The emergence of managed marketplaces: greater opportunities but a lot more riskEntrepreneurship
One of the more interesting developments over the past few years is the emergence of managed marketplaces. The term means different things to different people, but I consider it a marketplace that not only connects buyers and sellers, but takes on additional parts of the value chain to deliver a better overall experience.
For example, Beepi, a peer-to-peer marketplace for buying and selling cars, inspects every car listed on the platform – giving people a more trustworthy, stress-free way to buy a car. The platform also adds value to its sellers by guaranteeing a sale: Beepi buys the car if you don’t sell it within 30 days.
DriveShift adds concierge services to its marketplace for buying/selling cars. For example, they’ll bring a car to your doorstep if you’re interested in a test drive and will stop by for an instant appraisal if you’re thinking about selling.
The managed approach isn’t limited to auto marketplaces. Threadflip and Real Real handle the logistics/cataloging for its sellers in women’s clothes and luxury products respectively.
These types of marketplaces can be game-changers in their categories, particularly when dealing with high-value ticket items. By adding managed services, marketplaces can create new demand by helping buyers overcome the trust issues associated with most peer-to-peer marketplaces. There’s a big difference in trust levels when buying a car via Beepi or Craigslist.
In addition, by adding concierge/logistics support, these marketplaces unlock brand new supply. Most sellers of luxury items aren’t inclined to go through the time and trouble associated with cataloging and listing their clothes on a marketplace. But a managed marketplace can take care of all the hassle.
Yet alongside these advantages, there are a few downsides to building a managed marketplace:
- Taking on additional tasks cuts into your gross margin and adds operational complexity. You might need to scale farther in order to make the model work profitably.
- There’s considerable risk involved should you guarantee the sale and take on sellers’ inventory. If economic conditions worsen rapidly – such as the “overnight recession” in 2008 – you’ll end up sitting on inventory that’s impossible to move.
- Lastly, most of the processes needed for a managed marketplace are vertical-specific. This offers little synergy to expand into a new vertical.
The core question is: how much value can you unlock by managing parts of the marketplace value without raising the risk profile exponentially?
Managed marketplaces are an exciting evolution, but the jury is still out in how well they’ll be able to manage the inventory risk in a downturn.