1/ As $ABNB ramps up for it's IPO, one of the questions is how they'll increase their take-rate (hovering ~12%-13% over the past few yrs). Their proposed solution? Ads. Below I'll explain some of the nuances of commissions vs. ads for mktplces and how it relates to supply.

2/ Commissions are usually a % of the sale charged to supply to access the mktplce (services + demand). Ie. $DASH typically charge restos ~30% to access the platform. So if a user orders $20 of food, the $DASH would keep $6 as it's commission.

3/ The floor commission is what a mktplce needs to charge to break-even. The ceiling will approximate the operating margin % for the supply. Any higher and supply will lose money (bad for everyone). Figuring out what exactly to charge between this floor and ceiling is HARD.

4/ Let's take $AMZN's mktplce for ex. They operate in 1000's of different categories across the globe, trying to determine the commission for each down to the % would be impossible (esp if you consider that supply's margins fluctuate with the price of raw materials, labour, etc.)

5/ Instead, $AMZN conservatively prices commissions (data science) and layers on ads to capture more margin. These are typically pay-per-click, where supply bids up up the price of the ad. This allows for dynamic skimming of extra margin from supply willing to pay for more demand

6/ And a mktplce with a lot of competitive supply will more intensely bid up the price of the ad (ie DTC brands on $GOOG).

7/ Sometimes mktplces forgo commissions all together and monetize supply just through ads. This can be an effective way to enter a market, rapidly build supply (removes friction), and kickstart network effects. So why doesn't everyone do this?

8/ At least some supply would have paid a commission but won't invest in ads. Esp supply that is already at 100% utilization. ie a host or resto that is always busy would have paid a commission has no incentive to pay for ads. Non-rival goods (ie Udemy) are a great fit for ads

9/ There's also often diminishing returns to supply. Ie food delivery; user conversion plateaus at about 250 restos in your feed, adding more restos isn't going to add much value. Ads = casting a wider net but you may make more $ w/ a commission from a smaller base of supply.

10/ So in summary, picking between ads and commissions if often a function of supply but at the end of the day their both just take-rates. And what you're seeing more often are tech co's that blend commissions and ads, where the latter is used to capture profits on the margin.