Solving the "marketplace" business model

This post should be placed under an entrepreneur's must read list. We're doing a marketplace play with Cloudomatic and it was really re-assuring (and scary) to hear some things we've seen echoed.<p>a) Building two businesses is really scary.<p>b) Focus on sellers first is definitely right. You'll never have any buyers if you don't have any sellers. The worst case scenario for a seller if there are no buyers is an increase of zero / a loss of nothing. Things can only go up.<p>c) Pay per lead works great here. The listing fee up front is hard to do and usually penny wise + pound foolish. We have close to 500 apps. I bet if we tried to charge a small 50 dollar fee to be on cloudomatic we might have gotten it from some devs, but we'd have a lot less apps (maybe 25 total?).<p>d) Content is really important as a way to gain traffic on the buyer side. It worked well for Mint. I consider Mint to be a marketplace at its core (connect people (buyers) with better finance deals (sellers)).

Great article. Wish I read it earlier. I started a company (graduate jobs board) which failed remarkably. I had no idea the extent of difficulties I would face. The hardest thing was getting the "buyers" - i.e. the employers - to advertise. The "sellers" - the graduates &#38; students - was a piece of cake. 1,000 users in a couple of months. But without buyers, the whole thing was for naught. The other thing I noticed in the "marketplace" business model is that the leader is able to reinforce their market position and take the lion's share of the market. It's very difficult you're up against a competitor like that but if you're establishing yourself to be the leader and succeed, it's extremely profitable. The CEO of Australia's leading job site, seek.com.au, commented that unless you have market leadership in "marketplace" business models, it's not worthwhile.

Excellent article. If you are starting a company that is a marketplace, you'd better read this first. Really. I forwarded it to a few people I know who are...

All in all a great article, but I'm confused about why the small and quirky argument ("marketplace enormity doesn't increase the pleasure of the buyer") applies to Etsy or Threadless but not to Craiglist or EBay. If I'm in the market for miniature porcelain cows ironically dressed as farmers and find them on EBay, what do I care if EBay has 3 other listings or 3 million?<p>I understand that at their current level of maturity the value of EBay and/or Craiglist is partially tied to the size of the marketplace and that focused-and-better may be the best or even only way to compete with them but it seems like on that particular point what works for you, the small emerging marketplace could work just as well for them, they just have a higher overhead to meet. It's not enough just to be more focused, you need to be <i>better</i> at your niche.

Great article. Amazingly, I didn't realize that my startup was a marketplace until reading this.