Service Marketplaces- “The Trillion Dollar Economy”
It’s overwhelming to think the way we have evolved over the last two decades. Our grans told us “Never get into a car with a stranger.”
What did Uber Do? It changed exactly the way we thought and made us comfortable doing things we would earlier never have dreamt off.
The last few decades have witnessed multiple successful marketplaces, starting off with goods being sold online at Ebay and Amazon, going to more simple service marketplaces with Uber, Lyft, Doordash, Upwork, Thumbtack, TaskRabbit, and Fiverr. However we have still not seen a successful B2B marketplace.
Where are we today?
One could say that freelance marketplaces that cater to the gig space are in a way catering to the B2B space, however the real issue is that through these marketplaces, employers are unable to build long term relationships, limiting these service verticals to low-value and one-off transactions.
Andrew Chen in his article “What’s Next for Marketplace Startups?” argues that “Startups will build on the lessons and tactics to crack the toughest service industries – including regulated markets that have withstood digital transformation for decades. In doing this, the lives of 125 million Americans who work in the services-providing industries will join the digital transformation of the economy”
Currently, 69% of the total US national consumer spending is made up of services. However only 7% of services are primarily digital, meaning they utilized the internet to conduct transactions, creating an untapped 9.7 trillion market of services in the US alone.
Why are services still primarily offline?
Picture this! You have a super important dinner to attend. It’s a make or break event for your career, you want to be at your best behaviour dressed in your best outfit. Just a minute later you get a call that your childcare help has cancelled her booking and you are left stranded with a 2 year old, reaching late for your dinner, ultimately losing out the deal.
I am sure that doesn’t sound like the most pleasant sight to have. But there is a very high chance that you would not call for a childcare provider online and have someone you know come and look after your child. The same holds true for services that are complex and difficult to standardise. Let’s look at a few reasons to understand why service marketplaces have not become big.
1.Services can not be standardised
Standardising services is a very major challenge. Is there this one hair dresser you would go to no matter what, maybe drive a few miles and just be there. Do you think someone else, maybe even your closest friend, values her services in the same manner? I am sure your answer is “No”. And it’s quite justifiable. Just like the hair dresser’s services, B2B services cant be standardised as each business has requirements specific to its use case. You could be able to standardise say 60% of the work, automate it but there will still be this 40% that you will have to customise as per the use case.
2.The lack of a clear metrics to measure the success or quality
It’s very difficult to get a clear picture of the review for a complex service. For example if you and I had the same designer come and furnish our house, I may have rated him a 3 star whereas you may have rated him a 5 star.
The customer experience of a service is often subjective, making traditional marketplace features like reviews, recommendations, and personalization more difficult to implement.
3.Small service providers lack the tools and knowledge to come online.
Although times are changing and people in general are becoming over aware and are using the internet across all verticals, there still exists a big gap.
Many small business and service providers have low margins as opposed to a goods manufacturing unit where economies of scale can be leveraged.
As a result, service providers often don’t have time or budget to devote to key business functions, such as responding to customer requests, promoting and marketing themselves, maintaining a website, and other core functions. While major e-commerce platforms have taken on the role of distribution, merchandising, and fulfilling orders for goods, there are few platforms that service providers can plug into to manage their businesses and reach customers.
To conclude we believe that although there still is still a long way to go, complex service marketplaces will be the new wave that will create multi billion dollar companies, with all high value transactions with high margins moving online.