Marketplace Trends predictions for 2019 at Market One Capital

As The New Year is already taking off I want to share my / ours (moc.vc) views on trends, which will shape marketplace category this year in our opinion. Among many I just wanted to focus on few as their impact is getting more and more significant. All of them have one thing in common, they transform ‘traditional’, ‘simple’ lead gen marketplaces into smarter and more sophisticated ‘machines’. For years, marketplaces focused mainly on B2C, weren’t technologically as advanced as i.e. Saas projects and mostly didn’t curate their offering much. This started to change already some time ago but in our opinion it accelerates now much more rapidly. We can in fact, start to talk about a new era of smart marketplaces, sMarketplaces, as Bart Dessaint from Mosaic called them in his Techcrunch recent article:)

So what trends would shape marketplace category this year.

1. Managed / curated marketplaces

Marketplace’s main goal at it’s origin was just to connect buyers and sellers and enable transaction. They did not take responsibility over quality of offering, pricing strategy and user happiness. Great example of such approach was Craigslist and all classified platforms. To be successful in ‘unbundling craigslist’ you would need to focus on certain vertical and increase user satisfaction with higher curation level. One of the first successes showing how ‘higher touch’ approach could work was Ebay when they introduced seller opinions feature. This simple tool increased trust and encouraged users to migrate to Ebay from other sites.

Currently most of the marketplaces need to introduce some level of curation to be competitive. Main driver of success is to make your customers satisfied so they return to your platform and recommend it to their friends. Covering more elements of the value chain and managing the offering, is one of the key approaches to achieve that.

You can observe many levels of curation. Lightly managed marketplace spend significant resources on background and quality checks of their sellers but still let the customers choose the vendor and don’t interfere with pricing strategy. Airbnb is a good example here.

More ‘high touch’ marketplaces control the pricing and the choice of service providers. Pricing in Uber or Yourmechanic is standardized. You order a service with one click and the platform chooses the most suitable provider in given time and location for you.

Marketplaces that perform fully managed approach, are those who control their supply in 100%. We can even say that they ‘own’ the supply. Good example here are projects which currently disrupt real estate and car trade industries. Opendoor or other ‘ibuyer alike’ projects buy the properties to offer them to their customers. Carvana or Shift do the same with cars. Those examples make in fact the difference between marketplace and ecommerce fade in some cases:)

Managed marketplace strategy definitely increases user’s NPS, referral and retention which is super important. It also allows to generate much higher take rates than ‘oldschool’ marketplaces. The downsides are that it’s more difficult to scale and needs much more capital to succeed.

2. AI backed / enabled marketplaces

‘AI’ and ‘machine learning’ are currently two of the ‘hottest’ keywords and appear in almost all pitch decks:) In most of the cases it does not really make sense. But when it comes to marketplaces and AI / machine learning we believe it is potentially a perfect marriage. To make AI work and learn, you need to feed it with data. Marketplaces usually generate tons of user and customer behaviour data so there is a great match in here.

Currently we observe two main ways how AI could be applied in marketplaces:

AI backed marketplaces

One of the main mechanics of marketplace is to properly connect a need with a supply. So, the better match between seller and buyer the higher chances for transaction and marketplace’s overall success. This is the place where AI is applicable. Basing on the massive data about users behaviour and preferences, AI tools could tailor and personalise the offer more efficiently. Amazon is investing a lot into tools being able to learn customer’s needs to empower their product recommendation engine. In the same way Youtube tries to tailor content for it’s users. Another great example is Facebook’s marketplace. As Facebook’s research scientist Lu Zheng says: ”Whether someone is discovering an item to buy, listing a product to sell, or communicating with a buyer or seller, AI is behind the scenes making the experience better,”. More about how Facebook backs it’s marketplace — How Facebook Marketplace Uses AI To Help Buyers And Sellers Do Deals

AI enabled marketplaces

By this we mean marketplaces offering AI backed software / tool for one or both sides of the marketplaces. In this way marketplace can build a defensibility on the market and improve it’s take rate and unit economics. You can imagine a booking platforms enabling it’s venues a software that learns their ‘business’ and recommends them better pricing and utilization strategy. Another example is legal services marketplace - Upcounsel.com, that builds AI tools to help lawyers on their platform to increase their work productivity and efficiency.

3. SaaS enabled marketplaces

This trend is not new, it’s been super important and influential already for years and definitely will only get stronger. I think it almost becomes a commodity and ‚must be’ to build in SaaS tool, when you develop your project. If I look back at pitch decks I received in last 6 months probably 95% of marketplaces had SaaS as their current or future product fundament.

Main idea behind is to offer a SaaS solution for one or even both sides of the marketplace. There are two main reasons to do that. First is to use a SaaS tool (often free of charge) as a marketing driver to acquire suppliers. This approach was smartly described by Chris Dixon as „come for the tool, stay for the network”.

The other reason (significantly more important in my opinion) is to assure liquidity on supply side and booking / transaction convenience on demand side. Great examples are Opentable or Docplanner. You are not able to offer efficient and instant restaurant table or doctor visit booking without knowing their schedule. So you offer a software where service providers fill out calendar regarding open slots. It works in the same way with such businesses as Booking.com, Airbnb, Eversports, Mindbody or Booksy.com.

4. B2B Marketplaces

In recent years there were many good publications about the ‘Rise of B2B marketplaces’. We definitely agree with that thesis and see, that there is a great momentum in this segment. As B2C marketplace category seems developed, in B2B there are still many untouched verticals. We can observe many similarities with the way how B2C marketplaces developed. First of all there is B2B equivalent of Craigslist or Ebay - Alibaba.com. This platform is the brightest success in the segment and as with Craigslist, everyone thinks how to ‘unbundle’ it to build tailored verticals around.

The same is visible with top-down approach. B2C marketplaces mostly started first to cover big verticals as travel (Booking.com, Kayak, Skyscanner, etc.) food (Grubhub, Deliveryhero, healthcare (Zocdoc, Docplanner) getting later into such niches as i.e. massage on demand (Zeel). Similar path we can observe with B2B projects covering big segments as transport (Convoy, Ontruck) food delivery (EZCater, Lemmoncat) but also getting into niches as HoReCa seafood procurement business, Procsea.com.

I think, it’s smart to analyse how average SME company manages its main processes. How do they order transport, search for service providers or order goods. Usually those processes are ‘old-school’, didn’t change for years or decades and could be disrupted with the B2B marketplace.

This is how Market One’s portfolio company - Packhelp.com started. They realised, that the way how average ecommerce designs and orders their packing is totally offline and inefficient. They came up with a solution offering online designing tool and connecting customers with local printing houses.

Summing up, we definitely see that this year and the future will belong to smart marketplaces offering more tailored solutions, backed by AI software, disrupting more and more processes either on B2C or B2B side. Hope to see more sMarketplaces on the market and looking forward to working with them:)