Business is like old As humanity, and still the innovation of how to build better and more efficient companies continues, but it is increasing rapidly. Although there are many types of business innovation, marketplaces may seem very simple at first glance, but they have evolved from exchanging goods in the town square to more effective digital forms. Marketplace CEOs can adjust their thinking about marketplace structure in a way that maximizes the availability of popular products and enhances the customer experience while reducing capital expenditures.
The basic definition of a two-sided marketplace is a platform where buyers trade with sellers, or alternatively, “demand” trades with “supply” (two-sided is considered the most “classic” marketplace structure. There are also three-sided and n-sided marketplaces). The marketplace itself can be a digital platform, a technology or human broker, or even a location, and its value depends on how efficiently and effectively it facilitates transactions and, if you’re an investor, how fast the marketplace is growing. The more money the marketplace itself earns (the “graveyard”), and, among other things, how well it can defend itself from competing marketplaces and fragmentation.
Retailers are an example of well-known marketplaces, because they combine products from several manufacturers (“supply”) and present the combination to consumers (“demand”). During this exchange, retailers must pay in advance for the products they subsequently mark up and sell.
In general, the more weighted the model, the more control the company has over the customer experience.
Over the past 15 years, the “sharing economy” has given rise to a new marketplace: the “asset-light” marketplace. Venture capitalists have embraced the ever-valuable marketplace and funded the likes of Uber, Lyft, and Airbnb. There are key differences between asset-light marketplaces and traditional marketplaces. While the retailer buys the shampoo before selling it to the consumer and the taxi company buys the taxi, Uber doesn’t buy the car before delivering it and Airbnb doesn’t buy the house before renting it out.
Asset-light marketplaces can make money from something they don’t own or fully control by facilitating entry and payment between supply and demand. However, these “asset-light” platforms can transform entire industries by owning the relationship with the customer, without the capital investment required by “asset-heavy” marketplaces like retailers, and ultimately generating more revenue.
While asset-light marketplaces have proven to be a powerful innovation, the asset-light model has limitations and has led to the development of some asset-heavy platforms that are better suited to meet certain customer needs.
