The Supply Features Trap Of Marketplaces

This post was originally posted on Reforge.

Two of the biggest challenges for a marketplace involve suppliers: acquiring them in the first place and keeping them long-term.

As a result, product leaders in marketplaces are constantly asking themselves how they can make their value proposition to suppliers more attractive and more competitive. While there are many ways to answer this question, there is one answer that is meaningfully more important than the rest: demand.

However, time and time again, product teams in marketplaces end up investing too much time into features that ultimately won’t be the differentiating factor for a supplier staying in the marketplace. And at the opportunity cost of investing time and resources into the core marketplace value proposition.

Let's dive into why  this happens and how you can build your marketplace without falling into this trap.

Why Marketplaces Build Supply Features

At a high level, there are three main motivations marketplaces have for building supply-side features.

1. Make the Marketplace Work

The first reason is that the feature is table-stakes; your marketplace doesn’t work without it or it is part of the baseline expectations suppliers will have about participating in your marketplace. For example, any marketplace that includes booking, such as Airbnb or Turo, requires a calendar function. Craigslist requires messaging; figuring out when and where to pick up an item is core to successfully completing the marketplace use case. If you are entering a market with a prominent competitor, their feature set might be part of the basic expectations suppliers have, and so you’ll need to build them to be competitive.

2. Fuel the Marketplace Flywheel

The second reason to build a feature is to fuel the marketplace flywheel. There are a few different ways a supply-side feature can do this.

  1. Help suppliers drive more demand to the marketplace. For example, consider a built-in feature that lets suppliers email their customers. That feature may bring more of those customers on to the marketplace, eventually increasing marketplace transactions.
  2. Make it easier for suppliers to put more supply on the marketplace. Marketplaces can incentivize their suppliers to provide even more supply to the marketplace by increasing the value or reducing the cost of adding more supply. For instance, an inventory management system may make it so easy to upload and sell items, and increase the share of inventory that suppliers offer and sell through the marketplace.
  3. Unlock a whole new set of suppliers. This type of feature makes it possible for new types of suppliers to participate in the marketplace. For example, Lyft has a program that enables potential drivers to rent a car through Hertz and Flexdrive. This opens up a whole new set of potential supply that can be tapped as drivers for Lyft.  
  4. Help suppliers grow their business. When suppliers have more resilient and thriving businesses, the marketplace benefits because suppliers are able to provide quality services to more consumers. For example, DoorDash has a program called DoorDash Capital, where restaurants can get an advance on their payments in order to invest in their business. Restaurants can “pay employees, cover unexpected expenses, upgrade equipment, and more.”

3. Create a SaaS value proposition

The last reason to build a feature is to create a SaaS-like value proposition for your suppliers. There are a few specific reasons marketplaces leverage a SaaS-like value proposition: to buy time when demand is not available as a value proposition, to add an additional revenue stream to the business, and to make it easier for suppliers to run their business.

OpenTable, for example, couldn’t offer demand as a value proposition for restaurants in the beginning. They started with a table management system that really helped restaurants improve their efficiency. This enabled them to acquire a quantity and density of suppliers that made the marketplace value proposition possible.

Etsy, on the other hand, has features that are bundled together in a subscription product. Sellers can pay a recurring fee for access to features like ads, shop customizations, and the ability for users to request re-stocks. Finally, SaaS-like features can resolve a pain point that suppliers have in running their business. For example,  the product team at Eventbrite invested in reporting tools for suppliers to make that part of the work more efficient, helping creators focus more of their energy on organizing great events.

While all of these can be strong reasons to start building a supply-side feature, the mistake marketplaces often run into is over-indexing on features that are mainly driven by a SaaS-like value proposition. In a marketplace, it’s critical to realize that features have to benefit suppliers and the marketplace rather than just suppliers directly.

The Supply-Feature Trap

It can be very easy to fall into the trap that supply features create: you keep investing in the feature, and end up focusing on a SaaS-like value proposition. This means you are trying to deliver efficiency or service improvements, and your competition landscape grows tremendously. This comes at the cost of focusing on creating more marketplace activity through incremental demand, and enhancing marketplace liquidity. And that is truly the biggest value add for the suppliers.

This happens because when you first develop a feature, the decisions you make are focused on ensuring that the feature works, is used, and is liked by users. If you can’t achieve that, it's certainly not going to drive larger marketplace goals. But without intentional adjustment, as the feature matures, you can fall into a cycle of continuing to invest primarily in the SaaS value proposition.

Whether you’re just starting on a new feature or realize you might be in the trap, there are a few things you can do to avoid over-investment in supplier features.

How to Build Features That Tie Back to Marketplace Value

There are three levers product leaders can use, separately or together, to build a marketplace where features tie back to marketplace value.

  1. Metrics: Evolve the feature metrics to focus on marketplace value
  2. Team charters: Leverage a product team charter to confirm the team is headed in the right direction
  3. Product organizational structure: Ensure teams are focused on outcomes or user problems, rather than features

Evolve the feature metrics to focus on marketplace value

When a feature is being developed, there is a typical life cycle of metrics it follows. In the beginning, the metrics focus on ensuring the feature works, measuring things such as usage, usability and satisfaction. This is a good start to ensure that the feature is viable. Then, once you have confidence the feature works, the feature success needs to be connected back to the reasons you choose to build it in the first place.

There are three categories of metrics you can use to focus the feature on marketplace value:

  • How the feature increases demand
  • How the feature increases supply
  • How the feature benefits liquidity (creates more activity in the marketplace)

We can consider three different features at three different marketplaces to showcase how evolving metrics helps features connect and drive marketplace value.

Email marketing tool at Eventbrite

Eventbrite developed an email marketing tool that allowed event creators to email their audience through Eventbrite, as many creators needed help marketing their events.

In the beginning, the team measured how many creators were using the tool and how many emails were sent. This aligned naturally with the focus on achieving the required functionality and experience that would get creators to use the tool.

The team did a tremendous job improving and enhancing the tool based on insight and feedback. But at some point, product leaders began to question whether each iteration of the tool was driving increased marketplace value. To avoid just thinking about the email tool as a feature that increases supply stickiness and retention, the team needed to shift focus.

So, the team needed to evolve the metrics to connect back to driving demand and liquidity. For example, looking at how much incremental demand and ticket sales are generated by creator campaigns sent through Eventbrite. Or, what part of that demand ends up buying a ticket to a different event on the marketplace.

Inventory management system at Faire

Faire is a wholesale marketplace for retailers and brands, and they have an inventory management system for its suppliers. When first building a tool like this, metrics like supplier satisfaction with inventory management could be a classic starting point to ensure the feature has functionality and user experiences that enable suppliers to use it successfully.

However, metrics should quickly evolve to focus on the desired marketplace outcome: how the system supports supply growth and liquidity. Evolving metrics could orient the product work on outcomes like how much inventory suppliers add to Faire and how much gross merchandise value is driven as a result.

Performance analytics at Amazon

Amazon has a robust Brand Analytics toolkit available for suppliers. While supplier satisfaction and usage of the tool are necessary, it's not sufficient for marketplace value.

The true value is in how the product helps suppliers succeed on the marketplace: by encouraging sellers to use Amazon ads effectively, informing pricing decisions and deals, and even supporting decisions about which product to add to their portfolio.

Evolving the metrics can be a helpful tool to refocus the team or product manager on what is important about the feature in relation to the marketplace. If you’re just starting out with a feature, having a strong hypothesis of what the future metrics will be should be part of your case for building the feature in the first place.

If you are finding that you have features that are mature and still aiming for usage and satisfaction, you should go through the exercise of understanding how they should support the marketplace and start measuring that.

Leverage a product team charter to connect to the marketplace value

A product team charter is a short document where a team recasts their understanding of the team goal and how it connects to the company strategy. So in any business model, it can be an effective tool to ensure the team’s scope and objectives are well-defined and in line with the business goals. However, it is even more effective and helpful for product leaders that are balancing a lot of complexity.

Reviewing a team charter can be a quick gut-check on if the team is connecting to marketplace value or is pursuing feature excellence in more of a silo.

For example, a product team that is building the email marketing tool for an events marketplace should not be trying to build the best marketing product hands down. Immediately from that goal, a product leader can see the feature is not going to be focused on driving marketplace value.

A closer version of the product team goal could be to build the best tool for event creators, as it narrows the scope to be effective for the target suppliers, but it still does not explicitly show the connection to the ultimate marketplace value that should be driven by the feature.

An example of what might be a more nuanced goal for this team is: Build the best marketing tool for event creators that enable them to attract new demand to our marketplace. This provides constraints to ensure that the team is focused on the right target audience and working in service of a marketplace value proposition.

One of the best reasons to leverage a team charter is it forces each product manager to develop the habit of thinking in service to the marketplace and working backward from outcomes.

Especially as the marketplace scales, it will be critical to have product managers who are able to critically analyze the value of their work, raise flags if features are potentially moving too far away from delivering marketplace value, and come up with creative ideas for the marketplace that are not restricted to specific features.

Ensure teams are focused on outcomes or user problems, rather than features

Finally, product leaders can use organizational structure to reinforce the target behaviors and mindset within a team.

Individual product teams, regardless of if they are organized by alignment to stakeholders (supply side or demand side), value drivers, or steps in the user journey, should never be exclusively responsible for a feature.

While it might seem like the fastest or easiest way to get a feature working, putting a product team on a feature creates a laser focus on how to create the best version of that feature. Instead, product leaders should focus teams on a goal or user problem, and the feature can be a part of the product roadmap to achieve the goal or solve the problem.

“No team should be dedicated to a feature. Teams should align to goals or user problems.”

— Ben Lauzier, former VP of Product at Thumbtack

At Lyft, for example, they created a team around the “scheduled rides” feature. This is a feature where a potential rider can book a driver in advance, for a certain time, location, and destination. While the initial goal was to prioritize the ability to reliably schedule rides, the team quickly ended up in a spot where they were shipping features with minimal impact on the marketplace.

Orienting a team around a goal or user problem is a forcing function for them to think about trade-offs around value, rather than trade-offs around supplier satisfaction.

Once the scheduled rides team realized they had lost sight of the original user problem, they went back to first principles: they oriented around a core user problem and found meaningful unlocks in new areas.

Maximizing Marketplace Value From Supplier Features

There are many strong reasons to build features for suppliers, but unlike in a SaaS business, it is critical for marketplace product leaders to be aware of how much they are investing in those features and to constantly evaluate the value those features are driving toward marketplace value.

Product leaders can rely on evolving metrics to connect to marketplace value, tasking product managers to be diligent about their mission statement in a team charter, and ensuring product teams are aligned around outcomes. These different levers help ensure you are building a marketplace that is set up for success, and they can also help you get out of a situation of over-investment.

To dive deeper on how different features could connect to growth and business value, you can apply to Reforge and check out the Growth Series program.