Every Craigslist competitor must consider this idea from Yelp.
I’ve talked about the chicken and egg problem in seeding two-sided marketplaces at length earlier. Producers won’t show up without consumers and vice versa. One of the models that I’d proposed that works especially well for startups like Shopkick is to build the value proposition in such a manner that your producers bring in the consumers. Another way of building a two-sided marketplace is to do it the other way round: Focus on the consumers and leverage their interest to bring in the producers. The pattern for implementing this is, in my opinion, an extension of the model originally made famous by Yelp.
Yelp is an online local search service that allows consumers to search for businesses, read reviews and make decisions accordingly. Yelp starts with a searchable directory of local businesses and uses that to gather search traffic. Once there’s enough traffic coming in, it pitches the search leads to businesses which are getting a lot of search-generated views or whose category is a common search term. e.g. restaurants in San Francisco. With the traffic-backed pitch, the businesses are brought on board to claim their listing and advertise for related search terms. Over time, this builds up the producer side of the network.
So that’s special because?
Two-sided markets have a problem because they require synchronization of producers and consumers coming onto the platform for interactions to happen. Since getting both sides in sufficient numbers simultaneously is almost impossible to execute, most marketplaces and platforms try to stage the seeding process getting one side in after the other. The Yelp model is particularly interesting because the staging doesn’t require expensive incentives etc. and doesn’t need to be coordinated in quick succession as consumers get value from Yelp’s search engine even when the merchants aren’t on board.
The problem is Yelp’s model isn’t applicable to most marketplace startups because they do not necessarily offer a standalone value proposition like directory search. Most marketplaces start with the aim of matching buyers to sellers and actually need both sides to be on board. However, with a few tweaks, the essential principles of Yelp’s model can still be applied to a broader range of platforms and marketplaces.
The Generalized Yelp Model takes a leaf from Yelp’s playbook and takes the following route:
Supply proxies are data points that represent true supply but that are not actually created by the producer. The platform, hence, doesn’t own the supply side yet. The idea, ultimately, is to have producers come and claim their supply proxies and eventually create more supply on the platform.
In the case of Yelp, the supply proxies were the directory listings. In the case of TripAdvisor, the supply proxies are the hotel or restaurant listings. Also, the Yelp model works because it takes the Yellow Pages model and adds an extra layer of functionality: search. Search makes the value proposition much stronger and the product more user-friendly.
In recent times, several niche marketplaces have emerged leveraging this model. Most of these follow the same pattern: Source listings from Craigslist, create a better search and navigation experience, draw traffic and convert to leads. Craigslist (in)famously has caught on to the trend and has been sending cease and desist letters.
The Craigslist case notwithstanding, this continues to be a great model for startups with great technology but a distribution problem to work around their distribution.
Making It Work
There are, of course, several factors that determine the success of this model:
Have you tried using this model or variations of it?
Gmail’s exclusivity was a masterstroke from Google that enabled it to enter and dominate a product space as commodified as email. But Google Wave was a dud. What does it take for exclusivity to work?