outlet will list on your site (provided it’s easy to do) and you can use their product to drive demand. If you are lucky the sellers will bring some customers with them. Etsy is a good example.
  • Bring inventory from another site – hacking and scraping are common grey area tactics. AirBnB is a good example – see case study.
  • Pay for inventory – I think this only works at the very earliest stages, and even then I’d be careful. Apparently Uber did this in Seattle, paying drivers to sit idle whilst they built demand.
  • Aggregate inventory from other sites e.g. through affiliate programmes – scale comes quickly with this strategy, but adding enough value to become sticky can be challenging.

I would add another, and this is my favourite, and that’s ‘Using demand to acquire supply’. Our portfolio company Lexoo used this strategy, first finding companies that needed a lawyer and then calling up lawyers offering them customers if they register on the site. It’s brutally simple and highly effective. Only works in services marketplaces where customers don’t expect an instant quote.

My other observation is that in most cases one side of the marketplace comes much more easily than the other. On Lexoo supply comes more easily whereas on Appear Here, a marketplace for short term lets on the High Street demand is the easier side. The trick then is to build the easy side to make the marketplace super attractive for the more difficult side.