What Facebook Marketplace means for other classifieds startups?

Make no mistake: when Facebook launched their marketplace feature in Oct last year, I couldn’t help but feel a little nervous for the other VC-backed startups trying to dethrone Craigslist, Gumtree and other classifieds incumbents. (LetGo and OfferUp in the US, Carousell in Southeast Asia, Bukalapak in Indonesia, etc.)

If there is such great potential in selling locally and socially, surely Facebook — whose very value is being local and social — and is generating $3.2 billion of non-GAAP income a quarter, would have a clear upper-hand here. User acquisition for a company with >1 billion DAUs, or 1 in 7 people on earth, should be trivial. Furthermore, many users are already using Facebook or one of its platforms (e.g. Instagram) for some sort of informal commerce.

Marketplace’s missing user review system

Three months in, there have been the natural marketplace teething problems with instances of fraud, illegal items, and even assaults (though in the linked case it seems that the robber was fairly easily identified). This is unsurprising — all marketplaces faced this challenge in their early years, and is a perennial problem even for more mature platforms — but this is precisely the Craigslist issue that Marketplace was setup to avoid and so naturally people expect better.

An obvious solution, apart from more active enforcement on Facebook’s part, is to introduce some sort of review system. This tried-and-tested mechanism works for marketplaces from eBay to Amazon to Alibaba — so why not here?

I’ve read a number of explanations:

  1. A lack of understanding of what makes a successful classifieds platform. I genuinely doubt this is the case, since user reviews are a feature in both Western and non-Western platforms. Rather, the lack of a review system is I suspect reflective of a broader challenge that Facebook faces when trying to introduce commerce into its social platform.
  2. Facebook has made the call that since real names — to the extent that you have used your real name on Facebook — are shared amongst buyers and sellers, that should be enough to deter users from being bad actors. There may be some truth to this. Other platforms use Facebook IDs as a unique identifier; for instance, OfferUp’s TruYou works off a Facebook ID to identify mutual friends between seller and buyer in order to build trust. That probably deters the most egregious sort of behaviour, but without a rating system and publicly visible track records, the process of buying and selling experience will continue to be viewed with trepidation.

This is likely a process of experimentation, but I think the reason why Facebook is being so cautious about ratings involves a much deeper product design dilemma in mixing a social network with a commercial platform.

Mixing the social with the commercial, or doing business with ‘friends’

This is not the first time that FB has attempted a Marketplace; a similar feature was launched in 2007 but never really took off. Getting people to buy on social platforms remains a challenge even today as Pinterest and Instagram are finding out.

Announcement of Facebook Marketplace back in 2007

The trouble is I suspect most people will not be excited about having their marketplace ratings broadcasted to friends and family, particularly if they get a few negative reviews, which could be for entirely innocent reasons— notice how Facebook has no ‘dislike’ button. Even now, there is no easy way to see if a casual acquaintance has a poor rating as an AirBnb host or a poor rating as an Uber driver. For good reason too — not everyone wants to be socially judged off their commercial ratings.

In other words, my guess is that users will find a platform that is equally “social” or “commerce” uncomfortable — and so any “social commerce” platform will have to lean quite firmly to one side or the other. It means that Marketplace might be better served by being a separate application all on its own — and perhaps one designed such that full names and personal details are not so openly shared.

A window of opportunity

Does this mean that Facebook doesn’t stand a chance? Of course not. It would be a mistake to write off Marketplace given FB’s tremendous reach and virtually unlimited resources.

  • First, user acquisition and building liquidity for Marketplace appears to have been a piece of cake. In San Francisco, I had no trouble items I was interested in and sellers were all highly responsive. As far as I can tell, FB has done minimal promotion for Marketplace (apart from engaging the press and putting the icon on the mobile home screen).
  • Second, FB generally has all the capabilities in place for a good mobile commerce experience, including reliably-working chat and a fledgling payments system.

At the same time, it is still early days for Marketplace and FB will take a while to figure this out in its core markets before expanding to other geographies. This means that other marketplace startups have some breathing room to build mass and entrench themselves in their local markets. Network effects, once established, can be a real barrier. Despite its poor user experience and lack of product development, Craigslist reportedly generated around $381m in revenue and $300m in profits in 2015. Liquidity in a platform can be difficult to dislodge.

Then again, Facebook is the master of building networks — the question is then whether social networks translate well into commercial activity. History suggests otherwise.

End Notes

/1. There is a third explanation — that perhaps what Facebook cares more about is the data from your search intent on Marketplace rather than the quality of the Marketplace product — but I ignore that for the moment.