A Lesson from Airbnb for Marketplace PMs
+ Understanding Gross Merchandise Value through a mall analogy
Catherine Powell, Head of Hosting at Airbnb, recently did a fireside chat at the Collision 2022 tech conference.
She walked through some of the chaos that Airbnb was facing when the pandemic hit in April 2020.
Catherine had only been hired a couple of months prior (she moved over from Disney). She was gearing up to lead Experiences at Airbnb (a segment that was growing fast) when the pandemic decimate 80% of the business in a matter of a few weeks.
That percentage is further amplified when you realize the kind of scale Airbnb works with.
4 million hosts around the world.
Across 220 Countries.
In over 100K cities.
Over 40% of them making their primary living from Airbnb.
The economic impact was massive to say the least.
For obvious reasons, Airbnb made a pivot.
They tried their hand at Virtual Experiences which gave a few hosts some relief but couldn't offset the damage already incurred.
July 2021: Things started opening back up.
Airbnb noticed a new era of usage: digital nomadism.
As remote work became commonplace, people travelled to rural places for longer stays.
In the upcoming quarters, Airbnb saw:
- Over 50% of the bookings were for 7 days or longer.
- Over 25% of the bookings were "long stays" (> 28 days).
But here's what I found interesting.
Catherine & her team used the platform to actively educate hosts to prepare them for these behavioral shifts.
This led to them rolling out several initiatives that helped hosts to update their offerings & increase their bookings.
👉 Airbnb created a global host advisory board to listen to hosts & sync up with ground realities. Many hosts had deep insights that weren't apparent on native reports.
👉A Flexible Search mechanism was rolled out to allow guests to quickly look for weeklong & monthlong stays.
👉 An insights dashboard was added for hosts to keep them updated about how travel was changing.
👉 Wi-fi was a crucial aspect for people working remotely. Not only were hosts asked to upgrade Wi-fis to boost bookings, a tool to verify Wi-fi speeds was also made available to comfort guests.
👉 This also meant having dedicated work stations at homes along with ergonomic furniture for laptop users.
👉 Longer stays also meant families would travelling with their pets. Hosts were encouraged to build measures to accommodate them. Eventually, am insurance coverage program for pet damage was rolled out.
Sometimes, as PMs, we hoard behavioral insights for ourselves to bake in changes to the product.
However, for 2-way marketplaces to work better, reducing the expectation gap between both parties through proactive education creates a triple-win scenario.
As Growth PMs for marketplaces it’s important to:
Keep talking to all parties involved to see track how their needs are evolving.
Summarize those learnings & democratize them across. Educate.
Then, position products & tools to better serve those behavioral shifts.
A marketplace’s success is not in the technology middleware. It’s in how closely aligned buyers and sellers needs are.
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Q: "What is GMV? Should marketplaces favor it as their North Star Metric?"
Alrighty. A little #SaaS refresher first: what is GMV & how do you calculate it?
Let's assume your product is a mall that has 2 stores: Apparel & Toys.
For simplicity, let's say the apparel store sells $10 T-shirts & the toy store sells each piece for $50.
After one quarter, each store reports the following:
🔹Apparel = 1,000 shirts sold @ $10 = $10,000
🔹Toy Store = 1,000 toys sold @ $50 = $50,000
So, the Gross Merchandise Value (GMV) simply measures the total $ value of the goods sold by the stores in the mall.
In this case, GMV of the mall = $10K + $50K = $60K.
Well, not so fast.
While $60K GMV sounds chunky, that's NOT what the mall really pockets.
Firstly, GMV doesn't really talk about the cost the mall incurred to support the stores.
For example, the mall has to bear massive utility bills to keep the lights on, provide security & run parking lot operations. Moreover, it might spends thousands to market itself. (analogous to shipping costs & digital ad spend in e-commerce sites).
Secondly, it really depends the kind of deal the mall has with the stores.
Scenario 1: The mall owns the stores & keeps the profits.
Scenario 2: The mall doesn't own the stores but gets a cut of the profits.
Scenario 3: The mall doesn't own the stores but charges a flat rent to the store.
Scenario 1 & 2 sound interesting.
But more registered sales might not equal to financial health of the mall. e.g. the store might be tempted to keep rolling revenue or focus on high-ticket items (ultimately boosting GMV) but at super slim profit margins. Ex: during holiday & clearance sales.
And thus, the profit margins might be << expenses to keep mall running.
So, what does that mean?
Even with a meaty GMV, the mall might not be financially stable. It could well be cutting losses.
Now, in Scenario 3 (common in B2B SaaS), revenue is more predictable as the mall detaches itself from what the store sells.
Whether the store pushes one unit or a million, the mall gets it's recurring share independent of the margins scored. In this scenario, the mall expands by offering premium services to bigger stores e.g. higher rent on prime location or branded valet.
So, is GMV a good metric?
North Stars are supposed to measure the value delivered to customers & GMV does represent contained value of a marketplace: The more the sales activity stores observe, the more buyers benefit with purchases, the better the mall is to do business at.
AND GMV when measured over time illustrates marketplace growth pretty well.
However, taken in isolation, it can hide uncomfortable truths about unit economics. Thus, you'd always want to combine it with a few checksum metrics like:
🔸 Customer Acquisition Cost
🔸 Customer Lifetime Value etc.
Are there live products that use GMV as their North Star Metric?
Yes, Shopify, Patreon & eBay at some point monitored GMV to report business health.