#10 5 Dimensions for Evaluating Marketplace Supply
Not all marketplace supply is created equal. Here are 5 dimensions to consider when characterizing marketplace supply and evaluating a startup’s supply strategy:
Commoditized vs. Differentiated vs. Proprietary Supply
Commoditized supply is supply that is interchangeable because customers are indifferent to who the supplier is as long as it meets their needs. In consumer, Uber is an oft cited example of a commodity supply marketplace as customers don’t care who the driver is, as long as they are on time and driven safely. In B2B marketplaces, commodity marketplaces in energy and metals are good examples (e.g., FuelMe, Reibus). For commoditized marketplaces, price and convenience are drivers of satisfaction – which requires a certain amount of listing depth, but additional listings stop adding incremental value after a min threshold is met. (e.g., as a purchaser of fuel you don’t care if there are 3 suppliers or 100 suppliers on the platform as long as there’s enough so that you feel good about price and delivery lead times). Overcrowding of supply can actually have a negative impact on these marketplaces, as it can create too many choices (see paradox of choice) and lead to suppliers not getting enough business to maintain a commitment to a platform. Within the landscape of marketplaces, commodity marketplaces are the hardest to defend competitively – it is traditionally easier for competition to copy / enter a space, suppliers and buyers switching costs are lower, and competition can create downward pricing pressure, making it hard to protect margins.
Differentiated supply is supply where each listing and supplier is dissimilar. The classic example here is AirBnB. Every supply side listing is a little bit different, and every additional listing adds unique value to the platform. Here depth has infinite potential value-add as long as you can manage the matching process efficiently for buyers and sellers. In B2B marketplaces an example is Faire. In general, differentiated marketplaces tend to be valued higher than commodity marketplaces.
Proprietary / Exclusive supply is supply that can exclusively be found on a platform. This is the highest valued supply. It is capital intensive to scale proprietary supply that is vertically integrated if it involves buying inventory, it is far more interesting if a startup succeeds in getting exclusive contracts or is in effect the only online distributor for a good or service. Netflix is an example of this in the content space – by producing original shows and movies, Netflix ensures that this content is only available on its platform, effectively locking in viewers who seek access to these titles.
Presence of multi-tenanting
Related to the above, multi-tenanting (the practice of sellers listing on multiple websites) is a negative signal when evaluating marketplace supply. It happens – Uber drivers also drive for Lyft, companies posting on jobs marketplaces often list on multiple platforms, sellers in general are reluctant to rely on a single channel for distribution.
Fragmentation
Marketplaces where there is greater fragmentation of supply are more valuable and defensible. We’ve written about this previously, but it’s worth mentioning again as it’s a key aspect of evaluating supply.
Comprehensiveness vs. Curation
Another lens that you can view supply strategy in is comprehensiveness vs. curation. Comprehensive marketplaces aim to capture 100% of supply vs. curated marketplaces seek to only serve a segment of supply, often the high end. I would argue comprehensiveness beats curation 90% of the time – e.g., DoorDash vs. Caviar or Amazon Clothing vs. Farfetch. Curation is hard to scale and defend – over the long-term a comprehensive marketplace can “feel” curated with matching algorithms and segmented sub-brands (e.g., Banana, Gap, Old Navy). The ability to create a curated experience with comprehensive supply is only easier today, thanks to AI. It’s worth noting that as of today, DoorDash is valued at $75B, Caviar was initially acquired by Square in 2014 for $100M in Square stock and eventually acquired by DoorDash in 2019 for $410M in cash + stock. Amazon Clothing did $56B in US sales in 2023 vs. Farfetch global sales were $2B in 2024.
Quality
It’s worth mentioning that even for marketplaces with unique listings, more is not always more. Bad supply can actually detract from marketplace value. We can borrow a useful framework for evaluating the quality of new supply from social media networks – “contaminants” are supply that degrades the buyer experience (e.g., trolls in social media, or supply that results in returns in commerce), “neutrals” are supply that has no impact (e.g., lurkers in social media or supply with 0 sales in commerce), and “contributors” are supply that actually drives transaction volume (e.g., anyone with successful transactions in commerce). Measuring sell-through rate as a KPI is a good way to gauge overall listing quality, and set goals for continuous improvement.
Did we miss a measure? Are you building a marketplace with differentiated, comprehensive supply? If so, we’d love to connect! (contact@snak.vc)
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What We’re Reading
Will that Marketplace Succeed? - HBR article from last year that’s worth a re-read. In short, the most successful marketplaces don’t just make existing markets more efficient, they expand markets by unlocking untapped supply. - link
Marketplace Memo #7 - Colin Gardiner from Yonder VC’s latest post pays tribute to Craigslist’s staying power
Why Specialists Will Win the Next Decade of Venture - written from a LP perspective and supported by data, this article makes the argument for specialist funds. (This is a little self-serving as SNAK is definitively a specialist fund – we agree and think specializing is the best way to create value for founders and LPs.) - link