Infrastructure for Marketplaces: The Shovels and Picks of the End-to-End Marketplace Gold Rush!
September 8, 2014
by Guimar Vaca Sittic
Building marketplaces is really hard. The hardest nut to crack is building liquidity: having a critical mass of buyers and sellers. One of the main reasons marketplaces fail is that they don’t live up to the expectations of their buyers, and consequently, of their sellers. Buyers typically not only expect the type of quality of service to be comparable to that of an Amazon or Zappos, but also, they are unaware that the service in a marketplace is provided by a third party rather than by the company itself.
Given these high expectations, marketplaces work hard to improve the quality of their suppliers. Many marketplaces have regular training seasons to do so. Airbnb teaches its hosts how to treat their guests upon arrival, how to promote their home on their website, and how to optimize prices depending on the season, etc. Skillshare trains their teachers how to manage student expectations, how to choose the right venue and select the right schedule for the class, etc. Marketplaces make their suppliers do a lot of work!
People tend to mimic each other. If there are a few sub-par sellers who write lousy descriptions and take low quality photos, then often the supply quality of the marketplace as a whole starts declining as other suppliers think it’s ok to do the same (which is less work than doing a good job). Airbnb realized hosts were really bad at taking high quality photographs of their homes, so they hired professional photographers to raise the bar. Although any user can request to use the photography service for free, even hosts who take pictures by themselves improved their quality significantly by mimicking the work of the pros. It’s crucial to provide guidance to sellers in a marketplace. Airbnb competes against Booking.com and hotel experiences; as such they need to provide a superb experience for renters pre-booking and during their stay.
Building an infrastructure around marketplaces is crucial since it enables new markets to arise. OpenTable and Mindbody created the marketplace at the same time as they created its infrastructure. OpenTable could not operate their marketplace efficiently if restaurants did not have a proper reservation management system, so they created one alongside with the marketplace itself. These are concrete examples in which the infrastructure the marketplace needed was very specific, and hence, one company could take care of it. However, most of the marketplaces need infrastructure for several functions and cannot build everything themselves.
Sellers have multiple needs that are hard to fulfill at the beginning. A seller in a marketplace like eBay or Etsy needs to get reviews, determine pricing, ship their products, take pictures, manage their inventory etc. What would happen if somebody else (and, by somebody else, I mean technology) replaces all those needs? There’s a new wave of companies trying to fulfill all these needs to help marketplaces reach a liquidity inflection point faster. Shippo helps sellers handle shipping labels automatically and get the best shipping prices. Boostable helps sellers handle online marketing to boost their sales. Stitch Labs helps sellers deal with inventory management across platforms. Real Trends helps marketplaces communicate with buyers through their CRM. FotoFuze helps sellers take white-background photos with their phones. All these companies provide the right infrastructure for open transactional marketplaces and strengthen their position as the quality of the supply-side improves dramatically. They sometimes make them look like next generation end-to-end marketplaces. For instance, AirEnvy and Guesty take 100% of the hassle away from hosts on Airbnb.
There is a huge gold rush towards end-to-end service augmented marketplaces like Uber, Handybook, UrbanCompass and Beepi. These marketplaces do most of the work for buyers and sellers. They make up for the lack of training and inefficiencies suppliers have. These new marketplaces have raised billions of dollars over the past few years and already served hundreds of thousands of users. The rise of end-to-end marketplaces calls for a completely different type of infrastructure, which is targeted separately to the marketplace itself and to the service providers. The needs Uber, HomeJoy, Flycleaners or Sprig have are completely different than the ones needed by open marketplaces.
Many of the new end-to-end marketplaces are built around the on-demand economy and work with contractors on the supply side. Marketplaces needs now include a completely different spectrum of services. They need things such as background checks for their drivers (Checkr.io) or an optimized routing system (Trak by Addy) among many others. The new relationship between contractors and marketplaces also creates a myriad of opportunities and the need of proper infrastructure. Companies like Zen99 are already selling insurance to contractors and helping them with their 1099 forms. Others like Breeze help potential contractors to rent a car and get started in Uber or Lyft automatically. How do drivers optimize which marketplaces to use based on timing and demand? Is there a better way to provide insurance to cars that work on multiple marketplaces? What type of logistic services will self-driving cars bring? We will see more infrastructure companies targeted both to the marketplaces themselves as well as to the service providers. There’s a new economy surging and there’s a clear need for proper infrastructure.
Today it is clear infrastructure is still at its infancy for both open and end-to-end marketplaces. What makes this category very promising to me is that during the gold rush, there were those who became rich by selling shovels and picks instead of looking for gold. We are living exciting times for marketplace enthusiasts like me. I look forward to seeing the development and the unfolding of how this new class of infrastructure plays out.