Marketplace Dynamics
By: Avik Ashar
Tags: Startup, Venture Capital, Southeast Asia, Scaling, Marketplaces

Marketplace Version 1.0

What is a Marketplace?

It’s a platform where buyers and sellers can come together and interact.

Humanity has been built on marketplaces.

The earliest examples were the Greek Agora, the Persian Bazaars and the Arabian Souqs and the Latin Mercatus (the origin of the word Market)

They originated from a simple need. Humans needed many different products to survive and several different sellers to provide them.

Back then, you couldn’t get your eggs, chicken, bread and fresh underwear from the same seller.

The original Bazaars were thought to originate in and around Persia and the Middle East (as early as 3000 BC), typically near Palaces and Mosques, which provided them with large footfalls of people as well as a measure of protection.

These Bazaars (and Souks) tended to be large, open-air markets that played host to fixed sellers as well as a host of travelling caravans who would display their goods, creating the foundations of Trade as we know it.

Our New World

The New-ish Normal

The origins of e-commerce are numerous, but most sources agree that The Boston Computer Exchange, founded in 1982, was one of the first pioneers of e-commerce.

BCE served as a bulletin-board system where users could sell used computers.

Between 1982–1995 there were several smaller attempts at e-commerce, including Books Stacks Unlimited, an online bookseller that was acquired by Barnes & Noble.

The ball really started rolling in 1995 when Amazon and eBay opened their doors for business.

Pretty much it

The Whole Schbang

From 1995 onwards, the World has moved inexorably towards Marketplaces.

We interact with them on an everyday (if not every hour) basis.

Uber/Grab/Ola/Gojek are marketplaces allowing us to move from Point A to Point B with (hopefully) minimum fuss and maximum efficiency, connecting drivers to consumers.

Deliveroo/Zomato/Doordash and hundreds of others connect us with a variety of restaurants to sate our voracious appetities.

Expedia/Skyscanner/Makemytrip allow us to view various travel options and pick the cheapest one (you know it’s true).

Amazon and it’s like allow us to buy products from a variety of sellers, virtually globally.

Alibaba allows us to manufacture anything our business desires with a few clicks and an awkward phone call.

Airbnb lets us interact with a host of hosts around the world, renting their homes for our wilder vacations.

What characterizes a marketplace?

Jonathan Golden has put together a wonderful explanation of key marketplace characteristics here.

I’ll go into my key points a marketplace should cover:

#Trust: In my opinion a key element that a marketplace covers for consumers, whether a single customer or a business, is Trust.

Trust is one of the biggest barriers to conducting any form of commerce, and it comes in three distinct flavours.

Qualitative → One of my biggest concerns when looking to buy something, whether personally or professionally, is Quality. Who am I buying it from? Will they deliver the right product or a shitty knock off? Will I actually receive my product this decade?

One of my biggest concerns when looking to buy something, whether personally or professionally, is Quality. Who am I buying it from? Will they deliver the right product or a shitty knock off? Will I actually receive my product this decade? Financial → I’m about to send Mr Zhao’s Very Authentic Teapots a large amount of money to buy an ornate mother-of-pearl teapot. How do I know his business actually exists? That I can trust him enough to wire him money, aside from his kind assurances that he isn’t planning on using it all for a vacation, laughing at my stupidity?

→ I’m about to send Mr Zhao’s Very Authentic Teapots a large amount of money to buy an ornate mother-of-pearl teapot. How do I know his business actually exists? That I can trust him enough to wire him money, aside from his kind assurances that he isn’t planning on using it all for a vacation, laughing at my stupidity? Resolution → Assuming that Mr Zhao did actually send me a great quality teapot in a reasonable amount of time, but it was damaged in shipping.

Who can I reach out to in order to resolve this dispute?

A successful marketplace introduces several features to foster trust on the platform, such as

Verifying suppliers and buyers identities

Adding escrow/moneyback guarantees

Adding in reputable payment gateways to ensure transaction security

Displaying ratings/reviews for buyers & sellers

#Discovery: Are the products offered homogenous or heterogenous?

Marketplaces offering homogenous products are essentially offering easily replaceable products (think Amazon or Uber).

The base offerings (t-shirts, books, transport) are all replicable by other businesses hence the marketplace itself must add additional value in case of a homogenous marketplace (more about this later) to build a moat.

In case of a heterogenous marketplace (think Airbnb, Expedia), each experience is virtually unique. They are different homes, flights or hotels being offered for booking, hence the supply itself becomes one form of a moat of the business.

#Disintermediation: Most marketplaces face the inevitable threat of becoming obsolete to their customers, as buyers and sellers keep interacting they would tend to take their transactions off-platform (why pay someone commission once you have a relationship?)

Hence one of the hardest challenges faced by marketplaces as they scale is retaining users.

This is primarily driven by offering value propositions over and above Discovery such as: