Published On: Fri, Aug 28th, 2015

Our Marketplace Obsession And Bubble

Service marketplaces have recently turn Silicon Valley darlings. The marketplace indication has been a renouned approach for VCs to well daub into a internal economies during scale, privately the $800 billion home services space.

It’s a indication that dates behind to a initial judgment of Yellow Pages in 1883. And it creates clarity — giving homeowners a available approach to find internal businesses around them (i.e., cleaners, handymen, babysitters, landscapers, pet sitters, etc.), while giving those same internal businesses bearing to new clients.

The 1990s saw a initial creation of a marketplace indication with a birth of Craigslist. But it has usually been over a past 10 years that we’ve seen a vital upsurge of investment dollars into a use space, fueling large forms of internal marketplaces to cocktail up.

Some concentration on reviews, some on discounts, some on concierge-like experiences; some offer full-service business tools. And they all typically fire out of a gates clever — lots of press, lots of hype, lots of dollars being invested to concentration on removing adult to scale fast.

However, when we puncture low opposite all these forms of platforms, we see a settlement in their behavior: Just as discerning as they rise, they fall. This form of gratefulness function is seen time and time again in industries that have another commonality: no tray or barriers to entry. And a timeline between arise and tumble is starting to shorten.

Liquidity Marketplaces 2.0

Companies that primarily innovated a normal marketplace indication embody platforms like Yelp, Angie’s List and Groupon, with singular takes on pro hunt and find for clients — counterpart reviews to decider quality, accurate ratings to consider trust turn and ignored prices for a best deals around. At a same time, they gave pros new platforms on that to publicize — from normal paid internal marketing, to ad hoc lead generation.

These 3 companies, in particular, collectively lifted roughly $1.5 billion in try appropriation from 2004-2011, assisting them any get adult to scale as discerning as probable while their marketplace offerings were singly relevant. At a time these companies were going open in 2011/2012, a economy was recovering, and some-more collateral was issuing into a tech space to build scalable businesses.

As we know, intrusion typically happens many fast in sectors that are indefensible, with low barriers to entry. Coupons and internal daily deals sites were all of a remarkable everywhere. Locally listed pros and counterpart reviews shortly became a norm, as against to something singular and special.

Increased foe and a recognition of a height indication definitely impacted both clients and pros — some-more hunt and find options for clients, more promotion and selling options for pros.

But for a initial marketplace innovators, any of that initial “IPO hype” fizzled after a few buliding of performance, and valuations declined from rise to trough, 70-90 percent opposite a board.


Of course, copycat platforms were crowding into a market, though during a same time, there were new forms of models that were grabbing marketplace share. These new entrants took a opposite turn on relating homeowners and pros.

Verticalized Lead Gen Marketplaces

The many apparent derivatives of this business indication were vertical-specific marketplaces of all sizes. These authorised clients to puncture into a specific attention with deeper pro filters, while during a same time enabling pros to some-more elaborately arrangement their profiles and work in sequence to make them mount out.

But there also were innovations in a user knowledge of find and lead generation. Thumbtack and HomeAdvisor (snatched adult early by IAC), for example, altered adult a hunt routine altogether. Instead of homeowners spending time combing by a garland of veteran profiles, they simply submitted one-time sum on that services they indispensable and a pros (who compensate for a comfortable leads) reached out directly to pitch.

VC income shortly came pouring in even faster for these new marketplace companies — Porch raising $65 million (Series B), Thumbtack lifting $100 million (3 months after $30 million Series C) and so on. However, shortly after Thumbtack’s lift in 2014, for example, Amazon launched a Amazon Home Services platform.

Then Google announced a intension to optimize internal hunt (via “Google Home Services”) and arrangement profiles of internal use pros above organic hunt formula (beta now live in specific cities and industries). This indication is radically an accurate reproduction of Thumbtack — we can conveniently send minute use requests to mixed pros in your area and have them all representation to win your business.

At a same time as liquidity marketplaces were evolving, a new category of marketplace shaped with a idea of determining a client/pro transaction from finish to end — a “on-demand” marketplace.

On-Demand Marketplaces

One approach to safety a stickiness and boost a defensibility of a height is to keep a whole client/pro transaction “online” — from discovery, to scheduling, to communication, to remuneration — all on a height itself.

In theory, this gives a customer an even easier employing knowledge (no need to even collect adult a phone!), all a while, permitting a height to assign a 20-30 percent price per transaction in sell for delivering business to a pro.

Companies like TaskRabbit, Homejoy and Handy were early on in a on-demand use game. One would consider that complicated investment in integrated business collection could be a loyal differentiator within a marketplace model. Within dual years these 3 platforms lifted no reduction than $35 million…each. But a marketplace didn’t conflict as expected.

TaskRabbit suddenly laid off poignant chunks of a workforce as it struggled to file in on a right use concentration and business model. The association is still finding the right pricing model for itself and hasn’t lifted in 3 years, that many in startup land would contend is an eternity.

Homejoy officially shut down final month as a company’s indication was potentially in defilement of countless labor laws, with no profitability devise in sight. And Handy, that operates an roughly matching business indication to Homejoy, is rumored to be churning out economics that were not distinct Homejoy, and has a own internal particular issues. (Raising a follow-on Series B this year will give them some respirating room.)

The initial on-demand home services marketplace with a “successful exit,” actually, was The association powered by VC appropriation rounds and went open in 2014, peaking during about a $1 billion valuation. Since then, increasing foe and height shake has plummeted’s value by 80 percent, to only $180 million (note that a association lifted some-more than $110 million in VC funding).


Perpetual Platform Leakage

Low record barriers are clearly a elemental problem within this service-pro marketplace industry. (Ironically, this is one of a categorical reasons since billions of dollars are being invested in a space any year — it’s comparatively easy to make a discerning sire and reinstate a comparison era marketplaces and fast grow to scale…until a subsequent marketplace comes along to interrupt you, of course.)

However, a other core problem revolves around incessant height leakage. That is, these platforms are all adding a ton of value creation that initial introduction between customer and pro in high-quality ways.

This is generally essential within home services given you, as a homeowner, are looking for trust and peculiarity above all else — after all, you’re vouchsafing these pros into your home, seeking them to correct or purify your many private areas, guileless them with your children, pets, etc.

But a settlement of many of these services are recurring by inlet — some on a frequently occurring report (e.g., home cleaning, landscaping, dog walking, etc.), while others on an ad hoc basement (e.g., discerning toilet fix, accessible correct work, pet sitting, etc.).

Thus, there is a outrageous volume of activity and value taken offline once a introduction has been made, as a prolonged tail of a client/pro attribute takes hold. Clients are eternally encouraged to pierce their pro relations off platform, since it’s one reduction surrogate to go by to directly entrance a pros they love.

And for pros, a final thing they wish is to have their client’s information owned by a marketplace middleman. Marketplaces have each inducement to expostulate clients behind onto their platforms to book more professionals, book new professionals, book competing professionals and even assign for additional transactions.

The extrinsic application bend of marketplace creation appears to be flattening out as a timeline from startup to rise gratefulness is removing shorter, and a decrease from rise to tray gratefulness seems to be removing sharper.

Featured Image: Radu Bercan/Shutterstock

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