:) Yep. We read this too, and we loved this comment:
Steven Cox 22 hours ago-
The amount of margin a company can extract from the marketplace depends on a couple factors: (1) Amount of competition within the category, (2) the amount of value the company is providing that market participants are willing to pay for (example: a listing site vs. a listing site plus scheduling and billing tools), (3) the virality of the business (lower CAC = ability to charge lower fees), and (4) the presence of a recurring revenue stream (allows for lower margin per transaction).
No matter what margin the business decides on, the strategic decision each company must ask is how much adoption is needed today vs. the expeted margin. The higher the growth needed, the lower the fees need to be.
Once, I heard an early eBay Executive explain how eBay's initial low fees allowed them to run away from other early auction sites. They were priced low enough to where no one could undercut them and priced where the market contributors deemed the fees reasonable. The other sites had two options: charge less and go out of business or charge more per transaction to get the same revenue output - which caused the market contributors to seek out a lower cost solution (eBay). Game over.
Part art, part science... and a tank load of work.
I definitely agree it's part art and part science.
"The higher the growth needed, the lower the fees need to be."
I don't think that's strictly true. If you had two companies and one had three times the margin of the other, this gives them three times the revenue of the other to acquire and service new customers.
Without the margin you need to go the massive VC route, which is what eBay pursued. Depends on how you want to build the business I guess.
Steven Cox 22 hours ago- The amount of margin a company can extract from the marketplace depends on a couple factors: (1) Amount of competition within the category, (2) the amount of value the company is providing that market participants are willing to pay for (example: a listing site vs. a listing site plus scheduling and billing tools), (3) the virality of the business (lower CAC = ability to charge lower fees), and (4) the presence of a recurring revenue stream (allows for lower margin per transaction).
No matter what margin the business decides on, the strategic decision each company must ask is how much adoption is needed today vs. the expeted margin. The higher the growth needed, the lower the fees need to be.
Once, I heard an early eBay Executive explain how eBay's initial low fees allowed them to run away from other early auction sites. They were priced low enough to where no one could undercut them and priced where the market contributors deemed the fees reasonable. The other sites had two options: charge less and go out of business or charge more per transaction to get the same revenue output - which caused the market contributors to seek out a lower cost solution (eBay). Game over.
Part art, part science... and a tank load of work.