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A Summary of

A Rake Too Far: Optimal Platform Pricing Strategy

by
Bill Gurley
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Many internet marketplaces have a rake

  • % rake is amount marketplace charges on gross merchandise sales
    • Eg: Amazon marketplace - 12% rake, iTunes - 30% rake, AirBnB - 11% rake
  • High rakes lead to unnaturally high prices, suppliers may look elsewhere

What you can extract vs. what you should extract

  • High volume & modest rake: perfect formula for a true organic marketplace and a sustainable competitive advantage
  • Start with low rake to get broad-based supplier adoption, then add in market-driven pricing dynamic that allows suppliers who want more volume or exposure to pay more
    • Booking.com started with a 10% rake - able to sign up nearly every small hotel in Europe & maintained support from supplier base
    • Average rake is higher now - merchants voluntarily bid up their rake for better placement in network

Facebook:

  • Very successful for the first several years but now game companies are looking to expand non-FB distribution
    • Real cost of being competitive on the platform was much higher than 30%
    • Instead of maximizing revenue from day one, Facebook should’ve proved the platform as a viable and efficient distribution mechanism.

Apple:

  • 30% rake deterred partnerships that could've reinforced the success of the iOS platform
    • Amazon and Facebook could've been amazing partners with Apple
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