Reinforcing the guardrails of your online marketplace

I'm a big believer in online marketplaces.  I think it's one of the collaboration functions the internet is most naturally designed to facilitate.  In recent weeks, I've met with several founders of marketplace businesses and the notion of protecting the connections you make has repeatedly come up in conversation.  I think the notion is particularly relevant for marketplaces promising an exchange of services that are likely to recur more than once per year.  In these cases, there's often a strong temptation for the purchaser and/or service provider to go "offline" and establish a 1to1 connection where future transactions happen outside of the marketplace.  This is the worst type of churn for a business because the match was successful and the two parties will continue to transact, albeit without the business seeing any benefit.  While I'm typically supportive of open, user-friendly UX,  I believe a business needs to take steps to protect itself from this type of transaction churn.  There are two obvious remedies that come to mind, one tactical and one more strategic:

  • Some marketplace businesses use smart block lists and text identifiers to prevent users from communicating email address, phone numbers or other information that is likely to lead to transactions leaving the ecosystem.  While I admit to feeling stifled and frustrated by these measures on occasion, I think it's smart business and a business should do everything in its power to protect itself from theft.  Theft is a strong word, but if the product you're selling is a 1to1 connection and that connection is at risk of leaving your domain, that amounts to theft of your product.
  • A longer term, more strategic answer is providing tools and services around the connection that make it more difficult and less worthwhile to leave the comfy confines of the marketplace.  I met with the founder of a marketplace offering commercial video production services and they had build some powerful project management tools that he believed would be valuable enough to act as a deterrent to leaving the marketplace.  Another obvious example is the insurance offered by AirBnB or the payment protection provided by Paypal/eBay.  Both serve as protection against transaction churn.

In reality, I think forward thinking founders should be doing both the above.  If you're building a marketplace, the connections you enable are your biggest asset and you can't afford for those connections to go offline.  I think this conversation is more relevant for marketplaces focused on enabling services versus the exchange of physical items since the products are more dependent on the relationship and less tangible.  Then again, I doubt eBay would have become a $15 billion business if they let buyers and sellers transact offline with significant regularity.  What do you think?

By Josh Guttman

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