The Rise of the Digital Marketplace Economy

The top 15 public platform companies already represent $2.6 trillion in market capitalization worldwide. Powered from the outside in by buyers and sellers, these technology-driven business models are redefining the future of industries. Marketplaces seem straightforward: it’s all about matching supply and demand. But in reality, marketplaces are anything but simple. eBay, considered one of the first marketplaces to scale both sides of its business — and — may look uncomplicated at first glance. It lets post items they want to sell and helps find what they are looking for. Behind the scenes though, eBay helps determine which items to surface based on purchase behavior, price, reputation of the sell side, time of the year, etc. Marketplaces are difficult to start, finetune and scale. Buyers Sellers Sellers Buyers a complex system Although marketplaces often start small — eBay started focussing on collectibles, Uber started with a carsharing app for limos and Amazon with books — they can get big — and when they do, they get really big. This is due to their inherent network effects. For every seller or buyer added, the overall utility of the platform increases. This virtuous cycle helps build an engaged audience that translates to highly defensible business models. But are these winner-takes-all markets always good for end customers? The dominance of these platforms sometimes lead to excessive take rates imposed on each transaction. GroupOn’s take rate of approximately 38% (and this is after asking the merchant to underwrite a 50% discount) means a recovery from each transaction for the supplier of 30%. This is likely behind the struggles in GroupOn’s core Daily Deals business. Deciding between what value versus what value is paramount to building successful marketplace business models that scale. can be extracted should be extracted If you don’t want to miss out on upcoming editions, . subscribe here Startups & Product Management Source: Amazon — Marketplaces have unique benefits. They involve low capital costs — as inventory is brought in by suppliers — and they can self-correct by offering more of a product as demand increases. But they have caveats. They need a certain supply from day one and hence are difficult to start as well as they need a close control of the quality of their inventory [ ] 12 min read via Jonathan Golden — Anyone who has worked at Amazon has heard the term “flywheel”. A flywheel is a system where each component is an accelerator. As Amazon increases the number of customers, more sellers are enticed to sell through their platform, which increases the product offer and therefore attracts even more customers [ ] 5 min read via Amazon — Marketplaces start with a niche and then quickly scale into huge networks of buyers and sellers. New geographical markets, new products and price points and decreasing friction are their route to success [ ] 10 min read via Andrew Chen — Choosing and implementing the right business model for a marketplace is not an easy task. As the liquidity of a platform increases the number of monetisation strategies abound [ ] 9 min read via Pawel Chudzinski — A true marketplace needs natural pull on both the consumer and supplier side. And there are different factors to consider when evaluating the potential success of a new marketplace opportunity [via ] 10 min read Above the Crowd Digital Strategy and Trends Source: McKinsey Insights — Industry leaders are building defensible businesses by developing new technology platforms. Fiat (connected car), Schneider Electric (smart cities), Goldman Sachs (customer analytics) are good examples. Companies pursuing an offensive platform strategy are achieving a better payoff in both revenue and growth [ ] 5 min read via McKinsey Insights — The rise in dominant digital platforms is forcing a rethink in competition theory. And marketplaces make questions about antitrust more difficult to answer [ — ] 5 min read via Financial Times requires subscription — Marketplaces exemplify the world of the wallet garden. Whilst this offers attractive growth opportunities for startups it also has led to coining Facebook’s mantra: “Join us or we will copy you” [ ] 10 min read via Matt Ward Must-listen Podcasts — Ridesharing wasn’t a thing 12 years ago when John Zimmer was in college. But a class on green cities got him thinking about the glut of underused cars on the road, and eventually led him to co-found Lyft [ ] 40 min listen via How I Built This Before you go, please consider: or this if you found it useful. It gives me 🔋 to write knowing that people find value in it Recommend share If you don’t want to miss out on upcoming editions Subscribe here The article appeared first on . The Rise of the Digital Marketplace Economy Enric Durany