2 minute read / Mar 10, 2014 /
The New Market Places
One of the most important trends in the Internet at the moment is unbundling. Entrepreneurs are picking apart Craigslist and eBay, vertical by vertical. At the same time, other entrepreneurs have replicated the core functions and features of Facebook and LinkedIn, creating hugely valuable companies.
But simply calling this trend unbundling doesn’t do the movement justice, particularly in the transactional web. The trend is more fundamental.
Craigslist and eBay are the canonical internet market places. Craigslist is synonymous with internet classifieds. eBay coupled a payments system to the listings model, enabling user-to-user transactions at scale. Both eBay and Craigslist exposed the buyer to the seller in a transparent way. They avoid arbitrating or regulating disputes as much as possible, and push as much of the negotiation and price discovery as possible to the buyer and seller. For this, eBay charges 10% of gross merchandise value. Both companies provide large amounts of liquidity, a little bit of advice and take a relatively small stake of the transaction value.
But the newest market places don’t operate this way. The newest market places don’t look like market places at all. Instead they operate more like agencies or stores. The new market places emphasize simplicity over transparency. Simplicity in price discovery; simplicity in quality; simplicity in customer support and service. In exchange, these new market places tend to extract much larger fractions of the transaction, upwards of 20%.
here’s a table showing the evolution in a few of the categories:
In these new market places, the supplier doesn’t hang his own shingle. The brand of the provider is enshrouded by the service. Uber drivers are free agents but customers don’t know which limousine service they work for. ThredUp doesn’t reveal the identity of its clothing suppliers to buyers, only their location. Guests at a OneFineStay resort may never know the owner of the house.
Unlike the eBay and Craigslist models, buyers don’t need to know these identities because the company provides customer support and service on their behalf. This unified service model provides a higher-quality, more consistent and more satisfying experience. This is done in the name of driving more liquidity through the market place. More volume means more business for everyone.
I expect the web will continue to move in this direction. Consumers benefit from better experiences. Market places benefit from substantially larger margin. The only question is for suppliers who operate at lower margins, which they trade for outsourced support and service.