The Services Economy and Supply Composition

Following the 1970’s, the United States shifted to a services-dominated economy. Financial planning, management consulting, pet grooming, haircuts — the economy oriented itself around services. The question I’ve struggled with is how do these marketplaces manifest themselves online in the future, especially B2B services? Andreessen Horowitz has a terrific overview here, where they’ve outlined a few of the past stages of online marketplaces, including the listings era, the unbundling of Craigslist, and Uber for X models.

I’ve written about two approaches in the past. One is the “Unbundling of McKinsey” approach, where a startup consolidates professional services talent through an online marketplace, intermediating supply and demand. Clora is an example of this type of business. The supply side (expert talent pool) is disparate and fragmented, but connected through the marketplace. Each expert or consultant has more control over their own destiny, and the core business is not as operationally intense. Over time, the digital service can do cool things with machine learning and data to recommend and organize talent.

The other is the ‘integrated’ approach, where a company brings the labor supply in-house, scaling their reach with automated workflows and outcomes data. Examples could include Compass, Newfront Insurance, and Grove. There’s now a tradeoff between brand trust / organizational control and operational complexity. Between software development and additional personnel hires, operating expenses can go through the roof. However, now the startup can control customer interactions and battle platform leakage. Talent pools can be consolidated and brought in-house through M&A.

I’m now trying to understand when either of these models would make sense given a services market and its features. When do you cede control for lack of complexity? Startups are supposed to be operationally light in order to scale, but that isn’t a one-size-fits-all solution.

This post was part of a larger series I wrote at the end of 2018. You can check out the other ones here. If you’d like to get in touch, you can reach me at aashaysanghvi[at]gmail.com.