Cracking the Chicken and Egg Problem in Marketplaces: A Product Manager’s Perspective

As product managers, one of the most perplexing challenges we face when building marketplaces is the notorious “chicken and egg” problem. Which comes first: the supply or the demand? Without suppliers, customers won’t come. Without customers, suppliers see no reason to join. It’s a classic stalemate that can stall even the most promising platforms.

Over the years, I’ve grappled with this conundrum and found that two strategies stand out in effectively breaking the deadlock: seeding the supply side ourselves and focusing on a narrow vertical. Let’s delve into how these approaches can kickstart a thriving marketplace.

Seeding the Supply Side Yourself

One of the most direct ways to overcome the initial supply scarcity is by creating or controlling the supply. A prime example of this strategy is Netflix. When Netflix began its streaming service, it faced the challenge of acquiring content licenses from studios that were hesitant to disrupt traditional distribution channels. Instead of waiting for suppliers to come around, Netflix took matters into their own hands by investing in original content.

By producing shows like House of Cards, created exclusively for Netflix, the company not only attracted viewers but also set a new standard for quality streaming content. This move served a dual purpose: it satisfied initial customer demand and demonstrated to other content creators the potential of the platform, eventually encouraging them to come onboard.

As product managers, we can apply this lesson by identifying ways to generate or control supply in the early stages. This might mean creating content, offering services ourselves, or partnering closely with a few key suppliers to ensure that customers have something valuable to engage with from day one.

Focusing on a Narrow Vertical

Another effective strategy is to start small by concentrating on a specific niche or vertical. By limiting the scope, we can more easily match supply with demand and create a manageable environment to cultivate growth. This approach reduces complexity and allows for a more personalized and focused user experience.

Take Airbnb, for example. They didn’t start as a global accommodation marketplace. Initially, they focused on offering short-term lodging during conferences when hotel availability was low. This narrow focus allowed them to fine-tune their platform, understand their users deeply, and build a loyal community. Once they established a strong foothold, they gradually expanded into other areas.

By concentrating on a specific segment, we can address the unique needs of that market more effectively. It also makes it easier to onboard suppliers who are looking for targeted exposure and customers who are seeking specialized offerings.

Combining Both Strategies

In some cases, combining both seeding the supply and focusing on a narrow vertical can be the catalyst for marketplace success. For instance, when launching a new artisan marketplace, you might start by featuring a curated selection of handcrafted jewelry (narrow vertical) and collaborate with local artisans to create exclusive pieces (seeding supply).

This dual approach ensures that customers find unique value in your platform while suppliers see the benefit of a dedicated and engaged audience.

Final Thoughts

Breaking the chicken and egg cycle in marketplaces is no small feat, but as product managers, we have the tools and strategies to tackle it head-on. By seeding the supply side ourselves, we take proactive steps to ensure that customers have a reason to visit and engage with our platform. By focusing on a narrow vertical, we create a concentrated ecosystem where supply and demand can meet more naturally.

Ultimately, the key is to generate momentum. Once the marketplace begins to thrive in its initial state, we can gradually expand, attract more suppliers and customers, and build the dynamic, self-sustaining platform we envisioned.

In the fast-paced world of digital marketplaces, being strategic and intentional in our approach can make all the difference. So let’s roll up our sleeves, get creative with our supply strategies, and watch our marketplaces grow.