What Makes an Internet Marketplace Robust?

This week’s blog is from Mark Bruemmer, brainiac on a mission, IT powerhouse in tennis shoes and local entrepreneur with a global focus.  Mark is the CEO and founder of Savannah-based eXcesS Capacity, a worldwide online marketplace platform for businesses trading idle resources.  Read on as Mark identifies the prerequisites for a robust marketplace.  FYI – The Creative Coast’s blogspot is Savannah’s sounding board for local thinkers, innovators, wanderers and wonders. Guest bloggers share their thoughts, opinions and creative noodling from all over the map…

[caption id="attachment_66437" align="aligncenter" width="562"] Piazza del Duomo, Milan, Italy[/caption]

While marketplaces where people physically gather to exchange goods and services have existed for millenniums, what makes today’s internet marketplaces robust?

In 1330 the famed Piazza del Duomo, a 183,000 square foot square, in the heart of Milan, Italy was where merchants and their customers gathered to trade goods.  When the tents and chairs were folded, the carts filled with produce, the clothing packed and carted away, the only thing remaining were fond  memories of the day’s activities.  At subsequent sessions since vendors and their prospective customers would freely enter and leave the market it required time, days, months, perhaps even years, to develop trusting relationships.

3 Factors that Make an Internet Marketplace Robust

While the Piazza del Duomo still serves as a marketplace for the local Milan community, 3 factors that make an internet marketplace robust are developing trust, facilitating interactions and applying standards.

Trust

Fast forward to Labor Day 1995 when Pierre Omidyar launched “electronic Bay”, an online auction site soon to be a destination for people trading everything from consumer products to business supplies to vehicles.  In a post to the eBay user community forum six months later Mr. Omidyar notes “By creating an open market that encourages honest dealings, I hope to make it easier to conduct business with strangers over the net.” Most people are honest. And they mean well. Some people go out of their way to make things right. I’ve heard great stories about the honesty of people here. But some people are dishonest. It’s a fact of life. But here, those people can’t hide. We’ll drive them away. Protect others from them. This grand hope depends on your active participation. Become a registered user. Use our feedback forum. Give praise where it is due; make complaints where appropriate.” As testimony to trust in its marketplace, in 2016 there were 164 million active users, with 1.3 million sellers around the world using eBay as their primary or secondary source of income.  Integral to building trust on the platform is the feedback scoring system which enables buyers and sellers to rate their experience. The feedback forums and scoring systems are an indelible record of past performance for both buyers and sellers which define a user’s reputation and builds trust on the eBay marketplace platform.  In today’s connected society reputation and trust are vital to conducting business.  According to the Sage of Omaha Warren Buffet, “It takes 20 years to build a reputation and five minutes to ruin it.”

Interactions

Sangeet Choudary, Massachusetts Institute of Technology Platform Chair and one of the top 30 management thinkers globally most likely to shape the future, in his work Platform Thinking posits modern day internet marketplaces adopt a platform business model between producers and consumers of value.   He observes “a platform provides a plug-and-play infrastructure which encourages open participation by an external ecosystem of producers and consumers.” For example, instead of creating software applications via a closed proprietary system, Apple and Android introduced an open platform marketplace supplying code libraries and infrastructure in which developers could easily create and distribute software applications for myriad electronic devices.  Online retailers such as Amazon and Etsy are shifting from distribution channels selling products to engagement platforms co-creating value. Digital toolboxes enable marketplaces such as Youtube, which provides producers with a hosting infrastructure for their videos, and Wikipedia, which provides writers with the tools to collaborate on an article, to thrive. To be effective marketplace platforms must facilitate, and define the rules of governance, for the interactions that ensue between producers and consumers.  The idea is to mitigate any friction in buyer/seller transactions.  Mr. Choudary defines a Core Interaction as a set of actions that producers and consumers engage in repeatedly in order to derive value from a platform.  Examples include setting up a listing, adding content, searching listings, consuming feeds, purchasing, voting and rating.  All core interactions have one of these 3 attributes

• In every interaction at least one producer creates value.
• In every interaction at least one consumer consumes value.
• Ensures the quality, quantity and applicability of value creation.

Governing interactions sets the bar for appropriate behavior in the marketplace.  On Airbnb, a host’s listings may be suspended if the average overall star rating falls below 3.5 stars.  A resolution center mediates issues between hosts and guests.  The company also publishes guides to responsible hosting, safety and hospitality standards on its website.

Standardization

Dan Martell, founder of Clarity, a marketplace for entrepreneurs receiving advice from experts, in his video titled “How To Build A Two-Sided Marketplace,” as shown in the following table describes three web versions characterizing the evolution of internet marketplaces.

      Marketplace Characteristics Table       

Web Version	Characteristics	Marketplaces
1.0	Open, Prone to Spam, Fraud, Sometimes Untrusted.	Ebay, Craigslist
2.0	Curated, Focused, Identity Verification, Privacy Policies, Trusted.  Leverages social trust to build liquidity.	Airbnb, Etsy, TaskRabbit
3.0	Supply provides a consistent experience through brands, results, pricing and standardized offerings.	fiverr, Lyft, Uber

. The more advanced Web 3.0 marketplaces provide a level of consistency, delivered by a multitude of diverse suppliers that standardizes the experience for the consumer.  Most services offered on fiverr.com start at $5.  Each ride shared on Lyft or Uber has uniform procedures for passenger pick up, transport and drop off, regardless of the vehicle’s make or model.

Conclusion

We’ve learned 3 factors which strengthen an internet marketplace are developing trust, facilitating interactions and applying standards.  eBay, in developing trust and preserving the integrity of its auction site, encouraged its members to use the feedback forum and scoring system.  Sangeet Choudary, in his work Platform Thinking, suggests effective marketplace platforms provide an open ecosystem in which value is created, curated, derived and consumed.  Facilitating and governing interactions between producers and consumers is essential to reducing friction, promoting quality and setting rules for appropriate behavior.  Finally, in a two-sided market, standardization of supply characterized by Web 3.0 marketplaces raises consumers’ expectations in terms of receiving a consistently positive experience. Mark]]>