Should you move to a managed marketplace model?

On October 20, we hosted a marketplace meetup in San Francisco. More than 75 founders and investors joined us for the event – and for those of you who couldn’t make it, we will be sharing some of the key insights and discussions from the event in a series of posts (check out our first post on growth strategies for marketplaces).

Anthony Marino, CMO of ThredUp, gave a very interesting and well-received lightning talk on managed marketplaces. ThredUp offers a great case study on the importance of breaking away from conventional wisdom.

First, some background on the subject. In our eyes, a “pure” marketplace just connects buyers and sellers, while a “managed” marketplace takes on additional parts of the value chain to deliver a better overall experience. As we wrote about in our Marketplace Handbook, the managed model can be a game-changer when dealing with high-value items. For example, when selling luxury items and cars.

However, there are some very real downsides to building a managed marketplace. First, taking on additional tasks cuts into your gross margin and adds operational complexity. And, there’s considerable risk involved should you take on sellers’ inventory; if economic conditions change, you can end up sitting on inventory you can’t move.

Now, enter ThredUp. ThredUp primarily deals with children’s and moms’ clothing – not exactly big ticket items. It’s a great market opportunity, because as any parent knows, it’s easy to over-spend on kids clothing and items are worn for only one season (or less). ThredUp moms started off taking photos and cataloging their clothing, but soon they didn’t want to do it any more. Photographing clothes is a hassle and too time-consuming when you have a hundred other things to do.

To help support their users, ThredUp considered taking over these tasks. But, as Anthony described, they were advised against taking on inventory. It was too risky, too expensive, too complex. But, ThredUp considered the situation, knew how much their users needed some help, and went ahead with a managed model. Moms could “order a bag and throw their things in.” ThredUp took care of the rest. And guess what? Business took off again.

Today, ThredUp has distribution centers around the country. Their employees systematically take photos, write up descriptions, and verify the quality of the clothing.

Inventory quality and variety has improved…because it’s much easier for sellers to throw clothes in a bag than to sit down and catalog items one by one. ThredUp’s managed model unlocked new supply and made the marketplace even more compelling to buyers.

The takeaway? Sometimes it’s okay to stray from the norm. In ThredUp’s case, they listened to what their users were asking and delivered on those needs, and only those needs. You don’t want to add costs by taking on more than necessary. ThredUp found a cost-effective way to move to a managed model and this move fueled their marketplace.

The question to ask yourself is how much value can you add/unlock by managing parts of the marketplace and is it worth the added risk?

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