There are two types of marketplaces: services marketplaces and product marketplaces. Both are platform businesses connecting customers with third-party producers. In a services marketplace, the producer is providing the service like driving a car on Uber or renting a home on Airbnb. In a product marketplace, the producer is providing a product as a third-party seller or distributor.
Exchange platforms, like marketplaces, are different from maker platforms, including content platforms like YouTube or Instagram. A maker platform focuses on facilitating one-to-many transactions. This dynamic means that each consumer can use the same video or app a (theoretically) infinite number of times. In other words, the platforms inventory is not finite.
Exchange platforms are the opposite and matchmaking can be much harder with finite inventory as a result. Each consumer needs to be connected to one unit of value. The platform needs to make sure it can balance demand and supply seamlessly. At scale, this becomes very difficult to do with tens or hundreds of thousands of transactions. If Handy has 10,000 bookings over a weekend in the New York region, it needs to make sure it has enough service providers to fulfill those bookings. And, if these bookings only go 99% filled, that means Handy will have one hundred angry consumers. Those numbers add up fast and can tarnish a platform’s brand. For more on this topic, read here.
Marketplaces facilitate the exchange of different types of services or products. The level of commoditization of these services and products fundamentally changes the structure of the platform and its business model. One end of the spectrum is commoditized and the other is non-commoditized.
Uber is an example of a commoditized service marketplace. They provide the consumer a few different service levels like Uber Black or UberX. The consumer doesn’t review each driver’s profile before booking a ride, for example. And, most importantly, the platform sets the price for a commoditized marketplace. Since it’s a commoditized offering, it’s the platform’s responsibility to remove as much friction as possible and provide the best value to the consumer. The platform, having the most data, should be able to solve for price as a result.
Non-commoditized marketplaces like Airbnb are very different. Renting someone’s home has so many more variables than renting a car ride. The apartment’s location, amenities, furniture, lighting and layout are just a few examples of relevant variables that could change a consumer’s willingness to pay for a given apartment. Airbnb can provide pricing suggestions to the producer and the consumer, but setting the price is a bridge too far. For more on this topic, read here.
Generally, marketplaces cater to two types of customers: consumers or businesses. The core transaction varies greatly depending upon the market and end customer profile. Business-to-consumer marketplaces have gained more prominence than business-to-business. This faster rate of adoption speaks to consumers’ willingness to change their user behavior. Businesses may have higher expectations and more nuanced needs that raise the level of expectation to switch to an alternate solution.
Even though Amazon is the dominant B2C product marketplace, there is a rise in specialized consumer marketplaces. B2B product marketplaces are more nascent but growing quickly. Similarly with services marketplaces, many consumer marketplaces have existed for a couple decades. And, now in the home services market, for example, a huge swatch of startup services marketplaces catering to the consumer are gaining traction.