In the earlier article, I explored the position of the intermediary in a two-sided market. The time period “intermediary” has a stigma to it. Largely as a result of, while you sit between two events that need to work together, it’s straightforward to get grasping.
Greed will carry you earnings within the brief time period. Most likely in the long run, as properly. As a intermediary, although, your greed is an existential menace. If you abuse your place and mistreat the events you join–when your value outweighs your worth–they’ll discover a strategy to exchange you. Perhaps not right this moment, perhaps not tomorrow, however it’ll occur.
Study quicker. Dig deeper. See farther.
Fortunately, you can also make cash as a intermediary and nonetheless maintain everybody completely satisfied. Right here’s how one can create that win-win-win triangle:
Preserve refining your platform
Operating a market is a sport of steady enchancment. That you must maintain asking your self: how can I make this higher for the individuals who work together by means of {the marketplace}?
To begin, you possibly can search for methods to make your platform extra engaging to present prospects. I emphasize each prospects, not only one facet of {the marketplace}. Mistreating one facet to favor the opposite may match for a time, however it’ll ultimately fall by means of. Frustration has a approach of serving to folks overcome switching prices.
Some inventory exchanges designate market makers (“specialists,” in case you’re old-school), corporations which are all the time able to each purchase and promote shares of a given inventory. If I need to offload a thousand shares and there’s nobody who desires to purchase them from me, the market maker steps in to play the position of the client. By guaranteeing that there’ll all the time be somebody on the opposite facet of the bid or ask, exchanges maintain everybody completely satisfied.
In case you continuously overview how the 2 events work together, you possibly can search for alternatives to mitigate their danger, create new providers, or in any other case cut back friction. Most platforms join strangers, proper? So in case you have a look at your corporation by means of the lens of security, you’ll discover lots of work to do. Be aware how eBay’s overview system gives additional assurance for consumers and sellers to commerce with folks they’ve by no means met. Equally, within the early days of on-line commerce, bank card issuers restricted customers’ fraud danger to simply $50 per buy. This improved shoppers’ belief in on-line purchasing, which helped make e-commerce the on a regular basis norm that it’s right this moment.
Security enhancements additionally lengthen to communications. Do the events actually want to swap e-mail addresses or cellphone numbers? In the event that they’re simply confirming a rideshare pickup or flirting by means of a relationship app, in all probability not. As a intermediary, you might be completely positioned to function the conduit; one that gives an applicable degree of masking or pseudonymity. And the cash you put money into deploying a customized messaging system or momentary cellphone numbers (Twilio, anybody?) will repay when it comes to improved adoption and retention.
Design new services
In case you perceive how your events work together and what they need to obtain, you’re ready to identify new product alternatives that may make your prospects completely satisfied.
From a dialog with Cyril Nigg, Director of Analytics at Reverb, the music-gear market was “based by music makers, for music makers.” Musicians wish to strive new gear, however they need to offload it if it doesn’t pan out. Reverb has subsequently constructed instruments round pricing help to assist musicians with their product listings: You need to promote this distortion pedal inside 7 days? Listing it as $X. This additional assurance that they’ll have the ability to resell a bit of apparatus, in brief order, reduces apprehensions about shopping for. (Going again to the purpose about holding each side of {the marketplace} completely satisfied: Cyril additionally identified {that a} Reverb buyer could act as each purchaser and vendor throughout totally different transactions. Which means the corporate can’t skimp on one facet of the expertise.)
Individuals on a relationship web site need to talk, so a straightforward win there’s to control new communications instruments. Perhaps your platform began out with an asynchronous, text-based instrument that resembled e-mail. Are you able to add an choice for real-time chat? What wouldn’t it take to maneuver as much as voice? And finally, video? Every step within the development requires advances in know-how, so you might have to attend earlier than you possibly can truly deploy one thing. However in case you can envision the system you need, you possibly can control the tech and be poised to pounce when it’s typically accessible.
In contrast to relationship websites, monetary exchanges are marketplaces for opposing views. One particular person thinks that some occasion will occur, they search a counterpart who thinks that it’ll not, and destiny determines the winner. This may be as vanilla as folks shopping for or promoting shares of inventory, the place the counterparties consider the share value will rise or fall, respectively. You additionally see conditions that decision for extra unique instruments. Within the lead-up to what would grow to be the 2008 monetary disaster, buyers wished to stake claims round mortgage-backed securities however there wasn’t a strategy to specific the assumption that these costs would fall. In response to this want, a gaggle of banks dusted off the credit score default swap (CDS) idea and devised a regular, easily-tradable contract. Now there was a approach for folks to take both facet of the commerce, and for the banks to gather charges within the center. A win-win-win scenario.
(Effectively, the precise commerce was a win-win-win. The long-term end result was extra of a lose-lose-win. Mortgage defaults rose, sending costs for the related mortgage-backed securities into decline, resulting in large payouts for the “I informed you this was going to occur” facet of every CDS contract. The banks that served double-duty as each market participant and intermediary took on sizable losses consequently. Let this be a lesson to you: a part of why a intermediary makes cash is exactly as a result of they don’t have any stake within the long-term end result of placing the events collectively. Keep within the center if you wish to play it protected.)
Granted, you don’t need to roll out each potential product or function in your first day. You need to let {the marketplace} develop and mature considerably, to see what is going to truly be helpful. Nonetheless, you need to plan forward. As you watch {the marketplace}, you’ll spot alternatives properly prematurely, so you possibly can place your self to implement them earlier than the necessity is pressing.
Deal with your corporation
Moreover making issues simpler for patrons, being a greater intermediary means enhancing how your corporation runs.
To begin, determine and eradicate inefficiencies in your operations. I don’t imply that it’s best to reduce corners, as that may come again to chew you later. I imply you could examine for real cash leaks. The simple candidates will probably be proper there in your steadiness sheet: have you ever truly used Service ABC within the final 12 months? If not, perhaps it’s time to chop it. Is there an equal to Service XYZ at a lower cost? When you’ve confirmed that the cheaper service is certainly an acceptable substitute, it’s time to make the change.
A extra refined candidate is your codebase. Customized code is a bizarre type of debt. It requires regular, ongoing upkeep identical to funds in a mortgage. It might additionally require disruptive adjustments in case you encounter a bug. (Think about that your mortgage lender sometimes demanded a shock lump sum in mid-month.) Are you able to exchange that home-grown system with an off-the-shelf instrument or a third-party service, for a less expensive and extra predictable fee schedule?
You additionally need to examine on the scale of your complete addressable market (TAM). What occurs while you’ve reached everybody who will ever be a part of? It’s emotionally reassuring to inform your self that all the planet will use your service, positive. However do you actually need to base income projections on prospects you possibly can’t realistically purchase or retain? Sooner or later, your buyer numbers will plateau (and, after that, sink). That you must have a tough dialog with your self, your management staff, and your buyers round the way you’ll deal with that. And you could have that dialog properly prematurely. When you hit that restrict in your TAM, you’ll have to be able to ship enhancements that cut back churn. Maybe you possibly can provide new providers, which can lengthen your addressable market into new territory, however even that has its limits.
What are you doing for danger administration? A danger represents a potential future entry in your steadiness sheet, one among indeterminate dimension. Perhaps it’s a code bug that spirals uncontrolled below an edge case. Or a lingering grievance that blossoms right into a full-scale PR subject. To be blunt: good danger administration will prevent cash. Presumably numerous cash. Whereas it’s tempting to let some potential issues linger, perceive that it’s simpler and cheaper to handle them early and by yourself schedule. That’s a lot nicer than being below strain to repair a shock in real-time.
Sharp-eyed readers will catch that refined tradeoff between “addressing inefficiencies” and “proactively mitigating dangers.” Danger administration usually requires that you simply go away additional slack within the system, reminiscent of greater workers headcount, or additional machines that principally sit idle. This slack serves as a cushion within the occasion of a surge in buyer exercise but it surely additionally prices cash. There’s no straightforward reply right here. It’s a mix of artwork and science to identify the distinction between slack and waste.
Most of all, as a market, you need to mature along with your prospects and the sphere general. The time period “innovate” will get some much-deserved flack, but it surely’s not full hogwash. Be ready to put money into analysis so you possibly can see what adjustments are on the horizon, after which adapt accordingly. Additionally, control the brand new options your prospects are asking for, or the complaints they increase about your service. You’ll in any other case fall into the very lure described in The Innovator’s Dilemma. Don’t grow to be the slow-moving, inattentive behemoth that some nimble upstart will work to unseat.
Use know-how as a drive multiplier
Unhealthy middlemen squeeze the events they join; good middlemen squeeze know-how.
Performed properly, know-how is a supply of uneven benefit. Placing code in the best locations permits you to accomplish extra work, extra constantly, with fewer folks, and in much less time. All the efficiencies you get by means of code will go away extra money to separate between your self and your prospects. That may be a strong retention technique.
To begin, you possibly can apply software program to actual and synthetic shortage that exists in different middlemen. A greenfield operation can begin with decrease headcount, much less (or zero!) workplace area, and so forth.
Tech staffing, for instance, is an identical drawback at its core. A wise staffing agency would begin with self-service search instruments so an organization may simply discover folks to match their open roles. No have to work together with a human recruiter. It may additionally standardize contract language to cut back authorized overhead (nobody desires a thousand slightly-different contracts laying round, anyway) and use digital signatures to make it simpler to retailer paperwork for future reference.
You don’t even need to do something fancy. Generally, the very act of placing one thing on-line is a big step up from the incumbent answer. Craigslist, just by working categorized advertisements on a web site, gave folks a much-improved expertise over the print-newspaper model. Individuals had extra space to jot down (goodbye, obscure acronyms), had search performance (why skim all of the listings to seek out what you’re after?), and will pull their advert when it had been resolved (no extra getting cellphone calls for an additional week simply because the print advert remains to be seen).
Know-how additionally makes it simpler to handle sources. Love or detest them, rideshare firms like Lyft and Uber can scale to a higher variety of drivers and riders than the old-school taxi firms that depend on radio dispatch and flag-pulls. They usually can do it with much less friction. Why name an organization and inform them your pickup location, when an app can use your cellphone’s GPS? And why ought to that dispatcher need to radio round searching for a driver? To rearrange a journey, you could match three parts–pickup location, dropoff location, and variety of passengers–to an accessible driver. It is a trivial effort for a pc. Throw in cellular apps for drivers and passengers, and you’ve got a system that may scale very properly.
(Some could argue that the rideshare firms get additional scale as a result of their drivers are categorized as impartial contractors, and since they don’t require costly taxi medallions. I don’t disagree. I simply need to level out that the businesses’ know-how can also be a robust enabler.)
Being on the heart of {the marketplace} means you get to see all the system without delay. You may analyze the info round buyer exercise, and cross on insights to market members to make their lives simpler. Airbnb, for instance, has deep perception into how totally different properties carry out. Their analysis staff decided that listings with high-quality pictures are inclined to earn extra income. They publicized this info to assist hosts and, to sweeten the deal, the corporate then constructed a service to attach hosts with skilled photographers.
What about ML/AI? Whereas I hardly consider that it’s able to eat each job, I do see alternatives for AI to make a smaller staff of individuals more practical. ML fashions are well-suited for selections which are too fuzzy or cumbersome to be expressed as exhausting guidelines in software program, however not so nuanced that they require human judgment. Placing AI within the seat for these selections frees up your staff for issues that genuinely advantage a human’s eyes and experience.
I’ve argued earlier than that lots of machine studying is high-powered matching. What’s “classification,” if not ranking one merchandise’s similarity to an archetype? A market that offers within the lengthy tail of products can use ML to assist with that matching.
Take Reverb, the place most items of substances are distinctive however nonetheless much like different gadgets. They’re neither utterly fungible, nor utterly non-fungible. They’re kind of semi-fungible. To simplify search, then, Director of Analytics Cyril Nigg says that the corporate teams associated gadgets into ML-based canonical merchandise (the place some particular Product X is actually a part of a wider Canonical Product Y). “[We use] ML to match listings to a product–say, matching on title, value level, or another attribute. This tells us, with a excessive diploma of confidence, {that a} vendor’s used Fender guitar is definitely an American Customary Stratocaster. Now that we all know the make and mannequin, a purchaser can simply evaluate all of the totally different listings inside that product to assist them discover the best choice. This ML system learns over time, so {that a} vendor can add an inventory and the system can file it below the right canonical product.”
Machine-based matching works for meals in addition to guitars. Resham Sarkar heads up information science at Slice, which supplies native pizzerias the instruments, know-how and steering they should thrive. In a 2021 interview, she informed me how her staff applies ML to reply the age-old query: will Particular person X get pleasure from Pizza Y at Restaurant Z? Slice’s suggestions give eaters the boldness to strive a brand new taste in a brand new location, which helps them (perhaps they’ll develop a brand new favourite) and in addition helps pizzerias (they get new prospects). That is particularly helpful when a pizza lover lands in a brand new metropolis and doesn’t know the place to get their repair.
Any dialogue of know-how wouldn’t be full with no nod to rising tech. Sure, maintaining with the Shiny New Factor of the Second means having to wade by means of loads of hype. However in case you look intently, you might also discover some actual game-changers for your corporation. This was actually true of the Nineties web increase. We’ve seen it prior to now decade of what we now name AI, throughout all of its rebrandings. And sure, I anticipate that blockchain applied sciences will show extra helpful than the curmudgeons need to let on. (Even NFTs. Or, particularly NFTs.)
Skip previous the success tales and vendor pitches, although. Do your individual homework on what the brand new know-how actually is and what it could do. Then, have interaction an skilled that will help you fill within the gaps and type out what is feasible with your enterprise. The best way a brand new know-how addresses your challenges could not align with no matter is being hyped within the information, however who cares? All that issues is that it drives enhancements in your use circumstances.
Watch your tech
Know-how is a double-edged sword. It’s like utilizing leverage within the inventory market: using software program or AI exposes you to greater highs when issues go proper, but in addition decrease lows when issues unravel.
One profit to using folks to carry out a process is that they will discover when one thing is fallacious after which cease working. A bit of code, by comparability, has no concept that it’s working out of its depth. The identical instruments that allow you to accomplish that far more, with far fewer folks, additionally expose you to a large danger: one bug or environmental disconnect can set off a collection of errors, at machine speeds, cascading into an enormous failure.
All it takes is for just a few smaller issues to collide. Think about the case of Knight Capital. This skilled, heavyweight market-maker as soon as managed $21BN in day by day transaction quantity on the NYSE. At some point in 2012, an inconsistent software program deployment met a department of previous code, which in flip collided with a brand new order kind on the change. This led to a meltdown by which Knight Capital misplaced $440M in below an hour.
The lesson right here is that a few of the cash you save from decreased headcount needs to be reinvested within the firm within the type of folks and instruments to control the bigger system. You’ll need to separate tasks so as to present checks and balances, reminiscent of assigning somebody who isn’t a developer to handle and overview code deployments. Set up displays that present fine-grained details about the state of your methods. Borrowing a line from a colleague: you possibly can nearly by no means have too many dimensions of knowledge when troubleshooting.
You’ll additionally want folks to step in when somebody will get caught in your internet of automation. Have you ever ever referred to as an organization’s customer support line, solely to wind up in a phone-tree dead-end? That may be very irritating. You don’t need that for your prospects, so you could construct escape hatches that route them to an individual. That holds in your AI-driven chatbot as a lot as your self-help customer support workflows. And particularly for anyplace the place folks can report a bug or an emergency scenario.
Most of all, this degree of automation requires a high-caliber staff. Don’t skimp on hiring. Pay a premium for very skilled folks to construct and handle your know-how. In case you can, rent somebody who has constructed buying and selling methods on Wall St. That tradition is wired to determine and deal with danger in advanced, automated methods the place there’s lots of actual cash at stake. They usually have seen know-how fail in ways in which you can’t think about.
Markets, in all places
I’ve usually stated that issues in know-how are hardly ever tech-related; they’re people-related. The identical holds for constructing a market, the place the massive drawback is actually human greed.
Don’t fall for the greed lure. You may actually run the enterprise in a approach that brings you income, retains prospects completely satisfied, and attracts new prospects. Determine inefficiencies in your corporation operations, and maintain considering of the way to make the platform higher in your prospects. That’s it. A correct software of software program and AI, danger administration, and analysis into rising applied sciences ought to allow you to with each. And the cash you save, you possibly can cut up along with your person base.
In case you’re prepared to blur the traces just a little, you’ll in all probability discover markets in not-so-obvious locations. An airline sits between passengers and locations. Grocery shops sit between customers and suppliers. Employers sit between workers and purchasers. And so forth. As soon as you discover the best angle, you possibly can borrow concepts from the established, well-run middlemen to enhance your corporation.
(Many due to Chris Butler for his considerate and insightful suggestions on early drafts of this text.)
