The Intersection of Marketplaces and User Engagement: Building Sustainable Growth

The Intersection of Marketplaces and User Engagement: Building Sustainable Growth

Introduction:

In the world of marketplaces and product growth, two key factors play a vital role: user happiness and engagement. The success of marketplaces lies in their ability to make buyers and sellers happier than any substitute, while user engagement is the foundation upon which a product thrives. In this article, we will explore the hierarchy of marketplaces and the importance of core actions in driving sustainable growth.

The Hierarchy of Marketplaces:

When it comes to marketplaces, the size of the market may seem like the ultimate goal. However, focusing solely on gross merchandise value (GMV) can lead you astray. GMV is merely a vanity metric that doesn't capture the enduring value a marketplace creates. Instead, the key to success lies in making buyers and sellers genuinely happier than any alternative.

The notion of happiness as a moat becomes apparent when we consider growth. By pursuing happiness, a marketplace can achieve meaningful growth. Therefore, the goal should be to increase the average level of happiness per transaction, rather than fixating on scale alone. A new entrant can always disrupt even the largest incumbents if they can offer a better experience.

Choosing the Right Market:

Marketplace founders must possess a keen understanding of which opportunities to pursue and how to sequence their actions. While it may be tempting to target a large market, focusing on a narrow cross-section of your cohorts can often yield better results. By identifying the use cases or markets that retain the best, founders can double down on those areas, ensuring a higher probability of success.

Net Revenue Retention and Minimum Viable Happiness:

Measuring user happiness is no easy task, but "net revenue retention" emerges as a valuable metric. While not perfect, it offers insights into whether users are finding value in the marketplace. Net Promoter Score (NPS), though widely used, may not provide a comprehensive understanding of user satisfaction. However, it is crucial to recognize that happiness is a dynamic measure that relies on relative expectations and available substitutes. Constant vigilance is required to ensure sustained happiness among users.

The Importance of Core Actions:

In the realm of user engagement, growing the number of users without ensuring that they complete the core action is akin to empty calories. To achieve sustainable growth, it is essential to define and optimize for the core action of your product. For example, Pinterest relies on users pinning, while Twitter thrives on users tweeting. These core actions form the foundation and essence of the product.

Furthermore, user engagement extends beyond completing the core action. In the case of Twitter, it is vital to have users who read and engage with tweets, follow other users, and interact through likes and replies. A positive new user experience is also critical to ensure users understand the core action and how to participate effectively. Simply focusing on increasing the overall number of users will be futile if the number of users completing the core action fails to grow concurrently.

Actionable Advice:

• 1. Prioritize user happiness: Instead of chasing scale, concentrate on making buyers and sellers genuinely happier than any substitute. By creating enduring value, your marketplace can stand out and disrupt even the largest incumbents.

• 2. Define and optimize for core actions: Identify the core action of your product and ensure that users not only complete it but also engage with it. This engagement will drive sustained growth and prevent your product's momentum from fizzling out.

• 3. Measure user satisfaction attentively: While metrics like net revenue retention offer valuable insights, it is crucial to constantly monitor and adapt to changing expectations and available alternatives. Keep an eye on user happiness and make adjustments to maintain a high level of satisfaction.

Conclusion:

In the world of marketplaces and user engagement, sustainable growth lies at the intersection of user happiness and core actions. By prioritizing happiness over scale, marketplace founders can create enduring value and disrupt the market. Simultaneously, focusing on core actions and ensuring user engagement with them drives sustainable growth. By measuring user satisfaction diligently, marketplace operators can make informed decisions to enhance happiness and continuously improve their offerings. Remember, true success lies not in the size of the market but in the happiness and engagement of your users.