How in-app messaging can help marketplaces achieve liquidity
Since connecting supply-side and demand-side is the fundamental task of marketplaces, it’s easy to see why in-app messaging complements this market so well. Nothing else so directly connects and facilitates communication between demand and supply, buyer and seller, or customer and service provider than direct 1 on 1 messaging or, even, group chat.
Connecting buyers to sellers - Casey Winters (former GrubHub, Pinterest, and Eventbrite) argues that this is the first and fundamental stage of marketplace growth. This article will show how in-app messaging can:
- Encourage marketplace liquidity by accelerating conversion and transaction
- Boost engagement for marketplaces with a high average order value
- Retain more users by building trust and adding convenience to your marketplace
In the end, we’ll have narrated several key-points in the pyramid below, which demonstrates how messaging can benefit liquidity in marketplaces.
What is marketplace liquidity?
Liquidity is a key metric in marketplaces. It measures the transaction activity of a marketplace and it is often taken to measure the success of the marketplace’s balance between supply and demand.
You can calculate it by taking the percentage of the total goods or services in the marketplace sold over a period of time. The higher percentage of goods and services booked, the more activity and sales in the marketplace. The less time it takes to sell a percentage of those goods and services, the faster the transaction velocity and, therefore, the greater the marketplace activity.
Assume, for example, your marketplace sells 5% of your total goods over 7 days. That means your marketplace sells .714% each day. As your liquidity goes up, more suppliers join your marketplace to sell goods. Once more suppliers are aggregated in your marketplace, more customers will show up to buy, driving more suppliers and so on. This phenomenon is the simplified form of a network effect for marketplaces.
Achieving marketplace liquidity, in other words, helps you scale your demand- and supply-side by attracting both through network effects.
Chat & Messaging Helps Liquidity
Once we understand liquidity as the activity of a marketplace, then we can understand how connecting the supply- and demand-side through in-app messaging can increase liquidity.
The scenario goes like this. The more a buyer messages a seller, for example, the more informed they are about a product and the more they trust the seller. The more informed they are about a product and trustful of a seller, the more likely they are to transact. The more they transact, the more liquidity in your marketplace.
By combining live chat and video into live-commerce, for example, TMON reached a sales conversion of 21%. While that may be a somewhat unique case, the conversion brought about by chat is astounding.
We should note, however, that increasing liquidity with chat & messaging works for horizontal marketplaces, where the goods or services sold are not entirely uniform - where, that is, a buyer could benefit by learning more about the product from its seller.
Jonathan Golden, the first (and former) Product Manager at Airbnb, describes this kind of marketplace as a search marketplace with a heterogeneous supply. This means the buyer is responsible for finding the product or service they want and this increases the “cognitive load” on the individual user. This cognitive load can lead to a drop off in conversion.
When the cognitive load of a buyer can be disburdened by a messaging exchange that informs them about the product and connects them to the seller, conversion can become more likely. This would likely complement other search marketplace strategies like constraining supply (if your marketplace can) or personalizing searches or options according to user’s previous choices.
But to imagine that a genuine exchange between two people can only reduce cognitive load is fairly one-dimensional and ignores the other benefits: increased trust, human engagement and relationship building, marketing and selling the user in various ways, transparency about the product and so on.
What about marketplace engagement and retention?
In addition to helping conversion, chat and messaging is commonly associated with increasing engagement and retention in apps.
This depends, of course, on how you measure engagement and retention. And since they’re often described as the same metric, Andrew Chen discusses why it’s important to disambiguate the terms. Essentially, an app may have high or low engagement and high or low retention, and, yet, still be successful. Google, for example, has high retention and low engagement - users often return to Google but they may only search one term each time.
Marketplace engagement - in-app chat and messaging is engagement
Engagement can be measured by how long a user stays in your app or how much a user takes an action within your app. From the point of view of engagement, then, in-app chat and messaging can directly increase your user engagement or even be directly measured by the number of messages read or sent. If engagement is messaging activity, then you can develop a direct relationship between messaging activity and liquidity (transactional activity).
Eden.io, for example, tracked messaging engagement and saw 50% MoM messaging growth, while also growing to over 17 metropolitan areas in 3 months.
Since messaging encourages high engagement, it can work well in marketplaces with high average order value - differentiated goods like collectibles; expensive goods like cars, real-estate, or other high value items; personal goods like housing or rentals; classifieds, etc. In the article above, Andrew Chen suggests that low engagement can potentially mean that you’re closer to conversion, but that’s really only true in cases where the good or service is uniform.
Carousell's Online Marketplace
When the average order value is high, messaging can be one of the best ways to measure engagement because its leads to retention and better conversion or monetization.
Marketplace retention - in-app messaging retains marketplace users
Studies show that in-app messaging, when implemented well, increases user retention by 3.5x.
In a different article about scaling Airbnb, Jonathan Golden frames the importance of retention well, when he describes how negative user data showed that the worst user experience a customer could have on Airbnb would be no response to an inquiry or booking request. He says, “In fact, they would try again less than a quarter of the time, far less than if the host had just said no. We were losing guests to a false impression that there was no liquidity in the market for them.”
Messaging, paired with push notifications, announcement messages, or other custom notifications using webhooks, can all but guarantee a response in your marketplace, increasing retention, yes, but also giving a strong impression of liquidity in the marketplace.
Build the foundation for retention with Trust and Convenience
Breaking retention down further, Golden suggests that there are two incentives to keep users in your marketplace platform:
In-app messaging builds trust and helps eliminate fraudulent transaction
Trust can be built by three factors
- Identity verification - Do I trust this person?
- Reviews - What do other people think of this person?
- Assurance - If something goes wrong, can I easily contact someone?
Messaging addresses the first and third of these directly - Identity and Assurance.
By developing a unique person to person connection, messaging allows you to connect to a buyer, seller, or service provider and find out more about their product, business, or service. This conversation will naturally build trust as well as give each side of the marketplace the chance to vet or ask the other side questions.
In-app messaging is the best way to develop assurance. In marketplaces, a seamless and quick transaction is great, but if something goes wrong it’s best to follow up with a convenient and human interaction. In-app messaging can provide both between the buyer, seller, service provider, or your marketplace’s customer support.
In-app messaging provides the easiest way to commuinicate
Convenience can build a moat around your product by providing every service within your app. Three key aspects of convenience include:
- Payments - Secure, bi-directional payments?
- Messaging - Can I communicate with the other party?
- Transaction - Was the transaction easier on the platform?
While in-app messaging clearly provides convenient communication, it indirectly provides an easier transaction. Messaging can create an easier transaction for a marketplace with a high average order value and knockout the transactional aspect of convenience, too.
Conclusion: Marketplaces will catch up with emerging Chat API and SDK technology
Now that the API and SDK technology exists to make integrating premium chat and messaging into marketplace apps, it’s only a matter of time before marketplaces start to take advantage of this technology.
We’ll conclude with Jeff Jordan, former Ebay and current General Partner of Andreessen Horowitz. In an essay about creating “perfect competition” for marketplaces, Jordan prescribes several mantras to execute the “#1 job of anyone who manages a marketplace.” Here are two that focus on the marketplace platform:
- “Maintain complete transparency in the marketplace so that participants (especially buyers but sellers too) have perfect information on products and their pricing.”
- “Focus heavily on safety so the marketplace is as safe as possible to create the trust required on both sides.”
In-app messaging will help marketplaces do both - create transparency and trust - while it helps them create liquidity, engage and retain its users, whether buyer, seller, or service provider.