Three Types of Marketplace Shifts: Changing Without Breaking The Marketplace

A successful marketplace establishes a balance where supply, demand and the business benefit each other and succeed together. But “success” for a marketplace isn’t a static thing. As the business grows and evolves—as objectives, external circumstances, and competition change—product and policy will need to evolve as well. And with that, the company will need to require or elicit changing behaviors out of customers on both sides of the marketplace.

Navigating these shifts isn’t straightforward. And past success doesn’t ensure stability. It’s tempting to avoid a necessary change from fear of its consequences. Especially when there are plenty of stories of marketplace companies that made a change to their product, and were caught completely off guard by its impact on marketplace dynamics. The balance between supply, demand, and the mechanics of the marketplace that led to liquidity and trust are delicate, but that does not mean companies can avoid making changes 

Let’s walk through how marketplace companies and product teams can tackle these shifts with confidence. First, we’ll cover the types of changes marketplace companies often need to grapple with, and how to recognize and evaluate them. After that, I’ll share some practical guidance on handling these types of product changes, and avoiding common problems. 

Shifts in Value, Control, or Risk

As a product manager, you first need to realize that you’re facing a foundational marketplace shift and not just another product change. If you don’t, you’re unlikely to devote the appropriate consideration and preparation necessary. But what qualifies as a foundational change is not always obvious.

Do you recall Patreon’s pricing change in 2019? It’s very likely that you don’t. It was a well executed, smart move for the company, but otherwise pretty uneventful. You are more likely to recall the change Patreoan made in 2017. The one that was followed by creator outrage and ended in an about-face and a sincere message to the community from Jack Conte, Patreon’s co-founder and CEO.

No one at Patreon imagined that this would be the reaction. But it quickly became apparent that they had missed something big. 

To help recognize that what you’re considering might be a meaningful change that could impact marketplace dynamics, you can evaluate changes by whether or not they create one or more of the following shifts.

Value Shift‍

A two-sided marketplace works when everyone is getting the right value out of the interaction. When you’re embarking on a value shift, one party will be getting less—or different—value out of their continued engagement. 

It’s important to see a value shift from the point of view of each side of the marketplace, because it can impact more than just the party who’s experiencing the value change directly.

For example, when DoorDash changed their policy to include tips in the guaranteed floor for Dasher pay, it decreased the value for some Dashers, who ultimately were paid less for the same service. Here, DoorDash wanted to offer minimum pay to Dashers without forfeiting margin. So they changed their policy in order to redistribute value across supply—a Dasher who received a larger tip, was now subsidizing the minimum pay for another Dasher who otherwise would be making less. All in all, it was mixed news for the supply side, but the company had been thoughtful and considered that carefully before making the shift. The surprise came from the consumer reaction. This value shift for supply upset the demand side of the marketplace: it outraged customers who felt DoorDash was taking the tips intended for Dashers. So even though the value on the demand side of the marketplace didn’t change at all, it was ultimately customers, not Dashers, who compelled DoorDash to change its policy. 

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Control Shift

Sometimes a change may grant more power or control to one party at the expense of another. Take refund policies as an example: if the marketplace mandates specific refund policies, suppliers lose the freedom to create their own. This dictates an important aspect of their relationship with buyers. 

A control shift is compelling when a marketplace wants to guarantee quality and consumer experience. Airbnb’s commitment to driving their Instant Book feature is a great example of this type of control shift. Airbnb hosts had always been able to accept or decline a booking request. But Airbnb wanted hosts to turn on Instant Book—a setting that allows guests to confirm a reservation without individual approval. Airbnb knew that offering a more seamless booking experience would increase conversion, attract more bookers, and generate more revenue for hosts. But this control shift pitted hosts’ feeling of safety against guests’ desire for certainty. Airbnb understood this. So the company didn’t go so far as to require hosts to turn Instant Book on, but they did offer incentives—and created some marketplace pressure—to encourage hosts to do so. Though it was difficult for some hosts to see the personal benefit of the change, Airbnb hoped the majority of hosts would tolerate it. And as more and more hosts adopted the feature, soon it became hard to compete as a host without it. 

Risk Shift

Risk shifts create the possibility of loss. Faire offering free returns and charging customers only 60 days after they place an order is an example that creates risk for the company. Faire takes the risk that they’ll never get paid by the demand side, and that they’ll be stuck with lots of unwanted inventory in their warehouse. But once the company figured out how to manage the risk, it became a huge part of Faire’s value prop. 

That’s the thing about risk shifts: if you get it right, you can keep actual losses relatively tiny, while positioning the risk shift, itself, as a differentiator. 

In other instances, the value-loss equation isn’t worth it. In 2019 HomeAway/VRBO was paying hosts at the time of booking, often well ahead of the guest’s stay. So the company and its payment processor risked loss in the case of a booking cancelation. When VRBO transitioned to paying after check-in by default, some hosts were unhappy. But the company was wisely shifting to taking risk selectively—only offering early payouts by invitation. Top-performing hosts who had valued early payouts (and incidentally, also have a lower likelihood of cancelling bookings) could continue to receive funds at time of booking. And for the majority of hosts who did not qualify, VRBO wasn’t likely to see heavy churn, because their competitors didn’t offer early payouts either. 

Once it’s clear that you’re dealing with a value, control, or risk shift, you’ll want to assess its scope. Consider some basic questions:

• How would the impact of the shift be distributed? Even if it’s affecting just one party, the impact will likely not be evenly distributed within that audience. It could be concentrated in a customer segment, region, or line of business. Consider how that plays into the company strategy. Perhaps you are considering a change precisely because, for example, it impacts a type of demand that is less of a fit or focus.
• Is this shift consistent with where you want to go as a marketplace? Run through a thought exercise, taking the decision to its extreme. For example, when it was first evaluating Instant Book, Airbnb had to ask what if all listings were Instant Book listings? What if it were required, not just encouraged? Is that consistent with the marketplace that we aspire to be?
• What impact could the shift have on the key value proposition of the marketplace? List your key value propositions to customers. If the shift touches one of these, you must pay special attention. For Patreon, the key value of the product to creators was, if I may paraphrase, ‘get paid for your art without intermediaries exerting control, and taking a cut’. Changing the fees that fans paid directly impacted this value proposition.

Beware the common pitfalls

Making decisions about shifts in value, control, or risk is hard. It’s scary. Perhaps the shift will offset the special equilibrium of trust and value that exists in the marketplace...mechanics you may privately confess not to even fully understand.

And it’s emotional. While that’s true for any change or big decision at any company, it’s doubly true when the company is serving multiple customers at once. In a marketplace business, different parts of the company will, by design, see themselves as allied with one of the marketplace parties more than the others. Sales will advocate for the supply side. Marketing may advocate for the demand side. Product teams, depending on their focus area, will have a bias for their segment or constituency. And Finance, Legal and Policy teams will often lean towards more control, more value, and less risk for the business. This type of partisanship shouldn’t be disappointing to you. It’s ultimately a good thing! It's checks and balances. But it can result in some charged debates when marketplace shifts are required.

As you enter into these passionate debates, keep an eye out from some common patterns that may pull the team away from the best outcomes.

Making everyone happy

‍In an effort to alleviate every concern, teams may continuously increase scope and make the project so big it’ll never get off the ground, or never completes. Alternatively, they may hedge—building too many exceptions into the policy or product, making it needlessly complex and less compelling.

How to spot and avoid it: This basically looks like scope creep. Be explicit about tradeoffs and the principles governing the shift. Don’t confuse things or erode trust by painting too rosy a picture, but do remind the team why the shift is ultimately a good thing. For example: Yes, this shift will mean less value for our less frequent and smaller suppliers...But it encourages the type of supply that demand actually wants. Even if we alienate low-value segments on the supply side, this shift will ultimately lead to more returning customers, which is good for us and every part of the marketplace.

Avoiding the need for change and doing nothing

‍Don’t be paralized by indecision, which is often accompanied by rationalization and excuses. Integrity is key. Is now really not the right time? Will waiting change anything for the better? A more insidious version of avoidance can be taking things too slowly.

How to spot and avoid it: When a shift is risky, it is very reasonable to do it in phases and monitor impact. But that can go too far and be used as an excuse. You can help a team that is struggling with avoidance by modeling dispassionate reasoning. When hesitant teammates want to do more research or to hold on progress while we wait for more data, I’ve found it helpful to ask: What specific signals, if presented, would cause us to change course, and what would the change to the plan be?

Focusing on the “business”

‍Most employees talk to their colleagues far more often than they talk to customers, and spend more time focused on quarterly goals than longer term strategy. So it’s natural to have an over-representation of immediate business priorities in our decision making. As a way to settle a complex issue of marketplace dynamics and incentives, you might hear people say ‘let just do what maximizes {insert some revenue related metric}’. But saying a decision is what’s ‘best for the business’ as a way to break a deadlock is non sequitur. Things that look good for the business but bad for customers on either side of the marketplace, in the long run, tend to be good for neither the business nor the customers. All changes should eventually drive the business. The real question is about time horizon and what bruises you're willing to take along the way.

How to spot and avoid it: Immediate gains to the “business” can be easy to quantify, tangible, uncomplicated, and therefore are seductive. So set the right goals for the shift, and think carefully about the objectives and KRs you set for it. Declaring non-goals can be helpful, too.

Focusing on the angriest and noisiest

‍When you’re listening to customers and experts, it’s natural for the loudest and angriest voices to carry best. It’s essential that you understand these opinions deeply, empathize earnestly, and take them seriously. But you can’t let them drive fear. At the end of the day, many of these voices represent some kind of bias or channel skew. Definitionally, the loudest voices are unlikely to represent the majority of your customers. 

How to spot and avoid it: If too much air time is being given to anecdotal examples, encourage teams to take a step back and get context and good information. Attempt to quantify and assess what each data point is really representing. Proactively seek out feedback and insight from different customer segments. And remember that you will never win everyone over. That’s not the goal. The goal is to make the best decisions for the marketplace, and to carry them out considerately.

You can’t predict the future, but you can prepare for it

Scenario plans are generally useful for decision making and planning, and not particular to marketplaces changes. It’s an effective way to make objectives concrete, prepare for challenges, or to just think through the possible outcomes of a shift. Scenarios are clarifying because they get everyone on the same page, acknowledging that we can’t know what’s exactly going to happen, but we can be ready. 

To create a scenario plan, start with the worst case: the dangerous scenario. While the dangerous scenario is usually less likely, it’s valuable to focus on a plausible worst case. This may very well be the scenario that triggers the fear and emotion we discussed earlier. So spelling it out can calibrate the concern.

• Describe the scenario. I like giving it a memorable name, too.
• Try to determine the likelihood of this outcome. 
• Articulate how you would recognize it. What would be the early indicators that this scenario is happening or becoming more likely? Define how you will monitor for these signs.
• Recommend ways to mitigate or avoid the negative outcomes.
• Outline how you plan to respond to the scenario should it arise, and what you need to do to prepare.

Knowing what you would do—even knowing that you would know what to do—goes a very long way.

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Following the dangerous scenario, describe other likely scenarios. Usually the two or three most likely outcomes that differ from each other on key dimensions will be sufficient. The point is to prepare better, not to guess the future precisely. So, as long as reality ends up looking like some combination of the scenarios outlined, you’ll be in good shape. For each one, describe the scenario, its likelihood, leading signs and indications, your mitigation plan, and finally, a preparation and response plan.

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Deciding to make a shift in a marketplace is hard. Your stakeholders are entwined, the benefits can appear zero-sum, and someone somewhere is going to be anxious about any type of change. But being able to name the type of shift your business needs can be clarifying—not only for you but for your collaborators across teams. Understanding both the type and scope of the shift will ensure that as you move to the actual tactics completing the shift will require, you serve your customers and the marketplace thoughtfully. And remember: realizing that you’re dealing with a meaningful shift is half the battle.