Marketplaces — Why they are the present and the future
Everyone knows what marketplaces are and why they are so great. I’ll define a Marketplace as a place where a buyer can meet many sellers…
Everyone knows what marketplaces are and why they are so great. I’ll define a Marketplace as a place where a buyer can meet many sellers and buy from them. I think thats the simplest definition I could come up with. Before the “sharing economy” and the collaborative economy became buzzwords they are at their simplest definition a marketplace. Some of them sell services (Uber, Airbnb, True Car), and some of them sell products (Ebay, Amazon ) and some sell both (Houzz). There are existing business to consumer marketplaces and growing and there are business to business marketplaces that have been built as well. I will preface my opinions by stating that I am only touching upon the less obvious aspects of the marketplace.
Choice
Marketplaces offer great choice. You seed the market correctly, allow vendors galore to sign on and boom. You have tons of options to purchase from. In the recent times, the gig economy has enabled some of these marketplaces to take advantage of network effects. Uber has done a stellar job with offering drivers incentives as has Airbnb. In the early days, Airbnb got many of its early listings from Craigslist, but once the listings were on Airbnb and the hosts started seeing revenue, they told other hosts and this cycle has emerged in millions of listings. This automatically means that buyers are now engaged with the site as they have more and more choice. It also ensures that shoppers are getting their best value for their money. How many times have you not bought a book or a product without bargain hunting online. When your entire purchase is based on brand and price, the consumer wins big time.
Group Economy
During my time at Intel, I worked on building products for Intel’s Small Medium business owners. Now, Intel is a huge giant and through grouping some of these SMBs, I was able to negotiate great discounts on software prices on behalf of these SMBs that they could have otherwise been unable to negotiate themselves. To put things into perspective, an SMB can go buy a software license for 5 seats for perhaps 60 dollars per seat. Now, imagine the SMB joining a conglomerate of other like-minded businesses. Together, we were able to negotiate a volume discount to drive down the cost of licensing to almost 80% down. For an SMB, this impact is sizeable. I took this idea to building Hautely, attaching multiple fashion designers and promising volume businesses allowed me to negotiate huge discounts on international shipping. Marketplaces can successfully consolidate fragmented businesses and give them more power. As the adage goes, “little drops of water make the big wide ocean”, this has never been truer for smaller companies as it has been today.
Trust
This is a tricky one when it comes to a marketplace. Much of the marketplace trust was based on seller trust. Now there is buyer trust, seller trust and lastly marketplace trust that have to be tackled.
Ebay and Amazon have done a great job in building a self-annealing feedback system that allows the network to weed out the bad ones. I remember buying laptops of Ebay and scouring through the seller rating systems before I decided to make my purchases. Or reading the countless reviews on Amazon before they were replaced by fake reviews. Now the five star rating system is used ubiquitously. Uber has a rating system where the drivers can rate passengers and vice versa. More has to be done on building trust. Its a chicken and egg problem, the problems of the marketplace are revealed only when you use it more.
So what’s next?
Mobile First — “Whatsapp is a marketplace”
On my recent trip to India, I saw this transaction go down several times. I had friends who were running their own saree businesses. And would send out a whatsapp message to their friends and families with photos of home-run businesses such as sarees with prices. The response and success rate of these sales is tremendous. No cash exchanges through the app itself but the saree reservations were made and offline purchases were enabled. Even local services such as the local grocer, the milkman etc were using these systems quite efficiently. Albeit, they still are not as cool as high res images on apps, but whatsapp has taken down the technology barrier.
The next decade of evolution in marketplaces is largely going to come from mobile. Add that to my thesis that folks who were previously uncomfortable using computers, like my mother are now comfortable clicking a few buttons on their smart devices (ipads, and iphones) to make purchases. Take that further, and build ready-to-use mobile shops and applications and consolidated marketplaces, you have choice, ease and comfort sitting at your home. We live in an exciting time!
Differentiated Services
Marketplaces offering services and differentiated services will standout. What do I mean by that? As we evolve into the future and everyone sees the value of a marketplace, differentiated services will be all the rage. Already, we have glimpses of this with Amazon. Amazon Prime is a case in point. Prime offers 2-day delivery. This is the case of the marketplace providing value both the buyer and the seller. By delivering things sooner, the customer satisfaction is higher, driving up the NPS and driving repeat business for their suppliers.
Niche marketplaces — b2b marketplaces, furniture marketplaces etc will take it to the next level. Target took on Walmart by just offering a small difference in customer service. While Walmart focused on the everyday low prices, Target focused on providing a better experience. I see this happening to online marketplaces as well.
Make to Order Marketplaces
Already we are seeing an emerging trend here — A marketplace that is no longer two-way but its three-way, sometimes four-way will be the norm. A confluence of different services — a designer meeting a maker meeting a sourcer meeting a salesperson meeting a buyer could all be the vision for how we do business in the future. This will mean that these marketplaces provide a different type of value for each of these types of customers and every piece of the value chain will benefit from being a part of a marketplace. This also means, that we are going to breakdown those internet barriers and truly democratize the process of creating and wastage around this world. Leftover inventory, inventory underages, and overages will be a thing of the past. Of course, this level of operational innovation comes from true support through logistics and impeccable customer service.