The Traditional Two-Sided Marketplace is Dead
Curation is key for the future of eCommerce
Over the last month or so I've been looking into buying an Airfryer. So original, I know. For anyone who’s looked into buying one or has bought one you’ll know there are so many different models that it’s tough to narrow down what features are worth paying for and which brand is the best. I’ve probably spent a few hours watching and reading reviews and I'm still not close to making my mind up on which Airfryer to buy.
Whilst I’m obviously over analysing what should be a pretty straightforward purchase, this is something that we’ve come to accept as a society. Every time we want to buy something new we like to look for recommendations, or reviews to give us more comfort in the decision we are making. Moreover, if someone gives us a great recommendation, then we’re more likely to go back to them when we need help making future decisions. Right now, shopping on the internet isn’t structured that way.
It’d be nice if we could buy multiple items from different stores in one transaction. It’d be even better if there was some way for the original reviewer to receive a commission too. Fortunately, this is where ecommerce is headed, but it also means that the traditional two-sided marketplace is dying.
Going back to the basics, online marketplaces facilitate transactions of goods and services between buyers and sellers. Beyond retail marketplaces like Amazon, eBay and Catch, it also includes platforms like Etsy, Uber and Airbnb
However, marketplace businesses are incredibly tough to build. You need to find liquidity on both sides of the marketplace, meaning if it's a B2C marketplace like eBay or Amazon, you need to acquire customers to shop on your platform and acquire vendors to sell items. Moreover, most marketplace models are predicated on taking a clip of every transaction that goes through the platform. This means to really scale the business, the products in the marketplace should either be expensive or be purchased frequently. Ideally, they are both.
To solve this issue, many marketplaces have expanded horizontally to cater for any type of customer and all types of items. But execution matters. Whilst there's been plenty of competitors to Amazon and eBay, those two have stood the test of time purely by executing better or by dominating the market early.
Fundamental to the success of these large marketplaces has been their ability to access copious amounts of data from third-party sellers. This helps them understand their customers better than anyone else, and in turn build out world-class recommendation engines that keep customers coming back for more. Amazon, in particular, has taken advantage of this by rolling out their Amazon Essentials brand, competing directly with third-party sellers on their platform. However, as these businesses grow, they become a victim of their own success at times. Users get frustrated at the purchasing experience, or just get lost within the platform.
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Everyone wants a piece of the pie
As the canonical horizontal marketplaces grow larger, so does the pool of competition aiming to take them down. Whilst some go down the route of copying them, others have taken a more vertical approach to building out their marketplace. By creating user experiences and business models that are more tailored to a specific vertical, various players have been able to capture market share but also grow the market in the process.
But unbundling and building in verticals isn't always the way to go. Here's an interesting chart on Craigslist's unbundling from 2012.
By breaking down Craigslist into tiny pieces, this really siloed some businesses, and hampered them from a market size and customer demand perspective. From the business perspective, the markets they were playing in were quite niche and limited in terms of opportunity. From the customer perspective dealing with so many different platforms is overwhelming and can create a poor user experience. It's also likely that many of these businesses tried to grow too quickly, egged on by abundant VC money. The landscape looks more like this now:
Even so, the issue of too much choice and a lack of accurate personalisation persists within some of these businesses. How do you know which remote worker to hire on Upwork, or which company is actually worth applying for on Indeed?
Herein lies the power of curation.
"The most credible form of advertising comes straight from the people we know and trust. Eighty-three percent of online respondents in 60 countries say they trust the recommendations of friends and family". - Nielsen 2015
Curated marketplaces seek to remove the indecision of what to purchase and guide consumers to make more informed decisions. A cool example is Curated, which connects consumers with domain experts to provide recommendations and guide purchasing decisions. Other marketplaces such as Umami Cart, Zippy Pantry and Foxtrot provide shoppers a selection of products that are hand-picked by their staff around a certain niche.
Despite these marketplaces really narrowing down on niche verticals, they are likely able to solve the abandoned cart issue many marketplaces face. By guiding shoppers and reducing decision anxiety, these platforms likely drive higher conversion rates. Moreover, they are able to charge more for items by providing a value-added service, thus increasing basket size.
Curation or Creation?
For the most part Gen Zs are largely disengaged and exhausted looking at blatant influencer marketing campaigns with 47% of consumers feeling influencer fatigue. Gen Zs prefer authentic, value driven brands over the larger brands, and as Matt Voda observes “This is .. why upstart DTC brands have been so disruptive in mainstream markets. They understand the fundamental values and decision processes of Gen-Z.”.
Curated marketplaces disrupt larger vertical and horizontal marketplaces by creating a community-like feeling around a given niche. Content creators also create audiences centred around their image or specific interests. And so, isn't it logical that content creators should operate their own curated marketplace? It's a match made in heaven.
Whilst this already exists through affiliate marketing where creators are approached by brands to spruik their products shamelessly, the UX of affiliate links and discount codes are suboptimal. Imagine a world where creators could control their own branded marketplaces. For example, makeup artists could create their own branded marketplace directing their audience to their favourite makeup products, or a gamer could curate their favourite Keyboards or Laptops. In the US, Amazon partners with influencers to create their own Amazon shop front. However, in an ideal world, influencers would be able to be platform and marketplace agnostic.
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The problem of filling out the buyers’ side of the marketplace is already sorted by the creator's audience. Creators are already thinking about how to engage with their followers away from social media platforms by using tools such as Linktree or Onlyfans. Building out a custom marketplace would allow them to open up an additional revenue stream, but also establish a strong relationship with their fans.
What about the seller's side? Would brands actually like something like this? The downside is that the customer and their data would be wholly owned by the creator and so will the UX of the shopping experience. On the flip side, the authentic style of recommendations through a creator branded marketplace will likely boost basket size and frequency. Is that worth giving up tons of customer data and control over the customer's experience? Maybe not for some premium brands, but for others the tradeoff is a no brainer.
Stepping away from consumer marketplaces, this model already exists through platforms such as Pallet and Getro who are leading the way in terms of democratising the job advertising process away from traditional job marketplaces such as Seek and Linkedin. Creators such as Lenny Rachitsky and Packy McCormick have set up job boards off the back of their successful newsletters. Whether this leads to better outcomes for both employees and employers is harder to say, but it is a first step in democratising job boards and recruitment.
So are traditional marketplaces finished?
While I believe marketplaces will be democratised, the infrastructure to do so probably isn't there yet. So far, curated consumer marketplaces are tied to a brand like Zippy Pantry, Bubble or Amazon. It's a huge engineering challenge to create a central ecommerce API similar to what Carted, Fast and a few others are building out. Additionally, there needs to be an easy solution to creating a self branded marketplace. So whilst a lot of people have written off Linktree and its limited use cases, there’s a clear opportunity for Linktree to build out tools for creators to host their own marketplaces similar to the aforementioned Amazon influencer shop fronts.
In the future, curated marketplaces will serve as the shopfront for consumers and traditional horizontal or vertical marketplaces will become a source of liquidity. Traditional two-sided marketplaces likely won’t fade into irrelevance but will play a lesser role in our daily lives. How do you see the marketplace landscape changing in the future? Leave your thoughts in the comments below :)
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Very deep research. Absolutely, Curated Marketplace can become something big.
I think currently Linktree doesn't have any USP in terms of platform. Anyone with better offerings or maybe with this curated one can replace Linktree easily.
Also, It will be tough for Linktree to make a marketplace as they are present in every country. So, do you think regional player can do a better job in this?
What's your view?