3 lessons on gaining traction for your online marketplace

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The last 20 years have seen outstanding online marketplaces that previous generations could have only imagined. But what’s truly amazing is that none of today’s largest ecommerce companies began as big government projects or corporate-backed enterprises. Each one was built by just one or a handful of motivated people.

Here’s how they did it.

1. Identify a small market that can grow big

This is pretty much the key. If you try to be all things to all people, chance are you’ll be very small. Zero to One author Peter Thiel insists that you try to be a monopoly because non-monopolies naturally lead to competitive pricing and eroding profits.

The airline industry is a famous example of a highly competitive industry. Throughout the industry’s lifetime, all airlines combined have earned approximately zero dollars. Competition is for losers!

Unlike other startup models, marketplaces have a unique advantage: as they grow, they create their own gravity and make monopolies easier. That’s part of the appeal, but they also have the inverse problem: the platform itself has no value. The critical mass of buyers and sellers are the ones who create that value.

To make the problem more tractable, the trick is to find a smaller related market and use that to bootstrap into something bigger. Amazon started with books, then it grew into a behemoth—covering everything from detergents to diamond earrings—but only after it dominated the book industry.

If you have a large market in mind, how do you identify the right niche? Consider these two ideas:

The matching problem happens often

You may have heard of HomeJoy, the “Uber for home cleaning.” Despite having talented founders, oodles of funding, and what seemed like the beginnings of a mini revolution, it failed. The key factor was that choosing someone to clean your house only happens rarely, so solving the matching problem wasn’t that valuable. Compare this to choosing a taxi or a room to stay in, where the market model provides value.

The product is residual

The most interesting marketplaces don’t simply replace analog models. Instead, they make new types of products and services possible. The best case is when the supplier already has the products/services and is willing to monetize them in a scalable way with a digital marketplace.

Consider these examples:

• Airbnb lets people make money from their existing spaces
• Uber provides a way for drivers to make extra money with their own vehicles
• Etsy helps people profit from their hobbies
• EBay allows people to dispose of their unwanted items in exchange of cash

2. Get data

3. Generate demand-side traction