New selfcast. As always feel free to listen or read.
I’d like to talk about scaling marketplaces today and how the underlying platforms make us rethink good marketplace growth strategy. Traditionally, marketplaces have thrived by scaling both supply and demand, and it’s crucial to recognize that elements such as retention, lifetime value, and unit economics are often enhanced by scaling. Many notable marketplaces have historically built their success on platforms like Google while navigating various acquisition strategies, including robust investments in paid channels such as Google Ads, Facebook, and even job boards in the cases of Uber, Lyft, and DoorDash.
As we reflect on the landscape of 2024, it becomes evident that the once-stable avenues of customer acquisition are experiencing unsettling shifts. These trends, emerging through technological strides, notably artificial intelligence, and impending disruptions from market newcomers, press marketplaces to adapt. Entering the current era, marketplaces face a demanding challenge: they must excel in their customer acquisition channels earlier in their development. Previously, firms could afford a more moderate competency in paid advertising and SEO. Today, however, they require superior mastery, possibly even at the seed stage, and undeniably by Series A funding. For instance, Google's strategy shift from merely ranking aggregators toward embracing marketplace features themselves means a decline in organic impressions for marketplaces.
Marketplaces now must strive for top placement as Google's algorithm evolves to balance visibility among smaller businesses, startups, and established entities. This trend necessitates an agile approach where businesses anticipate platform directions and strategically maneuver. Consider businesses operating within shopping-related sectors. Google has pivoted more of these impressions to its own shopping interface. These marketplaces must recalibrate strategies to synchronize with Google's product direction, such as emphasizing individual product listings in lieu of aggregated product pages that were previously successful. In addition, marketplaces may need to more radically change their product to align to these platform changes to grow sustainably whereas the last generation of marketplaces could just focus on geo or category expansion alone. It feels weird to say, but platform changes from Google and Meta can change whether you have product market fit at all.
Challenges arise as these new marketplaces, targeting more niche markets than their historical predecessors in travel, transportation and food, need core product value expansion earlier than their predecessors to unlock growth and a venture scale TAM all while the underlying acquisition channels are also changing. Think about how Uber might be different if they needed Uber Eats to launch and work in year three vs. year seven of the business. And during that same year what if Apple changed targeting options for Facebook ads with the app tracking transparency changes. That is kind of what is happening.
A dual focus on maintaining user satisfaction and sustaining scalable customer acquisition becomes critical. As channels grow more rigid, adeptly refining product-market fit to unlock more user acquisition from these channels is necessary. This could be optimizing for better SEO ranking in Google’s new surface areas or exploiting social media visibility and figuring out how to get them to convert onto your site. This necessitates growth teams to rethink their methodologies: instead of merely enhancing SEO, virality, conversion rates, or onboarding practices, they need to understand where these channels they rely on are growing and work with core product teams to change their product market fit to be able to leverage these channels better moving forward.
The stakes are elevated—marketplaces must now operate with precision and adaptability akin to pitching a perfect game. We used to say product market fit is a hell of a drug that can mask a lot of operating issues. And it did for the last generation of marketplaces like Airbnb, Uber, DoorDash, Instacart, et al. In fact the best companies were much of the time the poorest run companies, because they are the only ones that can survive being poorly run because of their underlying product market fit. But the next generation will need to operate a lot more flawlessly to have that type of success. Marketplaces can still win big, but execution has gotten exponentially harder.
Currently listening to my 2024 playlist on Spotify.
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