[lowdose]

So these guys have to read up on some articles about multisided marketplaces which what they were testing. Starting a matching platform between consumers and teachers is not a feasible plan because this is a longer term relationship and a platform is easily cut out. A platform like uber works because nobody has a regular cab driver. Supply and demand matching is also terrible for dog walking platforms. Don't spend time testing all kind of startup ideas with complicated technique when you don't know what multisided marketplaces are and network effects.

[edouard-harris]

Excellent point. This would have been reason enough to kill the idea irrespective of the CAC calculation.

Speaking from extensive marketplace experience: A pattern of long term relationships will lead almost surely* to supply-side defection in your marketplace, which is when the supply leverages its relationship with the demand to set up a side deal that cuts out the platform. This can quickly take both supply-side and demand-side churn to levels that are an existential threat to the business. And of course, fraudulently inclined supply side firms may turn defection itself into an optimized business process if it's lucrative enough to do so.

High defection rates ultimately killed Poppy (babysitting marketplace) and Tutorspree (tutoring marketplace), and they continue to plague even platforms like Rover and Airbnb despite (or because of?) their scale.

* Despite what many folks believe, it's is possible to run a successful relationship marketplace without significant supply-side defection; you just need to structure it to leverage the relationship, rather than trying to break the relationship into a set of one-off transactions. (As an existence proof, I'm running such a marketplace right now.)

[teej]

I’ve seen some writing on what makes marketplaces resilient to “supply side defection” as you call it, but I’d love to hear your take. Specifically I’d love to hear more about structuring to leverage the relationship, or anything else you think is important.

What specific structural things are important?

[edouard-harris]

Generally speaking: your participants will use you when they need you and cut you out when they can do so cheaply. This isn't an indictment of them: it's completely rational for them to do this. But that means it's up to you to add value to the transaction, until the perceived cost of defection is higher than the platform margin.

Airbnb did this beautifully: they set up insurance for all their hosts, and so were able to frame "stay on our platform" as a safety directive.

You can also go the opposite way, but that usually leads to user-hostile antipatterns. E.g., Freelancer tries to detect all the ways folks might send each other phone numbers on their messaging service. This is both annoying and easy to circumvent.

If your rate of defection is high enough, no amount of tactical tricks will save you. Incentive and ingenuity together are too much.

When you're small and still have structural degrees of freedom, target the incentive by adding value to your offering if you can. If the problem only appears when you're big, you may have the resources to play whack-a-mole.

If you're small, have high defection rates, and also can't economically add value to your offering - it's time to move into another line of business.

[TrackerFF]

Yes, you even see this on marketplaces like Ebay, etc. Once you've established a relationship with some buyer / seller, it doesn't take long before said marketplace gets cut out from the equation.

I sell a lot of expensive stuff on the web, and I'd say 80% of my buyers are repeat buyers that started contacting me through mail after a couple of deals.

[asfarley]

Upwork (formerly elance) is a good example of a platform which could leverage the relationship by providing better intermediary services (like dispute resolution). In practice, they don’t, and there is no real reason not to defect.

[st1ck]

From guest point of view, Airbnb defection defense is pretty annoying, as it doesn't let you post URLs, addresses, or phone numbers prior to booking. Also pretty easy to circumvent.

[novok]

How does supply side defection work for airbnb except in very edge cases, such as a long term rental. Even then it turns into something like apartments.com

[htfu]

Well it's pretty much driven by customers but same diff really. People who book a night or two then realize they want to extend and ask to pay cash, mostly. Someone who's already stayed with you just texting the next time, etc.

It works since Airbnb is mostly there to hook you up and protect from crazy people's wanton destruction, so once you know you're dealing with safe people and you've gotten the review, eh.

Wouldn't really be worth the penny-pinching, except people tend to forget about the long-term booking discounts and actually end up paying more than they would've just using airbnb.

[edouard-harris]

That's exactly how it works. The fact that it's an edge case on Airbnb is what makes the resulting churn survivable.

[encoderer]

I wonder if it would help to rank a provider based on retention and CSAT and give more incoming leads to providers with more in-app retention?

[stri8ed]

How would you rank UpWork in this respect?

[wolco]

Upwork offers payment platform/record keeping and will dole out harsh punishments if caught leaving.

That's the value they provide and the stick. It works because trusting third world developers is hard. It fails for more local developers.

[IAmGraydon]

Not only that, I’m amazed that VCs call the awful ads they tested “marketing”. What they created is simple, uncompetitive, uncreative advertising, and that kind of thing doesn’t stand a chance in today’s world. Of course it performed terribly. Marketing today takes just as much creativity as the product you’re selling. Actually, I would argue it takes more in many cases. It’s like building a race car and putting low grade gas in the tank. Theres a surprising lack of business acumen here.

[anstosa]

We specifically avoid "creative" ads. We know how to make ads more effective but that's for when we have a business we're trying to grow, not for when we are trying to determine if there's a business at all. We want to distill a very specific value proposition and target demographic in each ad. If the value prop resonates, they will click and they will convert regardless of ad "creativity". If we were just trying to juice numbers, we wouldn't learn anything whether and which value propositions are effective.

- Ansel from PSL

[xmprt]

That's why they accounted for much higher CTRs in the long run by optimizing the ads. Also, I'm no expert but I would imagine you shouldn't base your market research on getting lucky with a viral ad.

[briandear]

If the ads were higher quality, the click through would improve but conversions wouldn’t. So it would drive up the acquisition costs even more — further making the point that this was a loser idea.

[lerchmo]

Hmm, this is not how improving ads has ever worked for me. Better ads = better performance.

[rchaud]

higher clickthroughs to the landing page would have zero incremental effect on conversions? How do you figure that?

why would anyone bother to A/B test ad copy or landing page CTAs if this were true?

[smallgovt]

Can you clarify what you mean by "supply and demand matching is terrible" for dog walking platforms?

It seems like if the primary qualifier on marketplace success is the ease at which two parties can cut out the platform, dog walking would not pass.

[edouard-harris]

Perhaps surprisingly, dog walking platforms like Rover do experience alarming levels of defection (when participants do a side deal and cut out the platform). The dynamic seems to be that you generally take your dog out for a walk at a similar time every day, and this regularity (and comfort with a specific dog walker that you've grown to trust) leads to more frequent defections.

[vi-mode]

Just wrote a similar piece like yours which brought up another thought: Do you think disintermediation is solvable when it's a BTB (so all parties are businesses) and you put heavy penalties on disintermediation?

[nunez]

How do you explain Angie’s List then?

[thehappypm]

Two things come to mind (as a homeowner of a fixer-upper).

First, a lot of home repair (not all, but a lot) is small, simple, and fairly commoditized. I used Homeadvisor last week, for example, to repair a broken window, and I wanted it fixed basically as soon as possible. I really just needed a guy with the tools to come in and do the job fast, and Homeadvisor found me that guy quickly.

Second, it's hard to find a good contractor. I'm on my third or fourth plumbing change right now, and have used different plumbers each time. They were all fine, but I haven't yet found someone who I'd absolutely call first. Homeadvisor gets my business until that person comes along.

[tapland]

Don't they also live off once in a while kind of things? A plumber once through the site is a much larger chunk of $ even if I call the same plumber the next time.

[briandear]

I don’t have a regular “Sheetrock repair guy.”