I think you should include the original and disruptive players in classifieds. The classified advertising “marketplaces” charged posting fees, which is basically the casino charging a vig just to sit down at the table. First Craig Newmark, then Indeed, disrupted that with a free and performance-based rake, respectively.

Craigslist in particular took aim at ALL the margin by going with free listings.

Etsy structure sounds quite smart.

In other words you deliver value to the customer and the customer is paying a fee based on your positioning. I know this is a nit picky, but lots of people think of literally extracting value from the customer in a negative way. People in the energy industry used to hate it whenever the word “extract” was used simply because it was what Enron was trying to do.

i have been thinking about how to determine the appropriate “rake” for internet marketplaces for a long time. Not just how to optimally set price; but also why/how those with existing liquidity could be vulnerable to attack

perhaps the most interesting marketplace the piece doesn’t mention — one of the largest dollar-wise and the most opaque on the web today — is google’s adsense. there, every website other than their largest publisher/partners (who fix a rev share) are paid out without actually knowing what % of the gross advertiser dollars they are receiving. further, according to its terms of service, google has the right to change the rev share at will. Only insiders know how google sets prices, but at least the last time i looked at this (admittedly several years ago) it appeared that google was taking a 40-50% rake from most third party publishers. one would suspect these kinds of margins should theoretically make google vulnerable, but so far there has been only segmented pockets of supply of comparable liquidity for the spot-pricing of real-time information queries — and no booking.com-like wholesale disruption on the horizon

another worth calling out is etsy (disclosure: i am an investor) where its founders devised a revenue model, similar in spirit to what you conclude, that they designed to be attractive relative to ebay. the rake was set at 3.5%, plus a nominal listing fee (20 cents) that helps to keep the marketplace clean from “spam” listings. the listing fee also originally doubled as a pay-for-placement fee, the “opt-in premium” you mention, with the most recent listing payment automatically securing top placement on a first-in-first-out basis. so if a seller wanted to remain at the top of the page in a given category, he or she needed to re-list frequently. the 20 cents started to add up to a lot of premium placement fees

While I am tempted to break his post down with multiple thoughts, here are 5 quick thoughts on 5 excerpts . . .

EXCERPT 1:
The most dangerous strategy for any platform company is to price too high – to charge a greedy and overzealous rake that could serve to undermine the whole point of having a platform in the first place.

QUICK THOUGHT: It is always (yes, always) easier to lower your prices than it is to raise your prices. I would rather you start too high and carefully adjust down based on data and results than to price too low, dilute the value of your market/platform and then have to try to raise prices in order to remain a viable/sustainable business. So I get what Bill is saying within the context of his overall post . . but still, the “most dangerous strategy” is to price too low . . . yes, even for a platform company.
***
EXCERPT 2:
If your objective is to build a winner-take-all marketplace over a very long term, you want to build a platform that has the least amount of friction (both product and pricing).

QUICK THOUGHT: All of you readers thinking Bill’s kind post applies to your business by default . . . hello, Bill is clearly a smart and experienced professional . . . I am sure he would agree, stick within the context of his overall post.
Also, key words in the above excerpt are “winner-take-all” and “over a very long term”. Does that apply to you and the value of the marketplace or platform you are building / have built? How defensible are your value advantages over competitors, alternatives and new entrants?
Additionally, he speaks to the “least amount of friction”, but this is within the context of your goals and the realities of your advantages and what sets you apart from alternatives. Keep in mind the “least amount of friction” from a pricing perspective is often assumed to be “free”. But as we know, “free” has its own challenges and friction . . . so do not assume that “least amount of friction” means the lowest possible price your business can handle.
***
EXCERPT 3:
In order for your platform to be the “definitive” place to transact, you want industry leading pricing – which is impossible if your rake is the de facto cause of excessive pricing.

QUICK THOUGHT: My version: In order for your platform to be the “definitive” place to transact, you want industry leading VALUE. Competing on low prices or low rakes is sure way to dilute the overall value of the profit potential of the market you serve in. I know Bill uses the terms “excessive”, “greedy” and “overzealous” at times in his post, but depending on your business objectives and exit goals . . . profitability is critical to the timing , level and sustainability of your market success. If it is truly excessive the market decides and they won’t pay or not enough will pay (part of Bill’s overall point). It not about the price or size of rake, it is about the value you deliver and your value advantages over alternatives.
***
EXCERPT 4:
High volume combined with a modest rake is the perfect formula for a true organic marketplace and a sustainable competitive advantage. A sustainable platform or marketplace is one where the value of being in the network clearly outshines the transactional costs charged for being in the network. This way, suppliers will feel obliged to stay on the platform, and consumers will not see prices that are overly burdened by the network provider. Everyone wins in this scenario, but particularly the platform provider. A high rake will allow you to achieve larger revenues faster, but it will eventually represent a strategic red flag – a pricing umbrella that can be exploited by others in the ecosystem, perhaps by someone with a more disruptive business model. As Jeff Bezos is fond of saying, “your margin is my opportunity.”

QUICK THOUGHT: Much I could comment on just his excerpt alone, but two quick thoughts . . . (1) Bill speaks to the critical balance that must be achieved with a marketplace / platform business. Focus on communicating the value, benefits and advantages of your marketplace or platform. If you focus on price or rake, so will they. (2) Your willingness to race to the bottom on low prices or rakes is not a sustainable strategy. Creating value is hard and creating sustainable value is even harder . . . lowering your price or rake is easy . . . and as Bill notes, easy for everyone . . . it doesn’t make it smart though and is the source of many regrets throughout history. Hopefully, not for you.
***
EXCERPT 5:
Most venture capitalists encourage entrepreneurs to price-maximize, to extract as much rent as they possibly can from their ecosystem on each transaction. This is likely short-sighted. There is a big difference between what you can extract versus what you should extract. Water runs downhill.

QUICK THOUGHT: Again, be very clear and honest with yourself about (1) what your business objectives are, (2) the stage in the value lifecycle your particular market is in, (3) your value advantages today and your value roadmap for the short and long term future. This will better prepare you to determine how much Bill’s kind post applies to you or is more a commentary on the examples he covers.

FINAL THOUGHTS:
I have slightly modified a common reminder I offer to businesses . . .

It’s not the price [rake] they don’t like, but what they understand they are (or are not) getting for that price [rake].

Thanks again to Bill for the excellent post and to others for their thoughtful comments.

Think of all the time and dollars you have invested into your business, products, services and solutions . . . I encourage you to best position yourself, your team and all your shareholders/stakeholders to discover your full market potential on an every day, every transaction basis.

If you are a marketplace or platform business, take the time to understand your customers and what will generate the highest possible Return On Value or Return On Rake for all participants. Bill has helped you get started with this thinking.

Be better than the rest,

Chris Hopf
PricingWire
@pricing