Viewpoint / Consumer

Our View on Marketplaces

The U.S. e-commerce market is estimated at $200 billion and is still projected to account for only 9 percent of total retail by 2016 (source: Forrester Research Feb. 2012 U.S. Online Retail forecast). We believe there is ample room for growth, and much of it will come from marketplaces. The metaphor of online marketplaces, established by Amazon and eBay starting in 1995, has endured and is flourishing once again – but in a different way than in the past. From an investor point of view, four things have changed:

The Rise of Vertical: The e-commerce market is large enough to support vertical marketplaces that super-serve consumer needs and are defying the “winner take all” theory that eBay or Amazon will be the only game in town. These vertical marketplaces have tuned the user experience to very specific needs by vertical and are easier to achieve liquidity due to their focus. Examples include Homeaway (vacation rentals), Etsy (niche artisan goods), and OpenTable (restaurant reservations).

Global? Not As Much: The incumbents have not been able to execute a “global playbook” strategy across geographies, as local giants have emerged that offer a customized business model depending on the geography (China: Taobao [has more than 65 percent of the market and growing according to CrunchBase] and India: Flipkart) with many more to come.

Platform Disruption: New platforms such as mobile are proving to be disruptive for incumbents and require a different approach. Poshmark (a Mayfield investment) is a great example of a vertical women’s fashion marketplace where consumers can list fashion items in their closets in just a few clicks, and any customer can purchase simply and directly from the phone. The ease of listing (via your camera on the phone) combined with the simple viewing metaphor (similar to Instagram but for fashion items to purchase) were purpose-built for this platform.

Offline/Online Marketplaces: We are beginning to see offline models disrupted by online marketplaces, which was very difficult before smartphone, Internet ubiquity, and examples of rapid local scaling like Groupon and Yelp. Craigslist reigned here for a while, but now users demand a simpler, more vertical experience and safety/social identity lacking on that marketplace. That said, these are not easy as they are highly local and require operational excellence in addition to a great mobile/online product. Examples include Uber and Zimride’s Lyft in the transportation space (Mayfield is an investor in Zimride), TaskRabbit for personal services, Postmates for delivery, and Airbnb for real estate rentals.

As a result, there is still a lot of potential for creating game-changing companies that use the marketplace as a model. With the rise of the social and mobile web, today’s marketplaces demonstrate some unique characteristics that entrepreneurs should think about. I’m categorizing six of them under the acronym “ACCESS” – accessibility, curation, community, efficient commerce, simplicity, and symmetry.

  • Successful marketplaces on mobile platforms now provide addictive, anywhere – anytime accessibility. The best example of this is OpenTable’s mobile app, which easily lets users find and make restaurant reservations  (almost 10 percent of its cumulative 350 million reservations or 30 million diners have made reservations using its mobile app).
  • Marketplaces grow their inventory rapidly by crowdsourcing items, such as eBay or now Etsy, but curation matters more than ever and can come from both data/analytics and social signals. A good example of this is the Showrooms metaphor from Poshmark, which lists 4,000 items daily, but where sellers can showcase their fashion items by “designer,” “theme (evening wear),” or “recently added.” This curation is critical when a customer is mobile and just has a few minutes to be satisfied.
  • By adding the social layer, today’s marketplaces build community that goes beyond reviews and ratings of 1.0 marketplaces. This social layer brings true identity to the sellers and buyers and enables interactions regarding advice (and of course purchasing) directly from trusted friends. Importantly, the social layer acts as a powerful free marketing channel, as users show off to friends what they bought or are interested in, build up their personal tastemaker brands, and help friends also interested in the category. (A good example of this is Mayfield investment Fab whose subscribers are proud to show off their design sensibility through the products they have bought. In fact, 50 percent of new Fab users are brought in via social media).
  • Efficient and frictionless commerce is a business model that is well understood by users and, for this, Amazon’s one-click commerce still reigns supreme. This is now a must-have in mobile marketplaces. A recent example is Cherry, the on-demand mobile car-washing service, which requires three clicks to find, schedule, and pay for your car wash.
  • Using a design-first mentality, today’s marketplaces demonstrate stunning simplicity of use. A good example of this is Exec, a mobile TaskRabbit-type app that allows users to enter the task they need completed and pay for it without much data entry.
  • Finally, pioneered by the collaborative-consumption movement, marketplaces are becoming increasingly symmetric, with significant overlap between buyers and sellers, as people rent and share their own belongings – instead of historically a few merchants selling new goods to many, many buyers. A recent good example is Zimride, whose Lyft service in San Francisco — where people offer rides in their own cars — is growing exponentially).

The era of the “mobile social vertical” marketplace has just begun, and entrepreneurs all over the world are creating companies to leverage these foundational behaviors. We are excited to support entrepreneurs in changing the face of e-commerce through next-gen marketplaces.

This article originally appeared on Techcrunch.

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