Marketplaces. Where can we take them?

By: Cody Brooks

A marketplace is a business model that connects supply and demand. In recent history, we have seen marketplaces transition from physical locations to digital platforms, expanding our ability to access virtually anything. Acting as an aggregator of supply and demand to enable transactions, it is reasonable to assume that wherever the synergistic relationship between supply and demand can be identified and contained, there is an opportunity for a marketplace to emerge and facilitate interactions between the two sides.

However, not every marketplace will succeed. Supply and demand ebbs and flows, customers give and take, all while the business simultaneously tries to straddle both sides. But if you are able to facilitate interaction with minimum friction, marketplaces can experience organic and dynamic growth.

While there are many important factors contributing to the success of a marketplace, the business model has done very well over time because of its inherent strengths. An important characteristic is network effects — you may ask, “if my marketplace adds additional customers, will current customers have a better experience?”, to address this characteristic. A marketplace with network effects can build a virtuous cycle of scaling as participants gain additional value, become more engaged, and there is an expectation of transactions taking place (i.e. Marketplace liquidity).

Three categories where supply and demand are readily observable are goods, services, and experiences.

• Digitally native marketplaces have transformed the way goods are bought and sold online with the creation of e-commerce giants (Amazon, Alibaba, eBay, Wayfair, and others).
• Service marketplaces have reshaped fulfillment of both consumer and business needs (Upwork, Uber, Airbnb, Grubhub, and others). We are in just the beginning of this era as the service industry makes up ~70% of consumer spending, but just ~7% of services utilize the internet to facilitate these transactions [1]. We will continue to see new service marketplaces emerge, driven by unlocking complex or regulated services.
• The third category where a marketplace can emerge is experiences (social, emotional, travel, etc.), and this seems to be a much more difficult supply and demand to pin-down bottoms-up. The easiest example of this is to look at the rise of dating apps (Hinge, Bumble, Tinder) or travel arrangements/social events (Airbnb experiences, Meetup, Jetzy, and others). If you find yourself looking for an experience, one thing is apparent: this is a massive, disjointed, and highly fragmented market.

Experiences drive us by tapping into social, emotional, and other intangible qualities through moments, engagement, and impressions. While experiences can be a property of current goods or service marketplaces, it is important to consider separation of experiences and isolating the strong experiential and emotional trigger driving engagement and be open to what will emerge.

• Why are experience marketplaces less present now?
• Will this space be opened as more data is collected from us?
• Will we see marketplaces for experiences in wave of AR/VR/MR/XR?

With this information, a second question we can ask is — as opportunities are discovered and the trend for marketplaces accelerates over the next decade, what will be the next “different animal & the same beast?”[2]

[1] Bureau of Economic Analysis, Digital Economy, [2] Kobe Bryant

I’m an associate for private equity investments at a family office. I have a passion for early-stage companies and thinking about marketplaces, consumer, and emerging tech. More info at www.codydbrooks.com