June 27, 2015
If you walk into any grocery store, you’ll find a dizzying number of toothpaste varieties: gel or paste, cinnamon or mint, whitening or sensitive. Retailers offer a wide range of products because they’ve traditionally seen choice as a benefit.
But in the age of online marketplaces, choice has become a burden. Nobody would want to spend hours in the aisle reading about the best brand, flavor, and consistency of toothpaste, but it’s easy to waste hours online reading about products and evaluating sellers.
A new generation of marketplaces is emerging to solve this problem. Generation 3.0 saves customers time by making the decisions for them. If your product or service is right for this model, you can please customers and set yourself apart from other providers by evolving to the next generation of online marketplaces.
Generations 1.0 and 2.0
The first generation of online marketplaces offered little in the way of screening offers. Craigslist uses the trusted model of the classified ad. It hosts listings but doesn’t do much to help buyers sift through the posts or vet sellers.
Generation 2.0 got a bit smarter by providing tools to evaluate sellers. For example, eBay, Airbnb, and Etsy all have reputation-based rankings and customer reviews. These alleviate some concerns about a seller’s credibility, but the sites still put the burden of finding a reliable seller on buyers.
Both generation 1.0 and 2.0 involve a great deal of work. As a buyer, you’re left wondering whether a seller with a four-star rating is better or worse than one with a five-star rating that offers a similar product at a higher price. You have to read reviews and make a calculated guess.
Generation 3.0 Is End-to-End
As marketplaces evolve, we’re seeing a new generation emerge. Generation 3.0 provides end-to-end service and improves the user experience on both sides of the transaction.
In the third generation, the marketplace handles all of the screening. Platforms learn sellers’ and buyers’ preferences and offer recommendations — sometimes just one option — based on a several factors, including customer likes and dislikes and seller quality. This allows sellers to focus on their products and services while buyers rest assured that the offerings will meet their needs.
Uber is a great example. The company doesn’t give you a lot of choices. You need a ride. Uber vets your options, assesses your needs, and sends a driver to you. The company ensures drivers’ quality and reliability through user rankings, and riders don’t bear the burden of choosing.
Is Generation 3.0 Right for Your Product?
Depending on your industry and offerings, you may have an opportunity to meet your customers’ needs by moving to an end-to-end platform. To determine whether your category is a good fit, ask a few questions:
1. Can you standardize the product? A customer might trust a third party to choose a tie for him, but a bride probably wouldn’t trust a third party to choose something as personalized as a wedding dress. Make sure you can standardize your product — or at least a segment of your product.
2. Is the price restrictive? Most products or services in end-to-end marketplaces are relatively inexpensive. Beyond a certain price point, buyers want more control over the offerings and a wide selection. If a customer has saved $2,000 for a luxury vacation, she’s not going to want someone else to decide where she’s going, but if your price tag is low enough, you could go end-to-end.
3. Is there enough added value? As the middleman, you must add a middle layer of value to the transaction. For example, Washio benefits both sellers and buyers by coordinating door-to-door dry cleaning delivery. If you can offer additional value to the seller, you may have an opportunity in this marketplace.
End-to-end marketplaces will never completely replace generation 2.0 marketplaces. But in the right product categories, customers will flock to providers that can save them the time and hassle of deciding between options. Generation 3.0 will improve the user experience for both buyers and sellers. As marketplaces continue to evolve, consider whether your product is right for an end-to-end platform.
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