Marketplace Evolution

December 27, 2019

This thread on Twitter about the evolution of marketplaces is well worth a read to anyone working in that space. Most of the low barrier, high-frequency markets have been built and marketplaces are now moving into managed services which are much more difficult.

Managed marketplaces are an important evolution in marketplaces. The low-hanging opportunities in marketplaces have been picked, and the next wave of startups are innovating on the underlying marketplace model to tackle more complex goods/services that have remained offline.

— Li Jin (@ljin18) March 15, 2019

There are still many areas where the purchase decision and actual completion of the purchase require extra work in the background.

The added complication here is that a lot of high-value marketplaces are in industries where the transactions are low frequency. As a result, customer knowledge is low and the trust barrier to acquiring their business is high. Examples include home buying, car purchases, and in my experience energy choice.

Consequently, the largest return on $ spent in these industries is on providing the transaction layer while running lead gen on the services because the customer isn't buying frequently enough (18+ months) to be brand loyal.

In these markets, until consumer confidence in online transaction grows or a dominant brand captures most of the share the costs to retain are too high to also offer services.

So, instead marketplaces focus on purchase & lead gen services b/c it’s the most immediate payback. If not VC backed, this creates great mailbox money for a founder.

All that to say the customer almost always has to be purchased in these markets and the services don’t buy a high frequency of repeat business. Even though their complexity/infrequency could use a high level of end to end service.

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