I have long been interested in the fine line that often divides marketplaces and buying guides, a topic that I am sure keeps all of us up at night at least every so often. A string of recent new website announcements has me back thinking about this again.
As I see the world, a buying guide exists to help you find a source of supply (e.g. rubber gaskets) and a marketplace helps you find a specific item for sale. Buying guides are designed to introduce buyers and sellers. Marketplaces are transactional, designed to get things sold.
Buying guides, which have their roots in traditional yellow pages, tend to be advertising-based. Marketplaces prefer to get paid a percentage of each sale they effectuate. Generally, getting a piece of the action is seen as a much more attractive revenue model than advertising (think eBay). That’s why even old-line yellow pages publishers such as Yell are trying to pivot to become marketplaces. As a general rule though, marketplaces designed for existing markets tend to be highly disruptive, making it hard for them to get traction. Create your own market, however (think Airbnb), and getting traction becomes a lot easier.
And whether buying guide or marketplace, traction determines whether you succeed or fail. All marketplaces and all buying guides need to bring together enough buyers and sellers to be viable. Let’s look at two recent launches:
Archability is a new hybrid buying guide for architectural services. I say hybrid because in addition to directory listings of architects, it also allows buyers to post projects to which architects will respond. This is an efficient hybrid because sellers can get a stream of qualified prospects and buyers can post their needs without a lot of work to identify the architect who meets their exact needs. Critical to any marketplace, Archability stays in the middle of the transaction all the way through (don’t expect to get commissions on transactions you don’t know about), in part through a clever escrow service it offers. And while this is an existing market, Archability isn’t displacing any current industry players, just functioning as a lead generation service, so market resistance should be limited. If Archability can get enough buyers and sellers in the room, this looks like a strong concept to me.
Now consider another start-up, PlaneFinder.com. Got an unused leg on your private jet? Post it on PlaneFinder and sell it to someone. Conversely (just like Archability), buyers can post that they’d like to hop a jet between Point A and Point B on a specific date and wait for a response from an interested jet owner. It’s a useful concept, but I see two concerns. First, PlaneFinder is a marketplace that acts like a buying guide. By that I mean, it makes the introduction and steps out of the transaction. Convenient for all parties to be sure, but not a great way to assure payment. Second, I worry about traction. Aircraft flights are perishable. That makes it even harder to have enough interested buyers and sellers in the room at the same time. And you need a lot of buyers to assure you can move that Boise to Tampa flight leaving on Thursday. Which also means you need a lot of flights, all the time. When buyers and sellers go away unsatisfied, they tend to go away for good. While I like the idea, you not only need a lot of buyers (a given), you also need an extremely large inventory of flights at all times (an unusually steep hurdle).
Lesson learned: for buying guides thinking of adding a transaction side, remember that transactional businesses are different and hard. While the term “marketplace” is widely used and badly abused, you’ve got to have buyers and things for sale immediately; there’s no option of slow growth, results (or lack thereof) are easily discerned, and there is no ability to finesse low participation levels. If you’re up for the challenge, the prize is worth it. If not, maybe a hybrid model is worth exploring.