SaaS Based Marketplaces

Characteristics of the SaaS X marketplace hybrids



I stumble upon more and more startups launching SaaS products with marketplace dynamics tied to it. These are sometimes referred as “SaaS based marketplaces” meaning that these startups offer a product which the customer uses to run its business (available as a normal SaaS) plus some marketplace features which enable them to connect and transact with suppliers / on-demand workers / freelancers.

On a pure transactional marketplace most of the features are used to enable the transactions…
The real difference with a pure transactional marketplace (like Airbnb) is that the product is not necessarily 100% focused on the transactions.

A good example of a SaaS based marketplace is Zenefits, an HR tool, which users can use to run their business without touching the “marketplace features” (with health insurance companies). For instance a flat owner won’t use Airbnb to manage its property, all features of the AirBnb product are focused on the transactions with renters.

…which is less the case on SaaS based ones, on which SaaS features can be used outside of the transaction scope

This approach comes in many flavours: free tool with paid transactions, paid tool and free transactions, both paid tool and transactions.

Fad or real trend?

The first question that we can legitimately ask is whether it’s just a buzzword that I’ll use for the next couple of months or a real trend our industry.

The way I tend to see it is that it’s just a normal step in the evolution of a maturing SaaS industry:

Marketplaces are eating every industry, the B2B world is just the next one on the list. I’m not saying anything groundbreaking here but the marketplace model is part of the internet DNA. It’s eating every online industry, from ecommerce (eBay, Amazon as early as 1995) to mobile (mobile appstores are big marketplaces), music or the sharing economy more recently. The enterprise world traditionally gets hit by innovation waves a bit after the consumer world, this is why we’ll probably see more SaaS X marketplace emerge in the years to come.

Too many SaaS + more and more SaaS consumers = more friction = need fluidification. There’s an ever increasing number of SaaS available (> tens of thousands) and more and more businesses are using them. More and more offer and more and more demand = time for more marketplaces to emerge and fluidify the market.

And the job market needs less friction too. The way businesses (of all sizes) work with freelancers, remote employees or on-demand workers is changing fast. Businesses are not limited to working with accountants, developers, lawyers or marketers who live next door. Whether it’s for small tasks or full time job, it makes sense for SaaS products to not only offer classical “business management” features but also to bundle a marketplace component with it (or for marketplaces to bundle a SaaS product with it, it also works that way).

It’s the same logic: increasing offer and increasing demand results in more friction which is (very often) solved by the marketplace model.
Taken from an interesting article on how segment.com sees its marketplace component

So in my eyes:

  1. it’s not a “disruption”, it’s not “new” (SaaS X marketplace hybrids exist for some times now e.g SalesForce) it’s just a natural evolution of the SaaS industry and the trend is probably accelerating
  2. I don’t think that every SaaS out there will become a marketplace, but more of them will emerge (even very niche ones)
  3. it makes sense to enable SaaS users to connect with the suppliers / buyers with which they already use the product.

The chicken and egg problem for SaaS based marketplaces

A major difference between a “SaaS based marketplace” and a “pure transactional” marketplace is that the former uses its SaaS component as the main way to solve the chicken and egg problem.

Pure transactional marketplaces generally need to grow both demand and offer carefully together to solve the chicken and egg problem whereas SaaS based ones can focus on one side first, by providing a kick ass tool, and then grow the other side.

A good example of this is, again, Zenefits. The startup offers its HR / payroll / benefits tool for free to acquire a maximum of users (the “buyer side”) and then the “seller side” (health insurance companies) can follow more easily, attracted by the critical mass of buyers.

The “SaaS” component is key here because it can really be used as a stand alone tool by the users, without having to contract with health insurance companies on Zenefits directly. In fact I know several startups in the US which use Zenefits without using the “benefits” features at all (where their revenue comes from).

Demand or offer oriented SaaS marketplace?

Since the SaaS component will be key in the success of such startups, they will have to make a choice on whether they first focus on the demand (buyers) side or the offer (sellers) side.

This is why you’ll find mainly two different types of SaaS based marketplaces:

Demand oriented marketplaces (= the SaaS component for the buyers):

Offer oriented marketplaces (= the SaaS component for the suppliers):

I have created a mindmap to list more examples => drop me a tweet @clement to add more startups

This choice has many consequences on the marketplace’s approach:

Product

Offering a great value added tool is important especially in such a competitive landscape. This is probably one of the many reasons why Zenefits is so successful: they targeted an industry (payroll — HR benefits) where the “product standard” was still quite low and hence could quickly make an impact with a great product.

It might not be that easy if you start in more competitive (from a product pov) industries such as marketing, sales, CRM… So choosing the right industry + the right side (demand or offer) is crucial for your product development and success.

Marketing, sales & distribution

An interesting addition to the traditional marketing, sales and distribution playbook is that if you manage to delight and lock a user with your tool, there’s a chance that he’ll bring its own suppliers or customers on your platform and hence participate to the acquisition of the other side of the marketplace for you.

Ex: if you like Zenefits software very much you can bring your own health insurance provider to manage your benefits there. If an accountant likes its accounting software very much chances are high that he’ll bring his existing customers on the platform (ex: Xero).

Business models

Another interesting aspect is the diversity of the business models involved:

  • Recurring revenue: customers pay a subscription for the tool / premium features (recurring revenue)
  • Transaction fees
  • Non recurring revenue: extra services / consulting coaching
  • Access to data: suppliers pay for customer data access (once critical mass reached)

This combination of SaaS X marketplace is very attractive for many reasons (chicken and egg problem, barrier to software commoditization etc…) and Zenefits proved that a fast growing business could be built out of it. So I won’t be surprised to see more of these hybrid startups emerge in the months / years to come.


As usual don’t hesitate to contact me (clement@pointninecap.com or @clemnt on Twitter) if you want to connect after reading this article.