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Want to grow exponentially as a product manager? Join a marketplace

The complexity of marketplaces makes for a challenging, rewarding proving ground for ambitious product managers.

Free Agency

Free Agency

Published 5/11/2021

Want to grow exponentially as a product manager? Join a marketplace

In product management, there are a variety of factors to consider when optimizing for your next job. Size of company, structure of team, industry competition, traction — all of these play a role in determining how you’ll spend your time, what you’ll learn, and how you’ll feel walking away from the job when it’s time for the next journey.

An underrated factor to consider? The core business and product models.

If you’re working on consumer social, you’ll likely spend a lot of your time focused on viral growth and core in-app engagement. If you’re in B2B SaaS, freemium conversion rates and team access control will definitely be part of your roadmap. In ecommerce, paid acquisition, on-site conversion, and cart value will be your new best friends.

With these and other product models in mind, there’s one that stands out when it comes to optimizing for maximal learning and exposure as a product manager: the marketplace. A marketplace is a Frankenstein combination of all business models — forget just being concerned about the amount of user swipes at TikTok, the typical activation journey of a new user on Slack, or the cart value maximization of someone’s job at Allbirds. These things all come into play at a marketplace.

If you’re mid-to-senior in your product career with the opportunity to select your next job, and you have the option of a marketplace, here are some upsides to consider:

Marketplaces have complicated buyer-seller acquisition

The starting line for a marketplace is quite different from that of other product models because it doesn’t start with just one type of user. Marketplaces start at a minimum of two: supply and demand, and the delicate balance of a two-sided acquisition challenge starts immediately.

Consider a food delivery business like Uber Eats. A business that needs to get a food-buyer’s attention is already competing with that person’s kitchen, local restaurants, favorite delivery services, and the grocery store. But that’s just the beginning: to make things work, you need the food-makers and delivery drivers, too. Suddenly, we’re at three user types for a product team to consider — food-buyer, food-maker, food-deliverer. The balance between each impacts the experience of the others.

Here are some other two-headed fun facts about two-sided acquisition in a marketplace:

  • Product managers must learn how to measure, anticipate, project, and influence the capacity, demand, and supply on all sides of their transaction. Often, these numbers are out of sync, and the challenge will be to bring them back in balance.
  • Marketing to each side of a marketplace is a delicate communications tightrope. Most marketplaces require talking to supply and demand separately, since the value propositions often don’t relate and can even be at odds with each other.
  • Acquiring the sellers — or supply — of your marketplace often means building tooling for them to get onboarded, managing their time or inventory, and generally setting them up for success. This can feel like building a SaaS company and then giving it away for free.

Master the ability to anticipate marketplace supply and demand, bend those curves to your will, and talk to two types of users at the same time, and any future acquisition challenge will seem trivial in comparison.

You can’t control everything, but you also control some things

Marketplaces tie together a severe risk and a sincere benefit: you’re not fully in control of the quality of product or service, and you’re not fully in control of the quality of product and service.

Consider the differences between eBay, Airbnb, and Opendoor on a spectrum of managed marketplace dynamics. On the one hand, you have an unmanaged search marketplace like eBay. eBay sets up the platform and interfaces by which its supply and demand interact, then attempts to run away from any consequences. Airbnb is lightly managed, and goes further to attempt to standardize pricing, quality control, and customer experience. Finally, you have companies like Opendoor, which is a fully managed experience whereby Opendoor itself is a member of the transaction and owns outcomes for both its supply and demand user bases.

Simply deciding on how managed your marketplace will be is an immense challenge. Any given founder or product leader is constantly measuring the tradeoff between risk and liquidity. Managing your marketplace can mean better customer experiences, quality control, and take rates, but you’re likely to then hold inventory risk or be more responsible for your brand reputation. If instead you attempt to position yourself as a tool or platform without as much control, you’ll care more about the liquidity and transaction frequency on your marketplace. However, your buyers and sellers will define the reputation of your business, and you cannot control their behavior.

Here are some other trade-offs you’ll make in the control room:

  • The more risk you take, the more control you’ll have — Opendoor, as an example, takes on the risk of buying home inventory and therefore gets to set home prices and take-rates (the percentage of the transaction collected by the marketplace)  — and everything else you do is dictated by this balance.
  • A mixed or light management model might seem like a good middle ground, but these are often the businesses caught between a rock and a hard place when things go wrong. We all know that Airbnb doesn’t control its hosts and Uber cannot control its drivers, but consumers still hold those brands responsible for the experience that these service-providers provide. As a PM, you’ll have to find the sweet spot between building the onboarding, verification, and marketplace dynamics that encourage both sides to be on their best behavior without being onerous.
  • The less managed you are, the less you’ll be able to predict exactly what goes on and how. Across experiences on Craigslist, eBay, Upwork, and similar peer-to-peer marketplaces that focus on reviews for trust, it’s often the marketplace participants that are creating new use cases for the platform. Could eBay have predicted that it would be in the town selling-and-buying business when it first launched?

A product manager’s role in these marketplaces is to add the features, transaction structures, and user journeys that maximize use of their marketplace. They want to limit bad churn while maximizing margin. Most importantly, they want to decrease the frequency of negative experiences. It’s a journey.

There are more levers to pull than is reasonable

In other product models, metrics are relatively straightforward. In SaaS, you’ll focus on freemium conversion, churn, LTV, and net revenue retention. If you’re in consumer social, you’ll be thinking about everything that falls under growth and engagement.

In a marketplace, it’s all of the above and then some. Marketplaces have a variety of dynamics that make their measurement complicated, the least of which is that there are both supply and demand side KPIs to keep in mind. Within each side, there’s DAU/MAU, elasticity to the other side + related pricing, annual order or contract values, CMGR, NRR, liquidity, churn, supply-to-demand ratios, CAC & SAC, GMV — and the list goes on.

The metrics themselves aren’t all that matter: margin and churn are quite complicated to influence. Consider a marketplace where success churn exists, like Upwork or Tinder. Where success occurs, a repeat transaction becomes less likely. This increases the importance of contribution margin, or the true take rate of a business on a particular ticket. Upwork’s fees remain high in part to make up for the transactions that wind up being one-and-done or that move off of their platform.

Costly acquisition, supply-demand matching, and customer support can drive the unit economics to ruin. While a marketplace will always try to generate hype around their gross volume or merchandise value, it’s in the margins that a product manager has to drill down.

Here are some ways in which the numbers get wacky:

  • There are so many levers to pull in a marketplace that deciding which to pull is its own behemoth. Attribution becomes especially important, as you’ll likely be pulling many levers at once and you’ll want to know which moved the needle. You’ll have a thousand ways you might’ve improved AOV, but are you sure it was your improvements to supply-side quality? Was it just the consumer behaviors of your new demand-side market launches? Or was it the spill on aisle 9?
  • Finding flywheels and loops is important. As Sarah Tavel of Benchmark points out, these can be supplier to supplier (Uber driver enjoys driving, refers friend), buyer to buyer (Hipcamp customer invites friends to reservation), or cross-market (Airbnb buyer stays with host, leaves positive review, host’s reputation means more buyers come).
  • Don’t forget the dynamics of regulation and competition, both of which mean that you’re in a constant battle to reprice, stay competitive, and retain both sides of your market.

It’s quite simple: ask your favorite PM friends from a marketplace and, well, basically any other business to show you the dashboards and metrics they use to track progress and success. In that, you’ll find the difference.

In a two-sided conclusion

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.

It’s in these challenges and more that a product manager will come out stronger, more knowledgeable, and a lot more marketable. The one caveat: the marketplace should be a good idea. While a marketplace is a great proving ground for ambitious product managers, it’s important to pick a concept that enables these challenges to exist in the first place.

Otherwise, you might be accidentally banging your head against the hardest wall. That’s not a bad lesson in product management, either.

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