Building a three-sided marketplace


This post is by nabeel hyatt from nabeel hyatt


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Today Postmates announced a long term exclusive partnership with Starbucks. It’s a big milestone on its own, but it also represents another major step in the transition of Postmates from restaurant delivery service to on-demand logistics network.

The very first meeting I had with Bastian, the Co-Founder and CEO of Postmates, was in their old dingy office in the Mission. It was a multi-hour deep dive into the business, on everything from pricing models, to courier earnings, to user experience. But the moment that has stuck out the most since then was when I asked why Postmates was focused on food.

Postmates since the very beginning has described themselves not just as a food delivery business, but a logistics platform. When I asked Bastian “why food as a focus then?” he immediately got animated, in that way he often does, and started talking a lot about liquidity.

He drew on the whiteboard an x/y graph that charted out everything that Postmates could possibly deliver. It was a pretty exhaustive list. On the Y axis he put the size of each market, and then quite insightfully on the X axis he put frequency of use.

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His assertion was that you were teaching consumers a new behavior: that you could get anything from your city to your door in minutes. If he converted a single person to love the service, he wanted to focus on a category that would be purchased frequently, so that merchants and couriers (Postmates) could see the most benefit from one converted customer.

Of course he wanted to be a logistics platform eventually, but restaurants were the thing in that upper right quadrant, the only thing that consumers would buy multiple times a week. Basically, what Beanie Babies and other collectibles were to eBay, restaurants were going to be for Postmates. Only in this case the frequency was even more important because unlike eBay, Uber, and other two-sided marketplaces he was building a three sided marketplace: between couriers, merchants and consumers. 

That bet paid off. A focus on local merchant food delivery allowed Postmates to build the largest on-demand delivery network, with nearly 10k Postmates. They built a network large enough that by late last year they were ready to roll out their logistics platform and API. And after a few months beta period, today they announced their first major partnership with Starbucks.

Obviously Starbucks is a pretty amazing partnership on its own. They have over 21,500 locations across the country, and are the #1 mobile commerce app in the U.S. That will of course mean higher growth for the company, but as with any marketplace it’s also a big benefit for the other participants, namely for Postmate delivering goods, and for a merchant listing their goods on the service.

Higher volumes will allow a Postmate to do more deliveries per hour, increasing their earnings. That will in turn cause the network of Postmates to grow even faster. More Postmates doing deliveries will mean faster service for consumers. And more consumers and Postmates will create a better experience for local merchants trying to compete with the big guys.

Today is certainly a congrats for establishing a long term partnership with Starbucks, starting in Seattle and then rolling out across the country. But it’s also the fruition of a long-layed plan to building a pretty magical service, everything in your city at the touch of a button.