The Next Generation of Service Marketplaces
Online service marketplaces have now existed for over two decades if you consider companies like Craigslist to be one of the first. A simple online classified ad that helps an everyday person find someone willing to do a task (or vice versa) can be argued to be the first example of an online service marketplace. Fast-forward to the end of 2021 and it’s clear that just like products and eCommerce, services have found a more substantial place online.
In this article by Andrew Chen, he goes through the eras of service marketplaces and what key elements have changed over the decade. This breakdown sheds light on two main ideas that we believe will cause the next generation of service marketplaces to surface.
1. Tools
When looking at the lifecycle of a service between a customer and provider, there are many phases (or stages, as Andrew calls them) for which decisions are being made and actions being done. Based on these stages, it can be seen clearly what was iterated on over the decades and makes you question deeper about what comes next. Companies creating tools to facilitate these interactions on their platforms such as discovery, quoting, the actual fulfillment of the service, and feedback can all be traced back to the race to “own” more of the experience and increase retention. This can be seen in the eras of “Uber for X” companies and continuing into the most recent era of managed marketplaces where the only way to accomplish such a goal was to focus on a single service vertical. It’s much easier to build for a service’s one major use case when you’re also building to facilitate the lifecycle (stages) that span so far horizontally. We believe the next generation of service marketplaces will be defined by the viability of the tools supporting these stages and how well they match the expected outcomes of customers.
2. Aligned Incentives
We now understand that the major difference between Craigslist era marketplaces and the past decade of giants like Uber, DoorDash, Instacart is more of the service lifecycle stages coming online. This need for complete control, while it creates an incredible experience for customers, has providers like delivery drivers wondering who they really work for. We believe this causes high churn and highly competitive situations for attracting the demographic of supply looking to take part in the incentive structures that are now clear working for “Uber for X” and managed marketplace companies. To replicate the natural economic incentives in the ideal capitalistic scenario, current marketplaces would have to make certain pieces of their model transparent and give the ability for providers to control more of the experience. More can be said about these dynamics in this great podcast with Ried Hoffman and the founder of Shopify, Tobi Lütke.
Making these significant business model changes would be incredibly difficult and sacrifice a lot of the core infrastructure that these companies holding the market share to date within their verticals have put together. This is why we think it will reinvent itself in the next generation of service marketplaces that somehow pull off combining both key elements that we stated here. By realigning the provider incentives of ownership, predictability, and growth (almost all as it relates to financial opportunities) and the combination of tools to support the whole lifecycle with all of it’s variability , we will see an era of truly innovative marketplaces.
