3 unexpected things that $9 billion Stripe discovered about why Lyft, GoFundMe and other online 'marketplaces' are so different

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3 unexpected things that $9 billion Stripe discovered about why Lyft, GoFundMe and other online 'marketplaces' are so different

Will Gaybrick Stripe

Stripe

Stripe's Chief Financial Officer Will Gaybrick shared what the company learned from analyzing troves of customer data.

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The marketplace economy is hot.

Just ask Stripe, the $9 billion payments company that has become part of the basic wiring for thriving online marketplaces.

These marketplaces allow a diverse range of buyers and sellers to connect and do business, whether it's riders and drivers on Lyft's platform, or homeowners and furniture assemblers on TaskRabbit's service.

Stripe's application programming interface (API) lets companies that operate marketplaces receive payments in their apps or on their websites. It's used by a range of companies, from Facebook and Glossier to Lyft and TaskRabbit - which means Stripe has access to a lot of data about companies' revenues and consumer habits.

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It's a booming segment that includes a range of well known companies, like the commerce platform Shopify, the crowdfunding site GoFundMe, the on-demand food delivery app Postmates, and the restaurant reservation company OpenTable. And there are some unique aspects of the marketplace economy that can mean the difference between success and failure.

In research shared with Business Insider, Stripe looked at hundreds of these marketplaces running on its API over a two year period. It samples a span of companies of various ages and sizes, across different industries and geographic locations.

These are the three key trends Stripe saw in marketplaces around the world.

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1. Marketplaces, no matter how big or small, experience a sharp revenue growth bump

1. Marketplaces, no matter how big or small, experience a sharp revenue growth bump

Stripe found that the typical marketplace triples in revenue each year, regardless of its size.

This 300% hypergrowth, according to Stripe Chief Financial Officer Will Gaybrick, has been a long time coming.

"In many ways this is inevitable because marketplaces are canonical of the internet," Gaybrick told Business Insider. But costs prevented all but the most well funded startups from building secure e-commerce companies for a long time, leaving marketplaces an untapped market, he said.

Then came services like Amazon Web Services, which dramatically reduced the need for high-cost servers and databases, as well as companies like Stripe, which eliminated the need to build a custom payment system for each and every app out there, Gaybrick added.

"For a long time, it was pretty hard to compete if you were someone trying to enter the online marketplace economy because of infrastructural challenges," Gaybrick said. "I think what you're seeing now, which Stripe has played a not-immaterial role in, is the coming of age of marketplaces."

2. Keeping sellers happy is way more important than buyers

2. Keeping sellers happy is way more important than buyers

Seller retention is one of the most important factors in growing revenue, Stripe found.

Increasing seller retention by just 1 percentage point predicts 10 times more revenue than when buyer retention increases by 1 percentage point, according to the research.

This means that one of the most high-impact moves a platform can make is to add seller benefits, Gaybrick said.

One example of this is instant payment. Stripe found that 55% of sellers in marketplaces would switch to a competitor just to be able to get paid instantly.

With that in mind, the company built an instant payment feature for Lyft, which enables drivers to get paid for rides as soon as they are completed.

"If you're an Uber driver and you could go to Lyft and get paid faster, that's enough to make that switch."

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3. Being first isn't enough to stay on top

3. Being first isn't enough to stay on top

Stripe's research disproved the conventional wisdom that the first to market will own the business.

"Late comers move just as fast as the first movers," Gaybrick said.

Stripe found that while first movers often capture initial market share, that's not enough to maintain their lead unless they make further investments in the platform that keep them on top.

Stripe thinks this is because marketplaces aren't exclusive, and many of the sellers that provide services on one app also provide services on other competing apps. Buyers can also test out multiple competing apps at no cost to themselves, and make a decision based off of which they like best.

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