Questions to Evaluate Marketplaces
By: Saurav Pahadia
Tags: Startup, Marketplaces

Image from https://www.livible.com/blog/comparing-top-online-marketplaces-2018/

Recently, I’ve been fascinated by marketplaces. The more blog posts I read, the more and more different marketplace evaluation questions I come across. This article is an ongoing aggregation and summary of these different metrics and criteria:

Most Common Evaluation Criteria:

How large is the market?

Can you help customers save money, help suppliers make more money, and still have a meaningful take rate?

Are either side of the market extremely fragmented?

Are there network effects that will kick in as you scale?

How frequently do customers interact with your marketplace?

Can you significantly improve customer and supplier experience with your technology?

Could you expand the market past its current state?

Case by Case Evaluation Criteria:

The Marketplace Calculator — Arteen Arabshahi (Fika Ventures)

You can find a spreadsheet created by Arteen Arabshahi here.

Outgrow.co has also transformed Arteen’s spreadsheet into a calculator you can find here.

Quick Summary:

How large is your market?

Is there an opportunity to make the service cheaper for the customer, make more money for the supplier, and still have a meaningful take rate?

Is there a barrier to entry or competitive moat once you reach a certain level of scale? Are there networks effects that might kick in as you scale?

How fragmented is the supply side of the market? Is it very difficult for buyers to access sellers right now?

How capable are you of preventing leakage?

Can you improve both the consumer and supplier side experience immensely?

How valuable (in $) and frequent is the transaction you are proposing?

How difficult is it to expand your marketplace to new markets?

How difficult is it for you to reach liquidity?

How many deterrents exist within this industry? Will structural bureaucracy or regulation prevent it from being streamlined?

Is there an opportunity to expand the market here by introducing a new option?

The 20/20/20 Rule for Marketplaces — Tianxiang Zhuo (Fika Ventures)

You can find the article written by Tianxiang Zhuo here.

The 20/20/20 rule is a simple rule that defines a successful marketplace:

Can you provide the customer base with the same utility 20% cheaper than before?

Can you help service providers earn 20% more than their usual rate?

Can you take a 20% rate after helping both the service provider and the customer base?

All Market Are Not Created Equal: 10 Factors to Consider when Evaluating Digital Marketplaces — Bill Gurley (Benchmark)

You can find the article written by Bill Gurley here.

Quick Summary:

How much can you improve the experience for your customer base? Can you create “wow” moments for new users?

Can you help customers save money while helping service providers make more money?

Can you use technology to enhance the user experience for suppliers and buyers?

Are the buyer or supplier bases fragmented?

How frictionless can you make supplier sign-up?

How large is your market?

Is there a chance to expand the market past its current state?

How frequently do customers interact with your marketplace?

How easily can you integrate into the payment flow?

Are there network effects present?

You can find an application of Gurley’s criteria, measured for DogVacay, here.