Why depth matters in digital marketplaces

 

Last week I used Openbay—a relatively new marketplace for auto maintenance—to research coolant system service. Within a couple hours I had over a dozen offers from feedback-rated auto shops with prices between $50 and $140. Whether I chose to accept those offers or not, my experience was directly linked to those suppliers. More specifically, my experience hinged on four dimensions:

  • Quantity – how many offers did I receive?
  • Velocity – how quickly did I receive the offers?
  • Variety – were the offers diverse enough to inform my choice?
  • Relevancy – were the offers relevant to my needs?

Viewed in this light, my experience on Openbay was successful on all four dimensions. I received several bids in a short-term that were both relevant and diverse enough to meet my needs.

These dimensions are applicable to most digital marketplaces—uShip for transportation, DogVacay for boarding, CustomMade for furniture—and especially those with auction-based models. Building a marketplace that is not only efficient but effective requires understanding these dimensions from a microeconomics perspective. For example, take quantity, a topic we thought about and tested repeatedly at uShip to understand it’s effect on liquidity. Each shipping quote received by a customer adds value to their experience and increases the chance of a successful transaction. Quantifying the marginal value of a customer’s first, second, and third bid allowed us to develop products to improve the customer experience by getting them more bids more quickly. We also understood there existed a point of declining marginal returns after which new quotes added no value and negatively affected the supplier experience.

It’s these types of tough questions and learnings that can lead to sustainable marketplaces with durable advantages. Given the number of successful marketplace models on the internet, it’s no surprise that microeconomics are enjoying a corporate renaissance.