Marketplaces and trust

Trust is one of the most important aspects of building a liquid marketplace, but trust is hard to quantify. Lately, I have been wondering if there is a playbook around building trust or does the answer depend on what type of marketplace one is building. I have landed on the conclusion that there is playbook as long as marketplaces can confidently answer the following question:

How likely is it that trust in a seller would influence the decision making of a buyer during a transaction?

This question is important because it helps bring clarity on how big a part of the trust equation should sellers be, resulting in a strategic decision on which of the two paths to take to build trust:

• PATH 1: Deeply focus on building trust around individual sellers. Prominent examples are eBay, AirBnB, Thumbtack, etc.
• PATH 2: Commoditize seller trust and build trust around the platform. Prominent examples are Amazon, Uber, etc.

To answer the question above, marketplaces need to have a good understanding of the uniqueness of the inventory on the marketplace as the buyers perceive it. PATH 1 is the natural choice if the perceived uniqueness of the inventory is high whereas PATH 2 is the natural choice if there are many sellers selling almost indistinguishable goods/ service. Below are some examples to illustrate the point.

eBay: Pioneer of PATH 1

eBay started as a P2P marketplace for selling unique items. Even if the item on sale was a Motorola Razr phone, there were many of them in many different conditions (on the spectrum of new and used). These conditions increased the perceived uniqueness of the inventory, effectively resulting in buyers treating them as different SKUs. In the absence of objective criteria for decision making, trust on the person who is selling (i.e. seller) became much more important. Buyers defaulted to sellers with higher positive feedback under the assumption that those sellers were honest about describing their products with details such as “the phone has a scratch on its back” as opposed to newer sellers who might be selling the phone for lower price but might be hiding something.

The figure below shows how eBay likely viewed its inventory. It considered that only a small minority of exact same items would be sold by multiple sellers. Given this view of its inventory, eBay defaulted to building a trust machinery centered around the seller and the platform receded in the background.

eBay: Only a small minority of exact same items would be sold by multiple sellers

Amazon: Pioneer of PATH 2

From early on, Amazon behaved like a retailer. It figured that by almost always selling new products, it can push seller trust to the sidelines and still kickstart a liquid marketplace. This made sense because if all the sellers on the platform were selling brand new Motorola Razr phone, the buyer decision making would simply be around price and possibly shipping. There would be no subjectivity around the SKU since it is brand new. That would put the platform in a position to commoditize seller trust as long as it was able to get enough sellers to create perfect competition among them.

The figure below shows how Amazon likely viewed its inventory. It considered that a large majority of the exact same items would be sold by multiple sellers. Given this view of its inventory, Amazon defaulted to building a trust machinery centered around the platform and the seller receded in the background. It built products such as Amazon Buy Box to truly commoditize seller trust.

Amazon: Large majority of the exact same items would be sold by multiple sellers

AirBnB: Best adopter of PATH 1

AirBnB almost replicated eBay’s model of building trust because the perceived uniqueness of inventory on AirBnB is as high as it gets. There is no SKU (room) that is listed by two or more sellers (hosts). Host has an information advantage and therefore, having trust in the host is important.

The figure below shows how AirBnB likely views its inventory. It considers that no exact same item (room) would be sold by multiple sellers. Given this view of its inventory, AirBnB adopted PATH 1, leading to it launching trust programs such as AirBnB Superhost.

AirBnB: No exact same item (room) would be sold by multiple sellers

The important question is that if AirBnB’s trust model is exactly like eBay’s trust model, then why do we trust AirBnB more in its category (travel accommodation) that we trust eBay in its category (goods)? The answer is that AirBnB is in a category that is hard to standardize; there isn’t an Amazon play possible at scale. And with features like Trips, AirBnB is trying its best to further deepen the uniqueness of inventory and make decision even more subjective. That is the reason I call AirBnB as the best adopter of PATH 1.

Now, how does this thinking about trust translate to services marketplaces like Thumbtack? Does it matter if the buyer is getting interior design from Service Provider A or Service Provider B? Yes, it does. How about plumbing? Maybe not, depending on how complicated a plumbing job it is. So, it is likely that some services might lend themselves to the Amazon model of commoditizing Service Provider trust while others won’t. Thumbtack has taken the approach of building trust via PATH 1. No surprise that Amazon Home & Business Services has defined the services (SKUs) very specifically and has adopted PATH 2, leveraging the trust it has already built as a platform.

For context, eBay has seen its focus shift towards selling new items and is experimenting with PATH 2 as evidenced by these fancy new product pages, applying the Amazon Buy Box concept.

Overall, the decision of how to build trust comes down to the perceived uniqueness of the inventory of the marketplace. Being thoughtful about it, with an eye on how the category and the competition are evolving can make all the difference.