More and more enterprise businesses have embraced multi-sided marketplaces to extend existing business models and explore new territories for growth. For example, in 2009, Walmart launched its own Marketplace to connect third-party merchants with Walmart customers partly to catch up with Amazon’s already established third-party marketplace. General Motors launched Maven, a peer-to-peer marketplace that connects owners of GM cars with people who need to rent cars. By combining the right approach with measured investment and patience, enterprises can gain traction with multi-sided marketplaces. (According to new research from Jumpshot, Walmart’s marketplace is growing 3.5 times faster year-over-year than Amazon.)
But marketplaces can create disruption inside a company, and affect the roles, responsibilities, and processes that govern existing business models. It’s important that anyone thinking of launching a marketplace thoroughly tests their viability, feasibility, and lovability with customers in order to mitigate the risk and cost of building a marketplace – which is one reason why a design sprint is essential.
Applying a design sprint to discover the potential of a marketplace requires a product team to understand both the distinct challenges and the opportunities that marketplaces create. I suggest product teams take a reasoned, well-informed approach that incorporates the essential elements of a four-day design sprint, and go into the process with a clear-eyed understanding of the challenges. In my experience, at a minimum, product teams should:
Identify the Inherent Challenges and Risks
A marketplace can involve major change to a company’s culture, affecting everything from job roles to incentive structures. Marketplaces typically create more transparency around price and product partly because consumers gain access to more vendors and products to compare through a vast digital inventory. Transparency is good – but transparency challenges a business in many ways. In the automotive industry, dealership salespeople are now struggling to keep pace with consumers, who often walk on to a dealership’s lot as well informed as the dealership’s staff, thanks to the power of marketplaces. These challenges inevitably create pushback for a product team. Your design sprint should flag these potential issues openly as essential inputs to the design of your prototype and weigh them against the potential reward your marketplace will deliver.
Ask the Right Questions Upfront
As with any design sprint, the product team should ask the right questions that the sprint will answer. Many of them are transferable from the launch of any minimum lovable product (MLP). But some are distinct to marketplaces. For example:
Do you tackle the supply or demand side first (ie the chicken or the egg)?
Let’s say you’re designing a marketplace that connects suppliers of home rental equipment (ie assets) efficiently with customers. Do you build your prototype to focus first on the needs of the suppliers or the buyers? In this regard, enterprises that already own assets have an advantage because they can test a question like this using their own assets. In our experience of using design sprints to discover and design multi-sided marketplaces, if the enterprise lacks a clear answer for which side to start with, the general rule of thumb is to first address the demand side.
A core principle of launching products that customers love (ie the MLP mindset), is to never short-change the customer experience. To work within the constraints of the business, consider supporting the marketplace with manual efforts while the experience proves its value. (Here’s a great example of how Zappos delivered a lovable experience with manual processes behind the scenes.) In our home rental equipment example, focus first on making the renting experience lovable for customers. When the enterprise scales the marketplace to incorporate assets from other companies, you can then focus on making the supply-side experience as lovable as possible. Making both the demand and supply-side experiences lovable will drive network effect.
How will you engender trust and transparency?
Trust and transparency are essential for any marketplace to flourish. As I’ve noted, one of the reasons that marketplaces have succeeded is because they give consumers far more transparency than they ever had before. And such transparency leads to trust, although trust requires that the marketplace execute on many other aspects well, such as timely product fulfillment. The MLP of your marketplace will need to engender trust and transparency, or it’s not going to survive first contact with your customers.
Understand That One Sprint Won’t Be Enough
Multi-sided marketplaces have multiple users on both the demand and supply side. It’s highly unlikely that one design sprint will be adequate to address the needs of both sides. You’ll probably need to do one sprint to create an initial MLP prototype that addresses your initial challenge and opportunity. Then conduct iteration sprints to hone the experience of the demand side before running a four-day design sprint on the supply side. At a minimum, you need to do two design sprints to test the impact of your prototype on both the demand and supply sides.
Marketplaces are no casual endeavor, but they offer tremendous potential to enterprises in many verticals. (I agree with NfX’s take that market networks, the coming together of marketplaces and social networks, will drive significant value over the next 10 years). If you are considering building one, it’s absolutely essential to manage the cost and risk from the start.