Casey Winters explains how to build liquidity in low-frequency marketplaces where transactions happen rarely. He covers defining liquidity, measuring it with metrics like Grubhub's restaurant orders and Airbnb trip ratings, and when to rely on qualitative signals instead of transaction frequency.
Chapters
Would love to just understand a little bit about any tips for earlier stage, lower frequency marketplaces in terms of how to build out and growing that network.
So I don't think there's relatively much different in building out the initial network for like a low frequency business versus anything else. You're trying to understand what liquidity looks like and basically what liquidity looks like in any marketplace is always the same, which is What amount of value is created that will get supply and demand to happily engage and then feel good about that, you know, that engagement with the marketplace? And then when that happens, like, how do you measure that it actually was successful. And hopefully at least one side has a higher frequency component. So in a lot of low-frequency marketplaces, it's really only one side that's low frequency, which is the demand side. Supply side's actually getting, you know, business all the time. Sometimes that's not the case, like buying and selling a car. Of course, I'm sure there are power sellers in car marketplaces, but I've never really spent time on it. So the trick with all of this for all marketplaces Is that metric that indicates you've hit liquidity on supply and demand is kind of a custom metric for every business. It's always kind of related to first conversion and then some amount of conversion on one side. So like to take the Grubhub example, it was, we had to get restaurants to 2 orders a day. And if we got them to 2 orders a day, they would never churn voluntarily. They might go out of business because that happens in small businesses, right? But like, We got them 2 orders a day. That was very meaningful incremental revenue. And delivery is, despite what you hear in the press, highly profitable for restaurants because they can always pump out additional food in this fixed space that they're paying rent for. And then it turned out, Grubhub being a higher frequency marketplace, we need to get someone to order again for a second time in the first month. To say we really unlocked product market fit on the demand side. So then you see those 2 metrics in a market and then you're like, cool, we're ready to scale up restaurants, we're ready to scale up more users. So nothing's fundamentally different to me about low frequency marketplaces, except you might only get that frequency signal on one side or maybe zero sides. And if you're not getting the frequency signal, you need to have a qualitative measure of success. So like for apartments.com, which is really low frequency on the demand side, right? We had to make sure they actually found their place. So we had to get the signal on, did you find your place through us? And did you actually make the move? And did you feel like you got good results? So a bit more qualitative survey-based approach. And then on the supply side, we measured the volume of leads that we sent them basically. And then every year we went and tried to charge them higher prices for those leads. And if we were able to charge them higher monthly fees for the amount of leads, we knew that it was working. So kind of our annual retention rate at higher prices was how we thought about that. So yeah, what's tricky with some of these just offline marketplaces in general is sometimes the real signal of like that was a valuable transaction happens offline and you need to find some way to try to qualitatively get that signal back, right? So for Airbnb, It was rating the trip. It's incredibly important on the demand side. That was the primary signal. And we had goals for that, basically.
