Mindshare > Supply
Customer Mindshare as a competitive moat in marketplaces businesses, and beyond.
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In a marketplace business model, earning the mindshare of the buyer is ultimately more durable than differentiated supply.
I spoke with Boris Wertz, Partner at Version One Ventures, and former marketplaces founder, about the importance of customer habits, behavior, and mindshare when it comes to truly “owning” a marketplace category:
“I think in the beginning, any marketplace that is starting to evolve, it's built around supply and if you don't have the supply, you don't even have a marketplace. And so you really need to kind of start there.
But as the category grows, sellers on that marketplace will look for other opportunities to sell their inventory, sell their products, sell their services. There's no reason for them to just stay on that marketplace and other competitors will come in and really look at onboarding these sellers as well.”
What he’s saying is that supply, over time, will never truly be unique. That’s a hard hill to defend. Supply moves into other categories and into other marketplaces. It’s like water.
So supply, while it’s necessary to differentiate at the start, is an eroding moat. You therefore need to fight for the customer’s mindshare; to battle to stay top of mind when they make a purchase.
You can find 99.999999% of the things on Amazon elsewhere. Their longtail of books got them off the ground. But they didn’t “win” due to supply. They win because you are already on Amazon for many other products. So why would you go elsewhere?
Another example:
“The similar thing is look at what happened with Uber and Lyft in the services category, right? They both started out in the same area of private ride-sharing, but then Uber really expanded across many different categories, many different products within ride-sharing and then Uber X and then premium, then comfort, et cetera. Then added Uber Eats on top of it, et cetera, and became just a much larger app in terms of the exposure that they had and the coverage that they had.
Lyft stayed kind of much smaller and much more focused. And so I think every single marketplace is evolving like that over time that they start with very unique supply, then supply becomes liquid across many other marketplaces. And then what ultimately matters is that the buyer awareness, the buyer mindshare.”
Uber wins because I take out my phone and without thinking click the Uber app before the Lyft app, out of habit. The exact same car (quite literally - as most drivers exist on both platforms) could be summoned on either app, but Uber earned my mindshare.
And here’s the mind blowing part - over time you aren’t competing against people in your category - your competing against ALL apps for mindshare.
Someone once said to me “You aren’t competing against other CFO newsletters; you’re competing against Taylor Swift.”
It was said partly in jest, although I don’t doubt that many of my readers are HARDCORE Swifties. But it’s true. all entertainment competes for limited hours in the day.
The same thing goes for podcasts. The average person only has four or five in their rotation. So Run the Numbers isn’t necessarily competing against other business podcasts… but also Joe Rogan, and Bill Simmons, and Guy Raz, and anything else a lister may tune into (I tune into all of these weekly, btw).
To tie it back to marketplaces:
“I think most people have probably four or five apps that do most of their jobs for you, for them. And only in the case that these apps can’t do the job, then you look somewhere else. But ultimately you become very focused on a few apps that drive most of your activity.”
In Asian cultures, it's more normal to have an app that does way more things than in US cultures. Like Grab - the “Everyday Everything App” - which provides deliveries, mobility, and financial services. And so it makes sense that Elon wants to create an everything app eventually where maybe it starts top of funnel by getting people through a social network, but eventually, you're buying things for your office or booking a vacation.
Mindshare is an important lesson not just for Marketplace operators. The concept can be applied to anyone who’s trying to build a business that depends on repeat transactions, especially in the B2C realm. A change in behavior is a change in mindshare. And mindshare becomes the ultimate strategic high ground that companies are looking to win.
Run the Numbers
Apple | Spotify | YouTube
Boris and I discuss:
Creative ways to solve the chicken and the egg problem in marketplaces
Marketplace liquidity
His favorite metrics for gauging product market fit
Quote I’ve Been Pondering
“Boldness? The most successful generals or admirals in military history shared one characteristic: they were willing to ignore orders and risk utter disgrace in order to exploit rapidly changing circumstances.”
-How to get Rich by Felix Dennis