The Future of Marketplace Startups: Innovation in Services

This article explores the evolution of marketplaces, emphasizing the shift from goods to services and the future of marketplace startups in the service economy. It details the history of different marketplace paradigms and strategies for tackling regulated industries.

Goods vs. Services: Why a Breakthrough is Coming

The article argues that while online marketplaces have thrived in goods, the service economy still lags behind. The coming breakthrough lies in reinventing the service economy, bringing digital transformation to the lives of millions of Americans working in service industries.

• The online marketplace boom for goods has generated trillions in market capitalization.
• The next era will focus on the $9.7 trillion US consumer service economy.
• While services comprise 69% of national consumer spending, only 7% are primarily digital.

Why Services Lag Behind in Digital Transformation

Several factors contribute to the slower adoption of digital marketplaces for services compared to goods:

• Services are complex and diverse, making it challenging to standardize information online.
• Success and quality in services are subjective, making traditional marketplace features like reviews less effective.
• Fragmentation in service industries makes it difficult for small providers to come online.
• Real-world interaction is central to service delivery, making it harder to disaggregate online purchase stages.

The 4 Eras of Service Marketplaces

The article outlines four historical eras of service marketplace innovation:

1. The Listings Era (1990s)

This era featured unmanaged horizontal marketplaces like Craigslist, simply listing service providers but leaving trust and transaction details to users.

2. The Unbundled Craigslist Era (2000s)

This era saw startups focusing on specific service sub-verticals like childcare (Care.com) or home services (Angie's List), offering specialized features and improving user experience but not encompassing the complete end-to-end experience.

3. The "Uber for X" Era (2009-)

This era brought on-demand marketplaces for simple services like transportation (Uber, Lyft) and food delivery (DoorDash), leveraging mobile technology to connect demand and supply in real-time.

4. The Managed Marketplace Era (Mid-2010s)

This era involves full-stack marketplaces like Honor and Opendoor, which take on additional operational value-add by managing the service experience, vetting providers, and establishing trust through guarantees.

The Future of Service Marketplaces: Tackling Regulated Industries

The article predicts that the next era of service marketplaces will focus on regulated services, unlocking a significant portion of the 125 million service jobs in the US.

Challenges of Regulated Services

Regulation creates an important standard but also limits supply due to licensing requirements, high fees, and long waitlists.

• The criteria for licensing may not always align with consumer values, hindering access to suitable supply.
• Digital platforms can mitigate the need for licensing by providing information about providers and building trust through reviews.

Five Strategies to Unlock Regulated Industries

The article outlines five strategies for unlocking supply in regulated industries:

1. Making Discovery of Licensed Providers Easier

Examples include Houzz for home improvement professionals and StyleSeat for licensed cosmetologists.

2. Hiring and Managing Existing Providers to Maintain Quality

Companies like Honor (elder care) and Trusted (childcare) employ caregivers as W-2 employees, providing training and tools. Redfin employs real estate agents, linking their compensation to customer satisfaction.

3. Expanding or Augmenting the Licensed Supply Pool

Strategies include leveraging geographic arbitrage, using real-time video technologies for remote service delivery, and assisting suppliers with the certification process.

4. Utilizing Unlicensed Supply

Examples include Lyft and Uber (rideshare), Good Dog (pet breeders), and Basis (guided conversations with trained but unlicensed specialists).

5. Automation and AI

Some startups are automating services altogether, such as MDAcne (acne diagnosis and treatment) and Ike Robotics (autonomous trucking).

Opportunities for Companies Addressing Regulated Services

The article concludes that the next twenty years will see a surge of innovation in regulated service industries, offering significant opportunities for marketplace startups to improve both consumer and professional lives.

• The service sector represents two-thirds of US consumer spending and employs 80% of the workforce.
• Opportunities exist across various regulated industries, from education and healthcare to legal and financial services.
• Airbnb- and rideshare-sized outcomes are expected within the service economy.