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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

The costs of scaling up a marketplace

17 STEFANO VIRGILLI
17 STEFANO VIRGILLI
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Scaling up an online marketplace is a challenge that many startups and investors have faced. Before Covid-19 it was certainly more difficult, but in the post pandemic era we could safely say that nowadays it is much easier to break through barriers.


But still, most hurdles to be overcome lie in the early stage adoption.


The fine balance between supply and demand could spell doom for those who are unable to on-board players from the very beginning. It is known that Facebook gained the first 1,000 users in the first day, given the college community proximity.


However, many have tried to replicate the same results only to realise that on-boarding has a cost that protracts over time. In fact, I would classify in 3 components the cost of having each client and each supplier on our marketplace.


Cost of Acquisition


The first cost is of course the cost of acquisition, which answer to the question: is our target client/supplier already engaged on a similar platform/marketplace? If yes, what do I need to offer in order to poach the client/supplier away from the current setup to my own? If not, what do I need to promise so that i can on-board someone who has never experienced the services that I am offering?


These 2 answers to the same question carry a heavy duty planning and investment. The typical answers are as follow. If the supplier is already involved in a marketplace, I need to offer more revenues. If the client is already buying from a competitor of mine, I need to promise more choice in terms of products or faster delivery service (which frankly nowadays is hard to beat).


It sounds like a great promise, but can we really offer that?


If we can indeed generate more revenues for suppliers while providing more options for our clients, then the next investment is to ensure that the clients and suppliers stay on board and continue transacting with us.


Cost of Retention


This cost is associated to the longevity of our users, but also with the regular and recurrent activity on our marketplace. For instance, until 2012, Facebook generated only an average of $4.7 per user, although the user base was already in the billions.


Many startups that manage to on-board a large base of users in the first stage, find this part quite stressful. A friend of mine has set up a marketplace in the USA with over 600 thousand registered users.


However, they do not have enough suppliers, and so the clients have reduced drastically their interest in participating the activities that the platform offers.


Cost of Localisation


I faced a situation around localisation when I was involved in a marketplace project originated in Russia, based in Singapore and expanding in Indonesia. Or cost of acquisition was very low, so we had thousands of users on board, and the cost of retention was relatively low as our products were sold at a very competitive price. But when it came to Indonesia we realised that we had to speak in Bahasa Indonesia, else users would have stopped at registration. That meant to translate every single piece of communication we had.


Thousands of dollars and months allocated to it. [The columnist is a member of the International Press Association]


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