Α marketplace is in general a lucrative business model because it is characterized by network effects that create defensibility for an established incumbent. Once one has solved the supply and demand side in a marketplace (has achieved liquidity as we call it) the business grows more easily and it is hard for a new entrant to replicate that growth.
This is also evident by the high and increasing market caps of large players like Justeat and Grubhub and also by the prospective listing of Delivery hero.
Having been a marketplace lover personally at first and now @VentureFriends, we constantly discuss with our startups in that space, what they need to consider and how to act in order to grow fast, expand internationally and outgrow completion.
As a co-founder of e-food.gr I would like to share the important lessons learnt throughout that successful journey that led to the sale of the company to Delivery Hero so that I potentially help founders who are facing similar questions.
The main idea is to determine the key success factors and then look for competition gaps.If significant gaps exist then the chance of success of your new market entry is higher
The existence of competition does not mean that it is too late to enter a market. In our case when we launched e-food.gr in 2011 there were 2 competitors in that market both of them growing steadily on a monthly basis. However, they had ignored 3 major key success factors that apply in many marketplaces.
The first success factor is supply.
For a marketplace to be the top of mind destination for the customer, supply needs to be not just adequate but rather exhaustive.
In the food delivery business that means having a significant number of restaurants from all different cuisines in all geographical areas (cities and suburbs). Competition in our case had a limited number of restaurants and was lacking representation of specific cuisines.
Another point to keep in mind when thinking of supply is the distinction between distinct/branded or homogeneous supply. If the merchants in the supply side have a brand then it is important to include as many as possible of them in the marketplace. That makes building the supply side more difficult but also more defensible. As an example, let’s think of e-food.gr or e-table.gr. They both build their supply side with restaurants some of which already have brand awareness and a customer base followership. In order to have a solid product offering, those companies need to add if not all at least as many as possible restaurants for the customer.
On the other hand, let’s consider Nannuka or Douleutaras or Taxibeat. In their case those companies can bring onboard any nanny or home technician or taxi driver as long as those professionals are reliable. The supply side of the marketplaces in the second case is easier to build granted of course that there are merchants who have the professionalism required :) In any case building a solid supply side in the second case does not require from startups to bring every single merchant on board.
Coming back to the case of e-food, in 2011 there was a clear gap in the supply side of competitors both in terms of number of delivery restaurants as well as in terms of specific notable and highly sought after ones. E-food.gr jumped in and within a few months on boarded brands like pizza Fan, pizza hut, dominos, Goodys as well as a high number of restaurants per area and type of cuisine.
A second key success factor in many marketplaces is organic search traffic or SEO.
Typically, a marketplace is disrupting the traditional online directory business that attracts customer queries seeking for an answer. Before the advent of marketplaces most people would run a search on Google where the first search result was a directory page providing the professional’s details. Then the marketplace startup enters the market and due to its better product offering (full merchant profile, pictures, ratings) gradually displaces the directory from the first search results on Google. That displacement can be expedited if there is extra focus is given on the onsite and offsite SEO of the web property of a startup.
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