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The 7 Reasons Managed Marketplaces Can Dominate Industries

February 20, 2017

Article formerly published by CarDash. The ideas and opinions presented in this article are solely those of CarDash and do not reflect the ideas and opinions of RepairSmith.

Managed marketplaces are a relatively new term for startups but not a new concept. They are an exciting business category for investors and entrepreneurs alike because managed marketplaces have the potential to solve deep customer pain points and completely transform industries.

Managed marketplaces connect customers with service providers while adding significant value to the customer experience. Not everyone will agree on when a traditional marketplace crosses over to become a managed marketplaces, and some apply the “ I know one when I see one” rule. Two examples of managed marketplaces (AirBNB and Uber) help illustrate a baseline.

AirBNB connects travelers with hosts, but AirBNB is a lot more than a simple booking service. They provide trust credentials, help shape the guest experience, and even influence the type of services the host offers. This is different from Booking.com, for example, which is a transactional marketplace between customers and hotels.

Managed marketplaces also become the de facto source of trust for the customer. If one has a bad Uber ride, they are more likely to expect resolution from Uber than from the driver that drove them. This is different from Craigslist, for example, where if one is unhappy with a service, the customer is much more likely to place the blame on the seller than on Craigslist.

Now that we have somewhat cleared up general characteristics, let’s go over the 8 most important traits that make managed marketplaces so powerful.

The Eight Benefits of Managed Marketplaces

  1. Managed marketplaces introduce a vastly better customer experience in lagging industries that lack innovation. A good example of this is Opendoor, which is providing a radically different home selling service through a heavily managed marketplace that asynchronously connects buyers and sellers. The real estate industry has enjoyed heavy regulatory protections causing limited innovation and stalled customer experience advancements. Opendoor challenges the status quo by completely re-imagining the selling experience. While it is accepting significant levels of financial risk in the process, it stands to become a titan in the real estate industry if successful.

  2. Managed marketplaces add a new level of security for the consumer. Without Uber as a platform, it would be almost unthinkable that a stranger would routinely get into another stranger’s car for a ride from place to place. Hitchhiking in downtown San Francisco was not exactly a common practice before Uber. By screening potential drivers, performing quality checks on vehicles, maintaining a rating system (for both sides of the marketplace), and keeping rates and routes transparent, Uber completely re-imagined security and accountability in the ground transportation industry.

  3. Managed marketplaces improve pricing transparency, efficiency, and fairness. Automotive repair is an industry plagued by distrust. One of the reasons is the lack of transparency in pricing. For every mechanic that quotes you $500 for replacing a part, another mechanic may quote $300 and another may quote $800. Besides the fact that you have to drive your car from shop to shop to get these prices, even once you collect the prices how can the consumer know whether the $300 job is legitimate or whether the $800 mechanic is the only one being honest? Historically there hasn’t been a provider with upfront and trustworthy auto repair prices. A managed marketplace like RepairSmith seeks to change that.

  4. Managed marketplaces use economies of scale to improve the vendor’s presence on the internet. An individual plumber may not be able to invest the resources necessary to create a great web site with good SEO. However, Thumbtack can invest significant funding into this problem and amortize it over thousands of plumbers, essentially serving as the service provider’s window to the consumer world and delivering a much better customer experience.

  5. Managed marketplaces use data to optimize liquidity in the market. Dog owners really love their dogs. The growth of Wag and Rover dog walking services tapped into the pent up demand that dog owners had for dog walking services. Wag and Rover enable this through many means including trust and convenience, the hallmarks of managed marketplaces, and by creating liquidity in the market. If somebody wanted to previously work as a dog walker in their neighborhood (getting paid to go for a walk and hang out with man’s best friend sounds pretty good after all), they would have had a very difficult time predicting demand and how much work they could actually do on any given week. Similarly, dog owners would have had a hard time finding walkers when they needed them because the supply side was so limited. A managed marketplace solves this through optimizing for supply/demand liquidity.

  6. Managed marketplaces standardize service offerings that have been traditionally similar but annoyingly different. Home cleaning services can be difficult to price because each service offered can be so different from the next. Are the carpets vacuumed? The window sills dusted? What about dirty areas under your bed you haven’t seen in years? Home cleaning services such as HomeAdvisor and Handy generally provide a standardized list of expectations so you know what you’re getting, even if your cleaner is different every time. Without a vertically integrated managed marketplace, every cleaner you hire will always do things differently.

  7. Managed marketplaces infuse cultural values and a brand identity. There is not a lot of glory in buying and selling used clothes. In addition to bringing safety, standards, and liquidity to the market, San Francisco based thredUP also cultivates a sense of community for those who regularly cycle through clothing (a need that parents with growing children are very familiar with). Even if trust was somehow not an issue, without a managed marketplace each article of clothing bought or sold would be in isolation, and an act that many people may not find worth their time. By building trust, community, and a brand value, exchanging clothes on thredUP becomes a much more elegant and distinguished activity.

The Best Industries for Managed Marketplaces

The industries in greatest need of a managed marketplace exhibit the opposite of the strengths listed above. They have bad customer service, opaque pricing, fragmented and non-standardized vendors, unsolved supply/demand curves, and high variation in quality for similarly named services. In other words, large industries with really poor customer experience and no dominant players.

At RepairSmith, we believe that auto repair falls perfectly in line with such opportunities and we are re-imagining the customer experience from the ground up. Below is a video about our company and our mission.