Marketplace dynamics: buyer mindshare is key to building a moat

By boris, April 07, 2015

Most marketplaces start off by providing a unique supply of products/services. Demand follows supply, and so the flywheel of supply and demand begins.

However, as a marketplace gains popularity, its supply inevitably becomes less and less unique. I know this firsthand. At AbeBooks, our booksellers initially listed only with us, but then started to list with Amazon after it launched its marketplace.

Uber and Lyft drivers typically begin with one service, but often end up driving for both. And marketplace uniqueness can become diluted even when suppliers don’t intentionally leave. For example, Etsy struggles with design copying, including complaints of major retailers mass-producing products that look extremely similar to its handcrafted artisan designs.

If you’re building a marketplace, it’s safe to assume that the uniqueness of your supply will fade over time, as your suppliers seek out opportunities on other marketplaces and competitors look to grab a piece of the pie that you discovered.

In order to minimize the impact of these competitive dynamics, a marketplace can adopt to strategies: protect the supply and protect buyer mindshare.

When it comes to supply, you can’t keep supply unique when sellers list on other sites. Give your sellers little reason to seek out other marketplaces. For example, you can lower listing/transaction fees for unique inventory, tie sellers to your site through reviews (which cannot be transferred to other marketplaces), or find some other innovative model like Uber’s leasing model.

Yet while these strategies can slow down the drain of your unique supply to other marketplaces, they won’t stop it altogether. It’s much more effective, and important, to win buyer mindshare.

For example, Etsy has done an incredible job with its repeat usage. As revealed in its recent S1 filing, 78 percent of its gross merchandise sales in 2014 came from repeat customers.

Uber and Lyft have done a great job becoming the de-facto local transportation options locking valuable real estate on many people’s mobile phones. In the age of mobile where long-tail discovery (whether paid or organic) is less important, becoming such a home screen app is critical. This trend is even stronger in those countries that have skipped the desktop altogether and gone straight to mobile.

If buyer mindshare is the key to building a moat against the competition, you need to have the right product mix to become a frequent destination for your customers and build a brand that captures the mindshare of your target audience. And becoming a home screen app is the ultimate prize in a mobile-first world.

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