Does the World Need Another Two-Sided Marketplace Startup?

Over the last year, I’ve received a ton of inbound asking for advice on building two-sided service marketplaces for experts — everything from plumbers to nurses to attorneys.

These are not your everyday service marketplaces, like Uber or Wag, where anyone with a Prius or an extra leash can make some side cash. These are Expert Two-Sided Marketplaces (E2SM), offering services that require more rigorous training, certifications, licenses, or even advanced degrees.

I’ve got plenty of experience building E2SMs. In 2013, I sold a company called ExitEvent that, among other things, matched entrepreneurs with services from attorneys, recruiters, code shops, even investors.

And I spent 2.5 of the last three years helping take my previous startup Spiffy from a mobile car wash to a nationwide mobile provider of all things vehicle.

E2SMs are everywhere, and furthermore, recent shifts in the economy are going to make these marketplaces even more necessary. Why sit for hours in a cramped Oil Change Shop waiting room when you can have your oil changed at home or at work?

But let’s revisit that word “necessary” for a moment. Just because you can dream up an expert two-sided marketplace platform doesn’t mean you should start a company around it.

What is an expert two-sided marketplace?

We’re all familiar with traditional 2SMs like Uber, Wag, or Instacart. The vendor side of these platforms is built around the notion that anyone can drive a car, walk a dog, or buy groceries. The vendor recruiting pitch for these 2SMs breaks down like this: The better you are, the higher your rating, the more business you get, the more money you make.

The rating is the economic driver on the vendor side, and it’s based solely on customer service. However, more often than not, it’s random, or worse, it’s driven by supply and demand. Pick up a gig no one wants, get more gigs, make more money.

An expert marketplace has a number of additional layers and much more complexity. Not everyone can quickly learn to fix a sink, administer the correct dosage of a drug, or get a client off of a DUI charge.

On top of that, the risks of failure on the vendor side are much greater. If a vendor has a bad day at Uber, a customer ends up late for their meeting. If your platform’s vendor has a bad day plumbing or nursing or lawyering, your customer winds up with a flooded kitchen, an overdose, or jail time.

Therefore, an E2SM vendor must be someone already credentialed for full-time work in their field. And if your platform is going to succeed, those vendors need to be experts. Every time.

Why do we need expert two-sided marketplaces?

E2SM platforms revolve around some simple economic concepts. For the customers, they aim to provide a percentage of the service benefits for a much smaller percentage of the price of a full service provider.

For the vendors, they purport to provide a source of additional revenue without the need to spend time and money marketing and selling.

For both sides, the platform should — but often doesn’t — market, transact, and deliver the service in a novel, efficient, and convenient way, removing most or all of the friction from both sides of the equation.

So as a customer, you get exactly what you need, when and where you need it, without having to spend a lot of time shopping and vetting the provider. As a vendor, you get extra demand for your supply without having to spend money advertising to find new customers or spend time selling new customers on your service.

Why are expert two-sided marketplaces going mainstream?

To explain why E2SMs are suddenly all the rage, we have to back to the roots of eCommerce.

Before the rise of Amazon and the consolidation of retail goods around big box stores — i.e. Walmart and Best Buy and such — eCommerce for goods was a difficult-to-navigate mess of independent operators with clunky online presences of various quality. By the mid-2010s, Amazon had essentially aggregated most non-niche eCommerce into one location.

Then Amazon started offering a third-party marketplace for goods, setting up a huge and complex program to bring third party sellers into its own digital store — including display, transaction, inventory, picking, shipping, and even returns. Today, most goods producers have one of three options for eCommerce — go direct to consumer, rely on the disparate eCommerce platforms of their retail partners, or be an Amazon third-party seller.

With service providers, that Amazon-style aggregation is happening right now, but it’s still very niche. There are a ton of service marketplaces out there, but most of them still take their eCommerce cues from goods marketplaces. In other words, when you shop a service marketplace, there’s a catalog of providers with some basic description of the service, a rate card (if you’re lucky), and a way to transact.

The marketplace platform makes its money from referrals on the transaction, and usually only the first transaction, since once a relationship is established between vendor and customer, there’s no need to go back to the platform. And that’s just one of the problems.

The problems with expert two-sided marketplace platforms

Broken down into the simple set of elements I just described, E2SMs seem easy to stand up and operate. But the platforms run into all sorts of critical issues.

• Vendors and customers aren’t as easy to aggregate as one might imagine.
• The expert vendors need a robust, often extreme vetting that usually isn’t done well, if at all.
• The customer experience is usually poor, often for the very reasons it seems so easy to stand the marketplace up in the first place.

If you went to a goods marketplace, say Amazon, to look for a phone case, and all it showed you was a long list of phone cases with no information as to whether or not the case would fit your phone or how good it was at protecting your phone, you likely wouldn’t transact. Worse, if every phone case on the marketplace was touted as the top protection you could buy for whatever phone you had, and then you did transact, you’d be angry when your ill-fitting, flimsy phone case arrived.

This is the state of most expert marketplaces today.

Should your expert two-sided marketplace exist?

If your plans for your E2SM look anything like what I’ve described up to now, then no, these goods-rip-off versions of an E2SM will always fail. But if you can build a platform to handle the kind of complexity needed to make an E2SM work, then there are some basic questions you should ask to understand if your E2SM is valid.

Is the demand for the service there or is it niche?

Most 2SMs (Uber/Instacart) are built for services that already have an enormous demand and a big problem to solve.

In my mind, and I’m biased here, changing oil is a pretty solid use case. It’s year-round, it has to be done periodically, there’s not a ton of DIY, and almost every adult has a car. The demand for the service is there.

Plumbing, on the other hand, I have questions about. A marketplace built around fixing something when it breaks is one where it’s extremely tough to flatten the demand. Plumbing doesn’t break on a schedule, and when it does break, it usually requires a very quick fix. That makes it niche.

For an E2SM to work, you have to be able to get to steady supply and near-steady demand, or the market dynamics will fail. If the supply is sporadic, you’ll lose more customers than you keep. If the demand is sporadic, you won’t make enough money to grow.

Is there an incumbent to take on?

Uber was built by cleaning up the horrible customer experience in the taxi industry. If there are one or more incumbents in your industry doing things the same way, the market would probably welcome an E2SM. But with this question, the corollary is more important.

Unless you can provide additional value for both the customer and the vendor, whether that’s with technology, marketing, transaction, or delivery, you’ll be building the equivalent of a 1990s eCommerce shopping cart.

Can the expert vendor be vetted and qualified, and can they work in a marketplace model?

Most of the hard work in an E2SM goes into vetting the vendor. That vetting could require anything from verifying credentials to a face-to-face interview. You also need to be able to rate the vendor along axes that are important to the customer. Again, a bad Uber ride can be forgiven with a credit, a botched plumbing job could sink your entire platform (pun intended).

But even then, just because your experts are indeed experts, that doesn’t mean they’re a fit for a marketplace model. I know this from experience, and I’ll cover that in the next E2SM post.

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This post originally appeared on Medium: https://jproco.medium.com/does-the-world-need-another-two-sided-marketplace-startup-ab7b6cadd82f