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: