Marketplaces have emerged as powerful intermediaries, connecting buyers and sellers in a seamless digital ecosystem. Yet, platform leakage, also known as disintermediation, disrupts this delicate balance.
But what exactly does this mean, and how does it impact the marketplace business?
In this article we will look at the common reasons that leads to platform leakage, how top marketplaces tackle this issue and effective techniques you can use to avoid it.
What exactly is platform leakage?
Platform leakage occurs when buyers and sellers circumvent a marketplace's platform to directly negotiate and complete transactions.
Imagine a buyer browsing through an online marketplace, meticulously comparing prices and product specifications for a used bike. After careful consideration, they identify a desired bike and initiate a conversation with the seller. However, instead of completing the transaction through the marketplace's secure payment system, the seller proposes an alternative: exchanging contact information and finalizing the deal outside the platform.
Before delving into addressing this challenge, let's first explore some common reasons behind why such a scenario poses a significant challenge to online marketplaces by eroding their revenue streams and undermining their overall value proposition.
Common reasons behind platform leakage
Platform leakage happens for several reasons that make it appealing to buyers and sellers. Here are some common reasons behind platform leakage:
01.
High marketplace fees
Online marketplaces often charge transaction fees to both buyers and sellers, which can incentivize them to bypass the platform to avoid these costs. As transaction fees increase, the potential savings from conducting transactions directly become more appealing.
02.
Convenience of Direct Transactions
Direct transactions between buyers and sellers can be more convenient and straightforward, eliminating the need to create accounts, provide personal information, and navigate the marketplace's platform. This simplicity is particularly appealing for those who are unfamiliar with or uncomfortable using online marketplaces.
03.
Limited Marketplace Features
Some marketplaces may lack certain features or services that buyers and sellers find essential for their transactions. This lack of functionality can drive them to seek alternative arrangements outside the platform where they can find the features they need.
04.
Lack of Trust in the Marketplace
If buyers or sellers have concerns about the marketplace's security, reputation, or customer support, they may be more likely to conduct transactions directly to avoid potential risks. Trust issues can arise from negative experiences, poor reviews, or a lack of transparency about the marketplace's practices.
05.
Technical Difficulties
Technical issues, such as glitches, downtime, or slow loading times, can frustrate users and make them less likely to use the marketplace. These technical difficulties can drive them to seek alternative platforms or direct transactions.
06.
Limited Payment Options
The availability of payment options can influence whether buyers and sellers choose to transact on the marketplace. If the platform offers limited or inconvenient payment methods, users may seek alternatives where they can use their preferred payment options.
07.
Lack of Customer Support -
Prompt and effective customer support is essential for building trust and retaining users. If the marketplace's customer support is unresponsive, unhelpful, or difficult to reach, buyers and sellers may be more likely to conduct transactions directly to avoid potential frustrations.
How popular marketplaces are preventing platform leakage?
Airbnb is a good example of avoiding platform leakage. Here's how it does it:
Airbnb introduced online payments after its founder Brian Chesky’s own encounter, where payment hassles during an awkward stay eroded trust between him and a host. Yet, when customers prepay, they risk provider no-shows or incorrect deliveries. Marketplaces step in as intermediaries to mitigate this risk. An "escrow" service exemplifies this: the marketplace secures payment, releasing funds only upon satisfactory service completion. Airbnb hosts, relying on reviews, might accept bookings solely from positively-reviewed individuals, encouraging customers to use Airbnb's booking system to build trust.
Airbnb's strategy of concealing contact details in messages aims to protect users. However, the underlying motive appears to be preventing users from circumventing their payment system. This tactic safeguards users but also serves the platform's interests by ensuring transactions occur within their ecosystem.
By providing personalized recommendations, inquiry prompts, message translation and 24/7 availability, Airbnb has eliminated the need for users to look outside its platform for booking assistance. The completeness and seamless integration of the chat feature, coupled with proactive communication and personalization, have made Airbnb the go-to platform for travellers seeking a smooth and convenient booking experience.
Read more to understand how Airbnb is leveraging chat to prevent platform leakage and improving user engagement and retention.
Similarly, BlaBlaCar's policy of prohibiting private messages before transactions is designed to protect users, promote transparency, and discourage off-platform transactions.By requiring all communication to be public, BlaBlaCar can monitor interactions, intervene to protect users, and build trust. This policy also facilitates information sharing, maintains platform control, encourages community engagement, and reduces the incentive for users to move their conversations off-platform.
Techniques and strategies to minimize platform leakage to your marketplace:
1. Promoting trust and security
Building trust and ensuring security has been paramount to facilitate any transactions in a marketplace. Marketplace can act as a trusted intermediary to significantly reduce this friction. This can be achieved through various means such as marketplace insurance, formal contracts, and reputation systems. For instance, in the case of a rental marketplace, offering insurance would act as a safety net for both providers and customers. This insurance would not just cover damages or theft, but it would also be a formal contract and by doing so, it could offer a sense of security to both the parties.
Additionally, In service marketplaces like Uber, the shift towards online payments mitigates risks traditionally associated with carrying cash, ensuring security for providers.
2. Using chat to combat platform leakage
While chat has become an indispensable tool in online marketplaces, transforming the way buyers and sellers interact, it can also inadvertently lead to platform leakage.
To mitigate these risks and prevent chat from becoming a facilitator of platform leakage, marketplaces can implement several strategies:
Establish clear community guidelines - Clearly defined community guidelines should explicitly prohibit the exchange of personal contact information, such as email addresses or phone numbers, through chat. This helps to keep transactions within the platform and prevents users from circumventing fees or establishing direct relationships outside of the marketplace's control.
Implement chat moderation and filtering - Employing robust chat moderation and filtering systems can detect and flag potentially problematic messages. This includes identifying keywords, phrases, or patterns that suggest users are attempting to arrange transactions outside of the platform.
Provide Incentives for On-Platform Transactions - Offer incentives, such as discounts, loyalty points, or exclusive benefits, to encourage users to complete transactions within the platform. This can help to offset any perceived disadvantages of staying on the platform and reduce the temptation to transact outside.
Design Chat Features to Encourage On-Platform Interactions - Design chat features that promote on-platform interactions and discourage users from moving conversations to external channels. This could include integrating payment processing functionality directly into the chat interface or automating certain aspects of the transaction process.
Data Masking techniques
Data masking involves concealing or altering sensitive information to protect user privacy while preserving the functionality of the data. Data masking can be implemented in the following ways:
Masking Personal Identifiable Information (PII)
Replace real names, email addresses, phone numbers, and other PII with generic identifiers or non-identifiable characters. This prevents users from directly identifying and contacting each other outside of the platform.
Obfuscating Financial Information
Mask any sensitive financial information, such as credit card numbers, account numbers, or payment details, shared through chat. This safeguards users' financial data and prevents unauthorised access.
Redacting Sensitive Content
Identify and redact potentially harmful or inappropriate content, such as hate speech, discriminatory language, or personal attacks, that could lead to platform leakage or reputational damage.
3. Transforming Platforms into Essential Business Tools
In service marketplaces where providers depend on recurring transactions, the initial connection between a customer and a service provider often occurs through the platform. However, subsequent transactions frequently take place outside the platform due to the established trust between both parties and the desire to avoid platform fees. To address this, service providers like hairdressers, cleaners, babysitters, or rental providers, integrating scheduling features to manage availability or inventory management for those shipping goods (like in Etsy) becomes pivotal.
By offering robust tools that simplify their business processes, the marketplace becomes an indispensable part of the provider's operations, making the platform fee a negligible cost for the value provided.
By continuously enhancing and customizing tools tailored to the needs of service providers, the marketplace becomes an integral part of their daily operations. This approach not only retains transactions within the platform but also fosters long-term loyalty among providers who rely on the marketplace's invaluable services to efficiently manage their businesses.
4. Implementing Usage Restrictions to minimize new business opportunities
The supply-demand equation plays a crucial role in marketplace dynamics. When a marketplace successfully balances supply and demand, it creates a mutually beneficial environment for both buyers and sellers. This balance incentivizes sellers to adhere to marketplace policies, as they recognize the value the platform provides in connecting them with potential customers.
However, for marketplaces where recurring or repeat transactions are prevalent, implementing stricter usage restrictions can be particularly effective in deterring policy violations. These restrictions serve as a clear reminder of the opportunity cost associated with violating the rules, potentially leading to reduced visibility, revenue, or access to the platform.
Some of these techniques include -
Temporary account freeze
A temporary account freeze serves as a temporary suspension of a seller's account, preventing them from listing products, interacting with buyers, or conducting transactions. This immediate halt in activity forces sellers to confront the consequences of their actions and reinforces the importance of adhering to the marketplace's guidelines.
Demoting in Discovery Radar
Lowering a seller's ranking in the discovery radar reduces their visibility to potential buyers, making it harder for them to attract new customers. This consequence directly impacts their revenue potential, further emphasising the importance of compliance with marketplace policies.
Aarathy Sundaresan
Content Marketer , CometChat
