Like other types of startups built on network effects, marketplaces create value by connecting participants. Specifically, they connect demand with supply to enable transactions. This gives them an…
The Marketplace Monetization Map: Complexity and Asymmetry
Marketplace monetization depends on two factors — Transaction complexity and the asymmetry in value to the demand and supply sides
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Like other types of startups built on network effects, marketplaces create value by connecting participants. Specifically, they connect demand with supply to enable transactions. This gives them an obvious way to monetize — take a cut of every transaction. However, this cannot be blindly applied to all marketplaces as there are constraints involved. Depending on these constraints, marketplaces can choose between five out of the six possible monetization models.
In my last post, I explained that monetization on interaction networks was a function of network structure, i.e. the nature of relationships between network participants. This is true for marketplaces as well. However, these relationships are governed by different factors on marketplaces. Specifically, they are influenced by the following:
Transaction complexity: This is a measure of how complex it is for the demand and supply sides to find a “match” on the marketplace and then complete a transaction. This can depend on a range of factors including the nature of supply and the density of supply by region or category. For example, both Upwork and Preply are labor marketplaces with differentiated supply. However, Preply is focused on language tutoring while Upwork is “vertical agnostic”. This means that the demand side on Upwork has more filters to consider — the type of job, required skillsets, project experience, etc. This makes matching on Upwork more complex than on Preply. In addition to this, offline, procedural, or regulatory requirements can increase the complexity of a transaction even after finding a match. For example, completing a transaction after discovering a supplier on a B2B marketplace like Anvyl is much more complex than on Amazon. Asymmetry in value between demand and…
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