Marketplaces continue to attract the interest of businesses seeking to find new models to grow. And for good reason: marketplaces provide tremendous growth opportunities to extend a business by creating an adjacent market, as Amazon and Alibaba have done with their retail marketplaces, or to launch a business from scratch, as Redfin and multiple automotive marketplaces have shown. But product-based marketplaces are everywhere, and they are becoming commoditized:
We believe that the next big opportunity for marketplaces to grow is through services – even for businesses whose core offering isn’t services.
A Trillion-Dollar Opportunity
Services represent the next trillion-dollar opportunity, as Li Jin and Andrew Chen argue eloquently in this article for Andreessen Horowitz. Contrary to what you might have heard, services marketplaces are much bigger than Airbnb, Angie’s List, and CraigsList. The services industry encompasses highly specialized and regulated verticals such as accounting and law, which are largely untapped. As Li Jin and Andrew Chen assert,
In the past twenty years, we’ve transformed the way people buy goods online, and in the process created Amazon, eBay, JD.com, Alibaba, and other e-commerce giants, accounting for trillions of dollars in market capitalization. The next era will do the same to the $9.7 trillion U.S. consumer service economy, through discontinuous innovations in AI and automation, new marketplace paradigms, and overcoming regulatory capture.
The service economy lags behind: while services make up 69% of national consumer spending, the Bureau of Economic Analysis estimated that just 7% of services were primarily digital, meaning they utilized internet to conduct transactions.
And you don’t even need to be a services provider to capitalize on this opportunity as there are adjacent services in most product-centric verticals. For example, what if:
- A provider of fitness related products launched a marketplace of fitness coaches?
- A retailer of home improvement products operated a marketplace of home-assembly and repair experts?
- An apparel retailer launched a marketplace to address the vexing issue of returns?
- A B2B trucking company launched a marketplace of certified maintenance technicians?
We believe brands would do well to discover and validate what the services marketplace opportunity means for their customers and users. We even have a tailor-made process – the design sprint — that helps businesses quickly identify customers’ pain points, reducing risk, clearing up ambiguity, and unpacking complex problems associated with marketplaces. (In fact, I’ve written about that very topic here.)
Well Founded Excitement
Our excitement over marketplaces is well founded. As Jeff Jordan of Andreesen Horowitz eloquently states, marketplaces are often very capital efficient and have no physical growth constraints. When you launch them, the community does much of the heavy lifting. Here’s a simple depiction of the marketplace model:
And here’s Jeff Jordan’s take on why marketplaces are a superior business model:
But services remain wide open for marketplace development. As Li Jin and Andrew Chen ask,
“We’ve all had the experience of asking friends for recommendations for a great service provider, whether it be a great childcare provider, doctor, or hair stylist. Why is that? Why aren’t we discovering and consuming these services in the same digital way we’ve come to expect for goods? Despite the rise of services in the overall economy, there are a few reasons why services have lagged behind goods in terms of coming online:
- Services are complex and diverse, making it challenging to capture relevant information in an online marketplace.
- The quality of services is subjective.
- Services are fragmented, and small services providers lack the tools or time to come online.
- Real-world interaction is at the heart of services delivery, which makes it hard to disaggregate parts of a purchase that might be done online”
But those issues are surmountable. A business that cracks the code with services can flourish. These, in particular, are the services where the bigger opportunities exist:
Take a close look at that chart above from the Andreesen Horowitz article. There are a ton of services not being addressed by marketplaces. And although there are challenges to developing a services-based marketplace (as discussed above), brands need to assess the opportunity to discover, design, and scale a unique services marketplace.
People, Process, and Platforms
How? By viewing the opportunity through a holistic view across people, processes, and platforms, as follows:
- What pain points do your customers, users, and partners experience regarding services associated with your business?
- What would it look like if you removed the barriers and friction points in the current state business model and explored a multi-sided marketplace business model?
- What role, if any, would your employees need to play brokering the relationships between service provider and service consumer?
- How do you encourage people from highly regulated industries to get involved?
- Do you operate in a highly regulated market? If so what are the challenges related to the market (e.g., compliance, legal, etc.)?
- What are the leap of faith assumptions (LOFAs) that the brand will need to learn about the problem and opportunity space?
- Do you have a people centric, co-creation process for rapidly exploring and validating fit of services marketplaces with our customers?
- How do you best incorporate trust and transparency into the end-to-end experience?
- Which existing digital products make sense to experiment with to explore the services marketplace opportunity (e.g., e-commerce website, mobile app, voice, IoT, etc.)?
- What potential do digital invaders in the space offer as a means of partnering?
- What ecosystems might we tap into to accelerate bringing value to market (i.e., assessing the build, buy, partner decision)?
As noted above, one of the ways we at Moonshot help businesses efficiently explore and validate the potential of the marketplace business model is through design sprints. With design sprints, businesses take four days to rapidly develop a product prototype based on input from real customers. We’ve incorporated the design sprint into our FUEL methodology, which helps companies not only develop product prototypes but then develop actual products at scale. To learn more about FUEL, check out the following blog post. And contact Moonshot. We’re happy to help.