Marketplace Supply Strategy: Comprehensive, Exclusive, or Curated

Supply Strategy #1: Comprehensiveness

A comprehensiveness strategy prioritizes building an extensive and diverse supply base, giving customers many different options for any single transaction. For many winning marketplaces, comprehensiveness is the core value proposition that allows them to own demand and provide a sticky product.

Comprehensiveness Example: Grubhub

At Grubhub, our initial value proposition for demand was comprehensiveness: users wanted to "discover who delivers," even when the restaurant didn't provide online ordering through us. Users often thought that only 5-6 restaurants would deliver to them, when the reality was at least 10x as many restaurants did so in most Chicago neighborhoods.

The problem was that when entering a market, it would take time to build the number of restaurants that you could order from on Grubhub. To fulfill the value prop of comprehensiveness required us to be scrappy. We would grab every takeout menu, scan them, and upload them to the website. We would also call every restaurant to map their delivery boundaries. That way demand could discover who delivered, whether or not they could order from them on Grubhub.

This comprehensive supply was Grubhub's source of differentiation, and kept users coming back to the platform to try different options. Once we added the online ordering feature, online ordering restaurants would show up first in search results, but users could always see the other restaurants and call them directly. As we scaled the business and asked what users valued about Grubhub, there was a 50/50 split between variety and convenience being the main answer. If we had not built comprehensive supply and instead only showed restaurants you could order from, we would have lost the 50% of users who mainly valued variety.

Comprehensiveness to Drive Product-Channel Fit: TripAdvisor

TripAdvisor also found success by prioritizing comprehensiveness early on, which helped unlock product-channel fit for their SEO-driven strategy. As described by Ravi Mehta, Reforge EIR and former VP of Product at TripAdvisor:

"Comprehensiveness played a crucial part in TripAdvisor’s SEO strategy. TripAdvisor wanted to have a page for every single hotel, restaurant, and attraction on the planet so that it would be the most comprehensive travel directory and have the most expansive travel results available on Google. Listing comprehensiveness was the first step towards review comprehensiveness."

Challenges Executing Comprehensiveness

While the comprehensiveness strategy usually provides an extremely compelling value proposition to users, it is difficult to execute, and many marketplaces that pursue it ultimately fail. Marketplaces pursuing the comprehensive strategy face the following challenges:

Operational Complexities

Acquiring and retaining a large, diverse group of suppliers can be challenging for even the strongest operations teams. As the supplier base grows, marketplaces encounter more variation and edge cases, which make day-to-day operations less efficient. Specific operational challenges include:

• Constantly changing inventory: At Grubhub, as we scaled our online ordering product, we found that it was hard to keep up with restaurants opening, closing, and changing delivery boundaries, in addition to keeping the restaurants that worked directly with us on online ordering accurate. As delivery services emerged to cover restaurants who didn’t do their own delivery, we’d have to partner with those services to understand who actually had delivery capability.
• Data quality and cleanliness: Many companies attempt to scale through automation, but then run into data quality issues that require extensive effort to clean up. Reforge EIR Dor Levi and former EVP at Lyft encountered this challenge during his time at Groupon:"We had a massive sales team that reached out to basically every merchant in North America. We then created pages for these merchants so we could tell them: 'You had this volume of people interacting with your page on Groupon, you should do a deal with us.' This strategy worked to an extent, but the task of creating merchant pages that were useful was way more complex than anticipated. For example, de-duping merchant pages and consolidating the right information from different data sources was an incredibly complex task."
• Unscalable costs: A growing supplier base can also strain your infrastructure and require expensive investments to maintain the service levels customers expect. When Netflix started as a DVD delivery service, they seemed to have every DVD ever made available for immediate delivery. To create the value prop of comprehensiveness, if Netflix did not have the DVD, they would still list it on the site and allow you to add it to your queue in case it became available. As they scaled into streaming, they found this value prop impossible to maintain. Streaming rights were too expensive to buy everything, some titles already had exclusive licensing deals elsewhere, and technically encoding that many titles would take forever and cost too much on its own.

Concentrated Supplier Power

In industries with a naturally low volume of suppliers (e.g., air travel), comprehensiveness is much easier to achieve and maintain; however, that is usually to the detriment of margins. In fact, one can almost certainly say the easier it is to become comprehensive, the lower the take rate will be because of supplier power.

For online travel agencies, airlines had so much supplier power that they were able to squeeze marketplace margins. Not offering flights from a major airline would put a marketplace at a huge competitive disadvantage, so the marketplaces had to accept the airlines' terms. Orbitz, Expedia, Travelocity, Priceline, Booking.com et al. didn't make any money from flights and made the vast majority of their profits from hotel bookings, where supplier power is spread across tens of thousands of hotel brands. Ultimately, the low margins on flights made it unsustainable for most of these marketplaces to survive as stand-alone businesses, driving a wave of consolidation in the space.

The Comprehensiveness Asymptote

With the exception of marketplaces where supply is concentrated among a few players, most marketplaces will never be able to achieve 100% comprehensive supply. Instead, they face the Comprehensiveness Asymptote. As supply coverage increases, each additional unit of supply requires more effort to add. Furthermore, external factors can constantly cause your supply coverage to shift, such as new restaurants opening and closing or new home-sharing hosts going on and offline.

Achieving "Comprehensive Enough"

Ultimately, achieving 100% comprehensiveness is impossible, except for a few verticals where supply is extremely concentrated (which then results in compressed margins). Instead of requiring 100% comprehensiveness, marketplaces that successfully execute this strategy pursue "comprehensive enough" supply.

Successful marketplaces determine what is comprehensive enough through their understanding of what level of supply fits their particular users' jobs-to-be-done. Another way to say it is it’s comprehensive enough from the demand side’s eyes, not from the company’s eyes. Marketplaces typically achieve this comprehensive enough level of supply by either 1) verticalizing, or 2) optimizing their supply acquisition loops.

Verticalizing

One way to make comprehensiveness easier to manage is to verticalize: focus your marketplace on an increasingly specific product category.

• GOAT and StockX have verticalized to just focus on sneakers, as opposed to eBay's focus on all second-hand goods.
• Reverb just focuses on music equipment. Discogs just focuses on vinyl.

Verticalizing only works if the following are true for your marketplace:

1. The more-specific vertical matches to the job-to-be-done directly on the demand side. For instance, GOAT and StockX's sneaker verticals target users whose job-to-be-done is often not just buying shoes to wear, but buying collectors' items.
2. A more generic marketplace does not have the unique features that serve a user with this job-to-be-done (e.g., StockX verifies authenticity and includes pricing history that is similar to a financial instrument).
3. And the frequency of that job-to-be-done is high enough to create a sustainable business (see my low frequency marketplaces essay).

For some marketplaces, the customer job-to-be-done will not be satisfied by a verticalized supply strategy. For example, if the customer's job-to-be-done is "get food for dinner," and the marketplace has verticalized to only feature Thai restaurants, users may feel like they are missing too many other solutions for the job-to-be-done to use it regularly.

Optimizing Your Supply Acquisition Loop

If verticalization will not satisfy the customers' job-to-be-done, marketplaces must instead optimize their supply acquisition loops to consistently achieve "comprehensive enough" supply. The first step is defining "comprehensive enough" for your specific market through quantitative data and a solid understanding of user behavior and needs.

Grubhub: Leveraging Data to Define Liquidity Targets

At Grubhub, we observed that once we acquired 50+ restaurants in a given geography, we would hit an inflection point for conversion rate and retention on the demand side of the marketplace. We found that if we could scale the number of restaurants working directly with us for online ordering high enough in a geographic area, having the menus for the restaurants that didn’t work with us mattered less as a value proposition to users. We were “comprehensive enough” in that we always had many options and close substitutes to something if it was missing.

Whereas many of our competitors would only have 5-10 options when a user would search their address, our data told us that "comprehensive enough" was much higher, so we focused our sales motions on signing up more restaurants for online ordering rather than collecting menus. This was perhaps the key insight that led to Grubhub scaling over a dozen rivals to become the leader in the space by such a wide margin. We understood the true liquidity targets for a geography and got increasingly efficient at getting markets to that point quickly, and then moving closer to the Comprehensive Asymptote. This allowed Grubhub to maintain a comprehensiveness value proposition in a way that also scaled its other core value proposition of convenience.

Gojek: Building Growth Loops Across Business Units

In the Southeast Asian market, Gojek used the drivers for its transportation product to establish its food delivery growth loops. Crystal Widjaja, Reforge EIR and former SVP of Growth at Gojek, shared insights on this integrated strategy:

"Gojek leveraged its drivers who were already on the streets to send our operations team photos of menus that we could add to GoFood. Our supply of restaurants was more comprehensive than Google Maps, to the point where people would tell their friends to meet them at X restaurant, and then send them a link to the GoFood merchant's page!"

Once Gojek added merchants to GoFood and validated that the merchants would get traffic, they were able to prove the value of the service to restaurants and drive additional partnerships. This was especially effective when merchants were already so happy with GoFood that their social media would promote "order us through GoFood." The loop of acquiring supply to meet new demand unlocked merchant success stories, which then unlocked additional revenue channels like advertising in-app (which would then be reinvested to acquiring more supply).

"Comprehensive Enough" is a Moving Target

What is interesting about “comprehensive enough” strategies is that competitors can come along that redefine the market to expand product market fit again so that the company is no longer “comprehensive enough” to own demand.

Doordash and Postmates did this with Grubhub by offering delivery to restaurants that didn’t provide it on their own and those that didn’t even ask for it (a tactic Grubhub ultimately had to copy). Similarly, Booking.com changed the definition of "comprehensive enough" by expanding into boutique hotels, forcing Expedia and Orbitz to widen their focus beyond large chains. To keep competition at bay, “comprehensive enough” companies need to always be focusing on adding selection even once they have achieved the current target to satisfy demand.

Supply Strategy #2: Exclusivity

While comprehensiveness has been a winning strategy for many marketplaces, it is not the only strategy that can win, and it may be infeasible in some industries. When transitioning from DVDs to streaming, Netflix realized that comprehensiveness was not going to be strategically, technically, or operationally possible. Instead, they moved toward an exclusivity value proposition: being the only source for in-demand content.

Netflix locked up streaming rights for popular content, taking advantage of the fact that most studios were still thinking in terms of traditional cable distribution arrangements, instead of thinking about owning their audience by building their own distribution platforms. Netflix went even further by purchasing and then creating original shows. Netflix Chief Content Officer and now co-CEO Ted Sarandos famously said, “The goal is to become HBO faster than HBO can become us.”

A Consequence of Exclusivity: Multi-Tenanting

There is some hidden truth in Ted's statement. While the exclusivity approach has helped Netflix build a sustainable business, it has also driven multi-tenanting by the demand side of the marketplace. Multi-tenanting means that users participate in multiple marketplaces to accomplish the same (or very similar) job-to-be-done. They are not bound to one platform and may choose to use different platforms in different situations (e.g., a lower price, a specific show, or better availability at a certain time). By using exclusivity arrangements to make sure supply isn't multi-tenanting, Netflix has almost guaranteed that there will be multi-tenanting on the demand side. Because you can’t own all supply, demand will go elsewhere to seek out exclusive content if the content is strong enough. That is why Netflix, Disney+, and HBO can all be successful over time.

It’s important to understand that demand side multi-tenanting does not mean demand-side retention will be poor. It does mean you cannot capture all of customers’ willingness to pay though. Generally, companies shouldn’t care about supply-side multi-tenanting if they own demand, but frequently supply exclusivity drives demand, as is the case with Netflix.

Weighing Exclusivity Against Comprehensiveness

Whether to pursue an exclusivity or comprehensiveness strategy will depend on the maturity of the marketplace, customer expectations, and competitive pressures. Ultimately, companies weighing these strategies must answer the question: does exclusivity meaningfully drive demand?

In the entertainment space, exclusive content has been a meaningful driver of demand for marketplaces like Netflix and HBO. For instance, "Star Trek" does not meet the needs of a user who wants to watch "Star Wars." However, if supply exclusivity does not drive demand, it may not make sense to push for exclusivity, which makes it harder to sign up supply. For instance, Grubhub allowed restaurants to list on other websites if it helped them become more successful. Certain competitors did not, trying to own supply, and supply would always break contracts if they felt Grubhub could drive incrementally meaningful demand. And as Grubhub became dominant, we didn’t care that restaurants were on other platforms receiving very few incremental orders.

Now most restaurants list on Grubhub, Uber Eats, Doordash, et al, and do get more than a few incremental orders. One might ask what this means for owning demand for Grubhub. Aren’t they struggling to own demand given Uber Eats and Doordash, so now both supply and demand are multi-tenanting? The answer is, of course, yes, but Uber and Doordash collectively spent multiple billions of dollars to create that competition, whereas Grubhub only raised $180 million ever (including the IPO) to generate a $7 billion exit. Ultimately, the comprehensiveness strategy has become undifferentiated as competitors have been willing to spend heavily to catch up. Now, all of the food delivery companies have a mix of demand they own as well as demand that multi-tenants. This will continue to drive consolidation in the space, like it did in travel and dating.

Even companies that start out with exclusive inventory sometimes move to a comprehensive strategy over time. Airbnb brought an entirely new type of inventory online with sharing people’s homes instead of hotels. Now, they’ve been adding more hotel-like inventory over time to become a comprehensive travel brand as other travel marketplaces onboarded their supply. Hipcamp brought new camping sites online, but still lists the national parks as options as well. These are both an attempt to make sure demand can solve their travel or camping needs on their site every time.

"Eventually, the growth of marketplaces built on top of underutilized assets slows. They are a great playbook to enter a market, but there is a finite amount of unused assets–and eventually there are no more idling assets to utilize."—Kevin Kwok in "Underutilized Fixed Assets"

Supply Strategy #3: Curation

The third common strategy marketplaces pursue is curation: specifically, achieving differentiation by handpicking the supply on the platform. It is important to note that curation is different from verification (e.g., StockX or the RealReal verifying that items are not knock-offs) and from algorithmic recommendations (which do not manually include or exclude supply from the marketplace).

If a comprehensiveness strategy is about reducing multi-tenanting on the demand side, and an exclusivity strategy is about reducing multi-tenanting on the supply side, what is the purpose of curation? Well, let’s look at the examples of curated marketplaces to see why they chose that strategy:

• HotelTonight - HotelTonight curated a select list of hotels available in an area to optimize for speed and price. The thesis is that if variety doesn’t matter that much beyond a baseline level of selection at a certain quality, speed and price can be a more important differentiator than selection. I think for certain niches (like business travelers), this can be true.
• Caviar - Caviar was a similar approach in food delivery. Caviar curated high-quality restaurants and tried to differentiate on service and food quality. But again, this reserves Caviar to niches that are willing to pay more for quality, and when the 4th place delivery company (Postmates) sells for north of $2 billion, selling twice in five years for less than $500 million feels like a missed opportunity.
• Criterion Collection - Criterion Collection is a similar story in media, and again, their value is dwarfed by most other media players. They came to prominence as a DVD company that restored classic films for DVD with amazing extras like commentary and restored footage, whereas the majority of the DVD industry focused on new releases. However, their focus on prestige films kept them from appealing to the mass market; they eventually pivoted to streaming, but with less success than other competitors.

Curation is Difficult to Defend

Curation can help provide differentiation in the early stages of a marketplace, but it is difficult to defend against well-resourced competitors. What curation promises can normally be better solved via algorithmic recommendations, but those recommendations require tremendous amounts of training data in the form of ratings, reviews, and many other supply attributes.

In many marketplaces, there aren’t objectively better suppliers than others, just tradeoffs of price vs. quality vs. speed that different buyers have different preferences for. So, while curation can solve for helping buyers find quality supply, as supply accumulates trust signals that can be leveraged for recommendations, and demand showcases preferences that can be leveraged for personalization, curation loses its strategic appeal. Ultimately, one could argue curation is a weaker form of exclusivity, just as over-verticalizing is a weaker form of comprehensiveness. As Ravi Mehta points out, curation is often best used as a secondary strategy:

"Curation works well as a way for marketplaces to segment their customer bases. Airbnb did this with Airbnb Luxe. Uber does this with Uber Black and Uber Select. Curation is not great as the core strategy for an independent marketplace, but really nice as a product/merchandising strategy."

Selecting the Right Supply Differentiation Strategy

Being neither comprehensive nor exclusive in markets where variety of supply matters is almost always a death sentence. Oyster is a great example. They were a monthly subscription app that allowed you to read books on your smartphone well before the Kindle app existed. They had a great reading experience, but they struggled to get licensing deals for all the great books in the world, and didn’t have any exclusive content. The segments they found product-market fit in were niche volume readers of specific genres who read so much it destroyed their unit economics. They eventually shut down.

Tidal is a similar story in music streaming. While Spotify and Apple Music are comprehensive enough (though YouTube is better than both), Tidal doesn’t have enough content to own demand, and too few exclusives that quickly end up on Spotify anyway since Spotify owns the demand. Tidal recently was acquired by Square for $300 million, whereas Spotify is worth over 100x more.

In thinking through marketplace strategy, it’s important to understand whether you’re supplying a commodity good or not. If not, having a plan for whether exclusivity or comprehensiveness will be the value prop to demand and how that shifts over time is important to having a sustainable strategy. This will also help the company think through the roles that features like curation and algorithmic recommendations should play over time. It’s also important to understand that as marketplaces sequence their loops over time, the strategy may change dramatically. In fact, it’s hard to think of marketplaces that haven’t made major adjustments to these strategies as they scale over the long term.