It turns out that the average rake at Priceline Group is even higher today, as they allow merchants to voluntarily bid up their rake for better placement in the network (you can see this in the table above). This is one of my favorite marketplace business model “tweaks.” You start with a low rake to get broad-based supplier adoption, and you add in a market-driven pricing dynamic that allows those suppliers who want more volume or exposure to pay more on an opt-in basis. This way no one leaves the network due to excessive fees, yet you end up with a higher average rake over time due to the competitive dynamic. And when prices go up due to bidding and competition, the suppliers blame their competition not the platform (part of the genius of the Google AdWords business model). This also allows you to extract more dollars from those suppliers who desire to spend more to promote themselves (without raising the tax on those that don’t).
What’s a “market?”
According to Fred Wilson, a pure market requires:
- Massive liquidity
- True price transparency
- Open exchanges where anyone can trade
When you have these in place, people feel comfortable trading, a lot.
By this definition, real estate isn’t a true market.
In the U.K. the average home is only 915 square feet. In the U.S. the average new single-family home is 2,480 square feet.
“Real estate, by far, is the most screwed up industry in America,” he told CBS News’s 60 Minutes in 2007. “We feel like things that Amazon or EBay (EBAY) or Yahoo! (YHOO) have done in other industries, we can do for the real estate industry.” Kelman [CEO of Redfin] now regards that statement as an error. “The biggest mistake I made in starting out at Redfin was bringing some Silicon Valley swagger into a traditional industry,” he says. “It was unnecessarily provocative.”