Marketplace Strategies: Part 2: Vertical vs. Horizontal

In my prior post I introduced a number of marketplace strategies for product managers to consider when launching and growing marketplaces. In this post I will expand on two of those ideas: vertical dominance, and horizontal expanse.

Vertical Dominance, then Horizontal Expanse 

The matching function of markets depends upon a seeking buyer finding a willing seller at the same place and time, at a mutually agreeable price. The “place and time” part is critical. In the early days of building a market, product managers need to optimize for the probability of matching. One way to do this is to focus on dominating a specific product or vertical. 

Several benefits emerge from vertical dominance. An unambiguous message that, “this is a market for [x]” can cut through the noise to reach buyers looking for, and sellers offering, [x]. If sellers know the market specializes in their product or service, and that the market is out advertising to potential buyers, they have an incentive to take the trouble to post offers. When buyers in turn find some sellers posting offers, the convenience of buying at the marketplace may exceed the cost of a less efficient search for better prices elsewhere. The resulting transactions benefit both buyers and sellers and increase the value of the market. 

Picking a vertical focus also enables marketplace product managers to focus and set priorities. Tools relating to inventory, pricing, market access, search, and transacting can be optimized with fewer compromises than a general purpose marketplace. For example, a market focused on matching babysitters with parents can focus on communication, tools for scheduling, and features to reinforce trust. A market focused on sneaker reselling can focus on ensuring authenticity, and photo showcasing.  

As noted in my prior article, examples of markets that have launched with a very specific vertical focus are Sittercity for babysitters and StockX for sneakers. Sittercity has retained its focus on babysitters, while StockX has expanded its market horizontally across products to include clothing, collectibles, trading cards, etc.

Horizontal expanse is an effective strategy for growing an established market but is challenging as a launch strategy. Jet.com attempted a no-less-ambitious feat than to launch a competitor to Amazon. The company raised substantial rounds of venture capital but still struggled with its strategy. 

At first blush Etsy provides a counterfactual. It was launched as a horizontally expansive marketplace for hand-made and vintage goods of any kind. Etsy benefitted from its sellers acting as an army of marketers advertising their wares on social media and directing buyers to the site, a strategic marketing consideration beyond the scope of this article. However, while the products sold on Etsy were quite diverse, a market for “hand-made and vintage goods” nevertheless defined a specific vertical focus and Esty dominated the market for hand-made and vintage goods. From a product standpoint, this approach enabled the market to be optimized for physical goods that require similar features for showcasing and transacting. 

Vertical Dominance + Horizontal Expanse

The benefits of a vertical focus strategy can be combined with a horizontal expanse strategy when growing an established market. Product managers should look at other verticals that are well suited to the marketplace design they have implemented. For example, a logical expansion for Sittercity would be other verticals related to caregiving that require trust, scheduling and communication, such as elder care, or pet sitting. StockX’s expansion into other pop culture/collectible physical goods requiring authenticity and photo showcasing was logical and successful. 

What PMs Should Do

Product managers’ should choose a marketplace strategy of vertical dominance for new markets to optimize for a critical mass of buyers and sellers. The definition of the “vertical” is important for product marketing and design decisions. Product managers for established markets can execute a horizontal expanse strategy to drive growth. New verticals should be prioritized based on their alignment to the existing marketplace features and mechanics. While not hard, fast rules, these strategies can help optimize product, marketing, and engineering resources to launch and grow successful markets.