Cannibalizing Transparency
I originally posted this on USV's Conversation Board in response to the following prompt:
**What will undo today's incumbent marketplaces?
**We're in the deployment phase of online marketplaces: we're seeing many successful marketplaces across different sectors and demographics, and they generally follow a common model of central management of "thick" platforms (bundled services and data network effects, among other characteristics). Today we're asking: What will ultimately displace these incumbents? What vectors will tomorrow's marketplaces use to compete?
I believe that we'll see a rise in "marketplaces" that embrace transparency and competition as their core identity, even when it directly impacts their bottom line; an aggregated and open landscape where the "in-house" offerings may (or may not) be most attractive. This would be an Uber including rides from Lyft and Hailo. Or an AirBNB cross-listing hotels and Craigslist short-term rentals.
The marketplace's value-proposition shifts from "just" uniform, controlled, bundled services (payment, trust, reviews, uniformity), towards an always-trustable landscape that evidences specific opportunities where/when the platform deserves your business.
This will necessitate lower "management" fees and better/more substantial services to incentivize buyers/sellers to willfully join the platform. "Free Riders" will enjoy no-cost distribution; so the quality of the in-house product/services, and overall experience will need to overcome that competition.
This model also means that these "marketplaces" initially resemble utilities, as they satisfy any individual user from the start. Network effects build up over time as the supply of in-house buyers/sellers join.
I believe that such a marketplace model is possible without simply becoming an aggregator. Amazon cross-lists lower prices, but many choose the (marginally) more expensive "Prime" option for peace of mind. Craigslist could charge a small fee for every listing; instead, they monetize only the most competitive sections.
A specific example from my startup, Texts.com. We provide a student textbook exchange without any fees/commissions; when there are no student deals, we earn affiliate fees through price-comparison. We happily forgo potential commissions on student deals, as we'd rather differentiate and work towards becoming completely-defensible. In time, we'll integrate open-source / royalty-free options to increasingly cannibalize our affiliate commissions and improve student trust.
We want a smaller piece of a bigger pie, which we can only bake through openness and competition. I believe we'll see this trend grow as overall adoption increases, competition stiffens, and costs shrink.