Key Takeaways

• Spend alone probably won’t win long-term.  Your platform needs to do a better job of value creation & distribution.
• Not all network effects are created equal. Poor retention & high competition is a sign that your incentives are misaligned or the balance is off.
• Your platform needs to constantly run towards new tech or it will eventually suffer from rapidly evolving tech that new competition embraces.

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Learn from Uber's loss.

In early 2016, Uber & Didi’s war in China became a bloodbath. Both companies were deploying insane amounts of promos and incentives in order to beat the other out of the huge Chinese rideshare market. At Uber, we were burning $30m+ per week in incentives alone just to trade a few points of market share. How did we get there? A simplified view of how you win a market. Some learnings 👇

Although they won’t admit it, most marketplace platforms want to be the winner in a ‘winner-takes-all’ market. Everyone wants to be the Amazon of US eCommerce, the Google of search, the Instagram of social, the 2017 Didi of China ridesharing. As you can probably guess, it’s a lot more complicated than that. Most markets subject to internal and external forces that keep them in constant flux. They don’t stay ‘won,’ if they ever were.

First, spend alone probably won’t win long-term. You might be able to achieve temporary dominance but eventually other factors will catch up and overtake your marketplace. In 2016, Uber sold its China business to Didi on its way to a $2.8b loss that year. After that, Didi dominated the market with a 90% share of all rideshare business. It looked fairly unassailable. But spend can only win short-term.

Without some sustainable structural advantage like compounding network effects, astronomical fixed costs or barriers to entry, no marketplace company will continue to 'win' despite how much they're willing to spend. Didi was unable to prevent Meituan & more recently Alibaba- & Tencent- backed T3, Caocao & AA Chuxing from emerging and competing. (Share is currently down to 75%). 

‍Second, not all network effects are created equal. Ideally in rideshare, more riders means more supply means faster pickup times means better product means more riders. But that's not quite what happens in reality. The problem is, rideshare supply is limited (unlike say 2 people watching the same Youtube video at the same time). Supply doesn't react fast enough to increased demand. More demand during peak times actually degrades the experience for other riders and in that moment, and users check competing platforms.

The same isn’t true for Youtube’s network. Large numbers of people can watch the same video at the same time and experience no compromise in the experience. An Amazon competitor can't even challenge Amazon on 1-day delivery to begin with without investing tens of billions in infrastructure. If your package is delayed, you can't easily jump to a competing platform to get it faster.

Even the strongest moats must evolve. Artillery rendered walls & moats obsolete. Facebook felt unassailable, enter TikTok’s short-form content. Google search could be eroded by ChatGPT. However great your network effect, however high & costly your barriers to entry, tech inevitably finds a way to do things more efficiently & with lower transaction costs. Consumers follow. There’s a reason TSMC is tripling down investment despite being miles ahead in the chip wars. 

How your marketplace can take action on what we've learned. 

At the end of the day, two things are critical for marketplaces to ‘win.’

First, your platform needs to do a better job of value creation & distribution (who gets what between the user, platform, and suppliers) than your competitors. Network effects help here. Poor retention & high competition is a sign that your incentives are misaligned or the balance is off. Village offers a comprehensive, simple to setup suite of products to get your incentives on point and delivering value to everyone in your marketplace network.

Second, your platform needs to constantly run towards new tech, even when it risks disrupting that delicate balance. Youtube’s 35-45% take rate may feel high, but it’s a no-brainer for creators when you consider the traffic generated by search and their algorithms. Google sleeping on AI could disrupt that model though. Village employs cutting edge technology to give your marketplace platform a structural advantage over competitors in the space.

Here at Village, we spend everyday thinking about how marketplace platforms can better align incentives & embed structural advantages. Our groundbreaking tech also happens to be a disruption vector. We’re starting to see more and more marketplaces platforms run towards it.