Questions

There's so many different examples from Airbnb (12% host, 3% to renter), Uber (~15% to driver) to Craigslist (freemium w/ paid placement + posting) for pricing a marketplace. Is there a framework to follow when thinking through this model? Is there different pricing sensitivities per marketplace type (heavily curated vs. more open)?

There is a great article about this written by Bill Gurley.
http://abovethecrowd.com/2013/04/18/a-rake-too-far-optimal-platformpricing-strategy/.

Basically price is a friction factor in a marketplace. So you need to balance it in a way that creates less friction (lower prices) and at the same time keep your business profitable.

Basically there are several factors that determine the business model:
- Who pays. Generally the side that gets the most value should be charged, however some platforms split the payments between both sides.
- Marginal costs. If producing a good or service for your supply takes a lot of time or effort it will be hard to charge a high percentage for this. Think Etsy, suppliers need to buy material and craft a product.

At the same time if a product can be easily reproduced or resold, you can charge a higher percentage (e.g. ilustrations, templates, songs, apps). If you add to this a platform with big power percentage can be really high ( Apple appstore: 30%, Shutterstock: 70%. This is also why music creators hate Spotify as you need 336 842 plays to earn US minimum wage.

- Frequency and size of transactions
Typically the frequency and size of transactions are correlated. The larger the size of the transaction the lower the frequency.

Uber, for instance, has a huge frequency however each transaction is small. Airbnb, on the other hand, has a much lower frequency yet the size of the transaction is larger.

- Other revenue streams
You may also lower your transaction cost by implementing additional revenue streams like listing fees in case of Etsy.

- Market Position
Generally the stronger the market position of your marketplace the higher fee you can charge for this. However, this inevitably attracts competition.

Generally, there is no set rule for pricing you need to "figure it our" by experimenting or use a product like Priceintelligently that can help you out.


Answered 3 years ago

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