While there are a variety of factors to consider when joining a tech company as a product manager – stage of company, industry, team size, scope of role, traction – one of the most underrated to consider is core business model.
When working in consumer social (TikTok), you’re likely focused on expansive growth and engagement. In B2B SaaS (Slack, Shopify), you’re thinking about onboarding, freemium journeys, and product expansion. CPG companies like Nike and Kellogg? E-commerce and paid acquisition. Platform, hardware, services? These all have their own flavor of product focus.
There’s one business model that stands out as being a complex mix of the rest, and that’s the marketplace. A marketplace has two-sided acquisition, typically with one side being a constrained supply and the other being expansive demand. A marketplace features two-sided user interfaces, onboarding both sides to two different user experiences catered to them. A marketplace features complicated pricing, product expansion, and long-tail engagement and net revenue retention questions.
If you’re a mid-to-senior product person with the opportunity to choose your next step, and you have the option of a marketplace, here are some reasons that a marketplace might be the choice with the greatest upside.
Marketplaces have complicated, two-sided acquisition and interests
Marketplaces launch with the classic chicken and egg problem: The demand side (say, sneaker buyers) isn’t going to be interested unless there’s enough supply (a critical mass of sellers). To be able to scale one side, you need to be able to scale the other.
However, the complications of two-sides don’t end there.
As a marketplace grows, attention must be paid to the capacity on either side. Acquire too much supply without demand, and you sour yourself as a platform for your service providers. Generate too much demand without having the supply, and your customers will move on quickly.
To win, product managers in a marketplace must learn how to measure, anticipate, project, and influence the capacity on both sides of their transaction. They have to demonstrate that capacity to each side, proving that supply and demand are confidently onboard with the expectation of an opposing transactor on the opposite end. Often, that means aggregation, paid acquisition, or highly-managed services. All of these factors are complex in a marketplace, and the game of acquisition in any other type of tech company will seem trivial afterward.
In marketplaces, product, service, and experience quality are complicated
Marketplaces feature a severe risk and a meaningful benefit: you’re not in control of the quality of product or service, and you’re not in control of the quality of product or service.
Whether you’re a managed marketplace, a search marketplace, or a discovery marketplace, and whether you fall under product or services, you’re somewhat at the mercy of your providers when it comes to your offer. You can, of course, create a tremendous amount of structure around their delivery, serving as a proxy for directly managing that provider. But the more you do this, the more you give away the benefit that comes with arm's-length relationships -- the distance you can have from any one provider or transaction.
For example, think of your expectation when buying off of a search marketplace like Craigslist or eBay. You know that you’re somewhat at the mercy of the sellers on the opposite end, who are only lightly verified. As a PM in that scenario, you build for further scale by bringing on as many sellers as possible and focusing on transaction volume, as opposed to customer satisfaction.
As a counterpoint, think of a lightly managed marketplace like Airbnb or Instacart. You’re as much interacting with those corporate brands as you are with the couriers, hosts, and grocery stores, because the marketplace has set the expectation that they are responsible for the delivery of your experience. You expect those brands to qualify their providers, establish reasonable cancellation policies, and guarantee safety. As a PM in that scenario, your job becomes complicated: how your product onboards, verifies, and rates its providers becomes critical, and how you triage customer issues is a reflection on your company, not on the particular provider in any specific transaction.
A product manager’s role in these marketplaces is to add features, transaction structures, and user journeys that maximize the repeat and consistent use of their marketplace. They want to limit churn while maximizing margin. Most importantly, they want to decrease the frequency of negative experiences.
Marketplace data and analytics are complicated
For an e-commerce startup, you’re looking at things like conversion rate and AOV. For a B2B SaaS business, you’re focusing on churn, LTV, and net revenue retention. In consumer social, it’s all about growth and engagement.
In a marketplace, it’s all of the above and then some. Product managers must care deeply about the growth of both sides of the platform, tracking conversions on both the supply and demand sides. They track DAU/MAU and the elasticity of each in the face of the other side of the marketplace. AOV, LTV, CMGR, NRR, liquidity, churn, supply-to-demand ratios, CAC + SAC, and GMV all play a factor.
The reality is that, in a marketplace, there are many levers to pull -- so many, in fact, that a product manager’s job becomes discovering which levers are worth pulling and how they impact long-term outcomes. This makes attribution especially important, since you’ll be pulling many levers at once and you’ll want to know which lever moved which needle.
You’ll have a thousand ways to improve, for example, AOV, but you’ll want to understand the long-term impacts of those methods and pick accordingly. Do you improve supply-side quality, thereby allowing you to increase prices? You’ll then have a more limited pool of supply to onboard. Do you begin to bundle services? Time to coordinate a many-provider transaction. Do you simply need to change conversion copy? Better be sure that there wasn’t a demographic change accidentally responsible for your lift.
Marketplace margin and churn is complicated
Marketplaces have a variety of dynamics that make the contribution margin and churn more complicated than that of other business models. For example, consider a marketplace where success churn exists, like dating or hiring. Where success occurs, a repeat transaction becomes far less likely.
This increases the importance of contribution margin, or the true take rate of a business on a particular ticket, where costly acquisition, matching, and customer support can be driven down to peanuts. While a lot of marketplaces try to generate hype around their gross merchandise value, it’s in the margins that a product manager has to really drill down on and optimize.
Early structure decisions are complicated
Because of the nature of supply-to-demand ratios, overlap, and the ever-changing nature of a fast-growing tech company, the decisions can be rather unclear when it comes to building a verticalized or horizontal platform.
A pure marketplace will find itself struggling to ensure quality service-levels, while a managed marketplace will find itself pouring money (and sinking margin) for the sake of customer satisfaction and LTV. An unmanaged marketplace will cause a product manager to wonder about creating power users and the implications of boxing out low-quality service providers, while a managed marketplace will have the product manager wondering how their service will scale as growth occurs.
These are all big challenges, and any product manager who solves them will come out stronger, more knowledgeable, and a lot more marketable.