When talking about a platform business’s growth, headlines tend to focus on customer growth. How many new subscribers signed up for Amazon Prime? How many apps did users download from Android’s Play Store? Less media attention is given to the producer side of platform growth, but the platforms themselves have developed sophisticated ways of attracting and retaining supply. We took a closer look at how platforms incentivize and gamify the supplier experience to increase retention.
Because platforms are only as good as the services or products that they provide, a steady growth in the supply side of a platform is vital to its long-term success. Consumers will choose to engage with the platform that best meets their needs. Therefore, platforms must market themselves to attract the best producers. (Here’s a recap on the two user groups and how they interact on a platform’s network.)
Because platforms are only as good as the services or products that they provide, a steady growth in the supply side of a platform is vital to its long term success.
As we’ve written before, platforms compete for producers regularly. For example, Walmart.com seeks out new merchants to improve its marketplace catalog, and Uber and Lyft offer financial incentives and driving goals to attract and retain the best drivers.
This is especially critical as a platform grows. On most platforms, consumer growth outpaces supplier growth substantially. The chart below plots active seller and buyer growth on Etsy from 2014 to 2017. During that period, active buyers grew by 69%, while active sellers grew by 36%.
Once a producer is on the platform, it’s critically important that they remain engaged with the network. To date, most platforms rely heavily on financial incentives to attract and retain suppliers. Just like price is a huge selling point for consumers, producers are also looking to maximize how much money remains in their pocket.
In platform duopolies, like Amazon v. Walmart.com, or Uber v. Lyft, or Google Play v. Apple, transaction fees tend to become standardized across the industry. The table belows shows how transaction fees across competitors are about the same.
However, the platforms differentiate themselves by offering different add-on fees and bonuses. For example, Amazon charges flat item fees on certain products, but Walmart does not (and is in a great position to become the seller-friendly marketplace). Google Play’s initial subscription fee of $25 is cheaper than Apple’s annual fee which can total as much as $99/year. Lyft offers fuel rewards to help subsidize fuel costs but Uber does not.
Note that in all three cases, the platform generating the smaller revenue is the overall cheaper option for producers. Amazon still dwarfs Walmart’s online sales. Lyft completes fewer rides per year than Uber. Google Play boasts less revenue than Apple’s App Store, despite the fact it has more apps and app downloads. Thus, while duopolies offer similar supply-side fees, the platform with less revenue usually offers lower fees at the margin in an effort to attract and retain better suppliers to grow its revenue.
Attracting producers is only the first step to growing supply. Once a supplier is on a platform, they must be properly engaged and retained. This is especially crucial for platforms prone to platform leakage, which is a common problem for services marketplaces like such as Uber and Lyft.
Platform leakage occurs when a producer and a consumer meet through an app and then continue to do business without the app. For example, a driver and rider meet, and in the future simply text or call to arrange rides. Uber and Lyft both know this is a huge risk to their platform, which is why they both have rules in their driver contracts to prevent drivers from offering rides outside of the app. If a driver is caught, he or she is banned from the app.
Beyond strongly worded language in the apps, both platforms offer also incentives to drivers who achieve goals within the app. Uber’s Quest program gives drivers concrete goals in exchange for extra cash, a bit like video game quests. For example, “Take 75 trips in Los Angeles this week and make an extra $500.” Each quest has a status bar that moves across the screen as the driver completes their quest.
Lyft also has a gamified system called Power Driver Bonus, which works similar to Uber’s Quest. Just like with transaction fees, gamified gimmicks also achieve near parity in duopolies. They must, or the lagging competitor risks losing valuable supply to the competition.
In addition, high performing drivers at Uber can enter a four-tiered rewards program that includes cash back on gas and even college tuition, a program that is sure to boost retention and attract new drivers. From Fast Company,
“The new program, called Uber Pro, is a four-tiered rewards system that enables drivers to earn 3.5%-6% more on rates as well as cash back at gas stations, and 25% off car repairs. The top echelon of drivers, ranked “platinum” and “diamond,” have the opportunity to take classes at Arizona State University for free.”
Marketplaces have yet to take full advantage of gamified boosts, StockX, which sells collectible sneakers, has a leaderboard reminiscent of high score tables at arcade video games. However, marketplaces must tread carefully when promoting sellers. If ‘leaders’ are given free publicity and premium placement on the website, it will likely entrench those merchants and make it more difficult for newcomers to thrive on the platform. And it’s also likely to create unintended consequences as sellers inevitably try to game the system to top the leaderboard.
App design can also encourage or discourage supply in surprising ways. Returning to Uber as a good example, small design features in Uber’s app also boost driver engagement. For example, the app asks drivers to report earnings’ goals and then reminds them of their goals whenever they consider taking a break, with messages such as “You’re $10 away from reaching your goal.”
In addition, Uber now shows drivers their next fare amount before their current ride has completed, a shift from how new rides were presented in Uber’s early days. This method works similar to Netflix’s automatic streaming of the next episode which encourages binge-watching.
In a marketplace, app design can make the selling process simpler and more personal. Etsy’s in-app messaging system connects sellers to buyers directly, thereby eliminating the need for Etsy’s artisans to contact buyers outside the app with any questions they may have, which could potentially lead to platform leakage in the future.
Overall, platforms must pay as much attention to their producers as they do to their consumers. Their apps must be designed with both user groups in mind, and with the right financial incentives to entice both groups to transact on the platform.
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Filed under: Platform Design | Topics: how to build a platform, marketplace design, network growth, platform business, platform innovation, Platform Leakage, platform thinking, two-sided marketplace