Everybody wants to be a marketplace

Marketplaces are hot. Uber, AirBnB, Amazon, YouTube and many other big tech companies are in fact, marketplaces. The ‘dry’ definition of a marketplace is:

“In mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information”

The word exchange is key here: there is a direct (or indirect) exchange of good and/or services. In financial markets, this might refer to forex, stocks, bonds, etc. In non-financial markets, this could apply to physical goods, (physical) services, apps, crowdfunded initiatives, and many other things.

Giant marketplaces in last 12 years

Thanks to advancement in technology, we have seen a great uptake in marketplaces over the last 10–15 years. AirBnB, Uber, Lyft, Doordash and other $1B+ players show the immense value that marketplaces yield. Connecting demand with supply pays off, it seems.

Likewise, we see a big uptake for marketplaces in the financial world. Open Banking (enabled by Open APIs), allow for banks, merchants and SMEs to connect their payment services in an easier and, well… ‘open way’. Here, the word marketplace is a bit ‘confusing’, as it is not so much a transparent, public platform, but more a new way for developers and businesses to deploy their ideas and solutions in the banking world. ING/Yolt, ABN Amro, Starling Bank, and best of breed FinTechs are great examples of this. The latter is especially interesting, because it really shows how banks itself are the direct result of ‘the best findings in a marketplace’:

Matchmaker vs Marketplace

There is an important distinction between marketplaces and matchmakers. They seem similar, but definitely are not.

A matchmaker connects two ‘actors’ in the ecosystem, without taking part in the actual exchange or facilitating it in any way (for example, by offering a centralized payment system, customer protection, fraud prevention etc.). They’re offering the platform for these actors to find each other, and that’s where the fun stops. Examples include Craigslist, Marktplaats.nl (Dutch), Mercado Libre, and many others.

A marketplace is different in this regard, as it does play a role in the exchange. Often there is a centralized payment system, fraud prevention, customer protection, customer support and arbitration of disputes. Also (and very importantly for one-way marketplaces such as Uber and Lyft), marketplaces verify customers and sellers, making sure that your next Uber trip will actually be a safe one! (at least, that’s what they aim for.)

So, you want to start a marketplace?

We have many talks with companies that want to create a marketplace of some sorts. Either as a matchmaker, a ‘closed marketplace’ (e.g. opening an internal app store to improve their digital services), or a full-fledged B2B or B2C marketplace (a la Uber/AirBnB).

When we help those clients, we generally take five steps in order to define their new value proposition:

1. What kind of marketplace do you want to start or be? (closed/open, centralized/decentralized, matchmaker/marketplace, one-way/two-way, etc.)
2. What is your unfair advantage that you can take advantage of?
3. What role will you play both as a facilitator and actor?
4. Who is owning the technology, ‘rules of the game’, management and revenue streams of the marketplace?
5. How to you enter the market and reach the ‘tipping point’ required (i.e. the minimum amount of actors needed to commercialize the platform)

One template we fill in with our clients to brainstorm about Step 1, 3 and 4 is the Marketplace template — a straightforward canvas that forces participants to draw out the marketplace and all of its elements:

You can download the PDF of this template here.

Good luck — and let us know if you need help

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