July 5, 2016 Grand3

Online marketplaces must get in the middle of the transaction to survive.

For years classified marketplaces have survived and grown by offering simple listings of products and services. Some free, some paid. This model will not survive very long.

Yes, some marketplaces have very sophisticated methods of tracking “leads” and traffic to their advertisers’ websites, emails and phone calls. Technology, new mobile applications and new marketplaces will change the landscape. Simple listings and matchmakings based on product, price and location are now being forced to evolve.

This presents a great threat to traditional marketplaces and at the same time a huge opportunity for innovative marketplaces to get in the middle of the transaction and monetize each and every listing on their website.

Here are some ways marketplaces can get involved in the transaction beyond the listing:

  1. Verification of users. Trust is a key factor in every transaction. When I was managing the West Region of Autotrader.com, I validated the fact that people in general would rather lose 30% to 40% of their car’s value by trading it in to a car dealer than taking the risk of selling it to a complete stranger. Marketplaces can now easily verify the identity, existence and ecommerce ratings of their users with the use of technology. They can also allow each member to rate each other. Airbnb and Rntus do a good job at verifying users and keeping ratings. Of course, Airbnb is a more matured system in part because they have been around 8 years longer than Rntus, but mostly because their transactions involve a higher degree of risk by having the renter entering, sharing and sleeping in the host’s home.
  1. Offering and selling ancillary products and services.com offers trip cancellation insurance, eBay offers sellers and buyers protection coverage and Rntus is offering damage waivers and liability protection in selected products. These are great additional trust incentives for the users, but most importantly, they are great moneymakers for the marketplaces.
  1. Acting as escrow agents. Now, this is a great moneymaker for marketplaces. Imagine taking a percentage of every transaction that happens in the marketplace. This can be achieved by implementing technology and a “vault” or escrow system. The marketplace takes the money for the transaction and releases it to the seller once the transaction is completed and verified by both parties. The buyer can use Paypal or a credit card. The marketplace keeps a nice percentage. Rntus has found a way to do this. They collect the rental fees when the rental is booked and at the same time place a temporary hold on the renter’s credit card to cover the security deposits. Once the rented item is returned to its owner, Rntus releases the payment to the owner (minus a commission).
  1. Providing a higher level of matching. The simple database query that matches a keyword with the item description will not be enough very soon. It does not matter how many different and sophisticated sorting ways marketplaces offer its users. At the end of the transaction, two people will meet to exchange money and goods. Are those two people compatible?

I recently saw a television ad from my old company Autotrader.com showing the many ways that people can search, sort and store their queries to find the perfect car. I really liked the ad, and it was very well done, but could not help to acknowledge that at one point a person will walk into a car dealership and deal with a salesman who’s personality may or may not be a match for the buyer. It will not bring the car dealer better, more fitted buyers and buyers will not walk into a car dealer that best fits their personality. So the cool sorting is just that, cool sorting after an insufficient and ineffective database query result.

These are some of the ways that marketplaces can get in the middle of the transaction. The shift in direction for many marketplaces will start at the top and in many cases, owners and executives will need to step out of their comfort zone and make tough decisions. Some decisions may involve reinforcing their technology development teams with fresh blood. Not acting fast could end their market dominance or existence.

Successful marketplaces are those that allow their users to make money. The supply side, specially those people we usually refer to as “P-1” (the frequent and most active) users, are our bread and butter; they pay the bills. So, the more money our users can make, the more money we will make, especially if we get in the middle of the transaction.

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