5 Emerging Truths About Internet Marketplaces

Remember when eBay first came out? Remember the newfound thrill of doing business around the world with people just like you?

Now imagine hundreds of savvy sites like that—virtual companies that let you buy, sell or rent anything you need or want. According this week’s ”The Future of Internet Marketplaces: A Panel Discussion,” this kind of “marketplace model” is poised to be as big as e-commerce over the next several years.

In front of a sold out, standing room-only crowd at San Francisco’s historic University Club, panelists Matt Mickeiwicz (founder of 99designs and Flippa), Gary Swart (CEO of oDesk), DJ Patil (Data Scientist in Residence at Greylock Partners) and our very own co-founder and CEO Sam Zaid answered questions about the opportunities and challenges facing marketplaces. Here’s what they said:

The world is moving on demand

Internet marketplaces allow people to purchase and do things as they need them, which makes a lot of sense in places where capital is scarce or unevenly distributed.

oDesk and 99designs, for example, offers thousands of skilled freelance workers at affordable rates. They provide much easier ways to work and conduct transactions remotely, which empowers people and companies do more with less.

“These are jobs that didn’t exist to contractors,” said Gary. ”We offer the ability to buy on demand. An hour worked is an hour paid.”

It’s lift, not shift

The benefit of the marketplace model is that it adds value on both ends that wasn’t previously available.

oDesk is creating huge opportunities for people in underprivileged countries like Bangladesh and the Philippines, said Gary. “A worker in Bangladesh who earns $9 an hour on oDesk is making four to five times what they’d normally get,” he said.

But not everyone sees it this way. Some groups have criticized the 99designs crowdsourcing approach—which only rewards a designer if their work is chosen—claiming the service “commoditizes creativity.” Said Matt, “This is expanding, not commoditizing. We are taking risk reduction to the extreme by offering design services to a whole new market.”

Sam and DJ offered more qualitative feedback. ”You can’t commoditize creativity,” said Sam. We are in a system where the most creative will be the highest rewarded.”

Added DJ: “There is a difference between hiring and talent. Talent makes better organizations, and helps people grow individually.”

Trust is paramount

All panelists agreed that the trust is one of the most important virtues of a successful marketplace business, which needs to be backed by social validation.

“We all need to consider the transaction cost of trust,” said Sam. “This needs to be done from day one.”

To maintain trust and safety while scaling, DJ said companies must dynamically monitor fraud, abuse, security and risk. They need to be nimble, with the ability for quick product turnaround.

“Trust your gut to drive products, then use your data for course correction,” he said.

Disruption is inevitable

In order to thrive, marketplace models must change old systems which are outdated and no longer efficient.

For example, Getaround rallied hard to change the insurance laws that discouraged private car sharing. Freelance marketplace oDesk was influential with the Bangladeshi government’s decision to stop taxing income made on the Internet. Flippa made it possible for website owners to sell their website in a way never done before.

As old systems are replaced with new ones, they must also be flexible. “Do not make strict rules so that change is disruptive,” said DJ.

We’re just starting to scratch the surface

Great news—marketplace models are still very new.

“It’s mostly innovators,” said Gary, CEO of the world’s largest freelance site, oDesk. “We’re not even at the early adopter stage.”

Special thanks to Sunil Rajaraman of Scripted.com for organizing the panel.

Creative commons photo credit: D’Arcy Norman.