Looking forward to reading your next essay on what's next for services marketplaces! I imagine the reason why most services marketplaces are stuck at the Lead Gen phase is that a lot of spend is on recurring services where once you get someone good, you don't need to pay the marketplace take rate. That's why most services marketplaces monetize through consumer subscriptions, and have to deal with high churn.
Really enjoyed reading this essay. Brought back lot of learnings from B-school.
As for Zillow, they have realized that lead generation is not going to cut it (they have been doing it over a decade now) and hence have developed a strategy of converting those leads into transactions through mortgage, financing, closing etc. They are looking to get into Managed Marketplace territory. It's true that their TAM at the moment is expanding; but I see lot of opportunities either through M&A activities or organically growing business into service industries for example building out Thumbtack-like business for home repair & services.
Thanks! Do you think this actually will take them into managed marketplace territory, is it more of a way to deepen monetization on the lead gen model?
I believe yes, just thinking in terms of different costs. In current scenario, if you want to buy a house you go to Zillow.com browse and maybe request a tour. That's about it. Everything else is outside of the app. Zillow is looking to change that, plan your affordability, get a loan, inspect, & close. All this to keep you in the funnel, provide you the services and monetize those services (convenience!)
Also, thinking in terms of marginal cost of serving new customer and transactional cost will go down as those services scale.
Enjoyed this article so much. Alibaba still remains a monopoly in lead gen and they nail the problem of the discovery very well. Transaction is still a challenge but cross border commerce, language barrier and fragmented factories still exist which makes it sticky. So much opportunity for a company to build and create a strong discovery + transaction tool for factories. The challenge I foresee is how do create stickiness at scale.
Thank you for writing this, thoroughly enjoyed reading all of it. This essay reinforced a lot of learnings from my time as a PM at Urban Company in India - a managed marketplace for home services.
I very strongly resonated when you wrote 'winning at enforcement and distribution tends to be more defensible precisely because it is harder' and how a services marketplaces need to move beyond led gen to unlock their true monetisation potential.
I have seen this play out at Urban Company bc their moat has been their very efficient ops at scale. They don't have a single competitor at the same scale because they have cracked the full stack model in services AND at scale WHILE maintaining customer's experience & trust. Very hard to replicate without an obnoxious amount of capital.
I am very excited about reading your next essay right after! Cheers.
Appreciate the kind words and very glad it resonated!
It is interesting how often people bring up Urban Company in response to my essays on marketplaces. I am not deeply familiar with their business, but they must be doing something right!
In India, 'Urban Company' has become a verb when it comes to booking a plumber/electrician/a beauty professional for waxing etc. So I guess yes, they are doing something right. :)
Insightful essay - clarified my understanding of marketplaces with first-principles-led facts. The last point about the services industry reminds me of Urban Company, a 10 year old startup in India that has been trying to build in the fragmented everyday services space (beauty, house/electronics repair etc) and very recently became profitable.
Stumbled across your newsletter from Lenny's - learning tons. Thanks for putting out your knowledge out there!
edit - saw that Sakshi has already mentioned them before! They're that good.
Looking forward to reading your next essay on what's next for services marketplaces! I imagine the reason why most services marketplaces are stuck at the Lead Gen phase is that a lot of spend is on recurring services where once you get someone good, you don't need to pay the marketplace take rate. That's why most services marketplaces monetize through consumer subscriptions, and have to deal with high churn.
The recurring nature is part of it, but I think it is mostly indicative of a deeper issue. Currently deep in drafts of the next essay
Really enjoyed reading this essay. Brought back lot of learnings from B-school.
As for Zillow, they have realized that lead generation is not going to cut it (they have been doing it over a decade now) and hence have developed a strategy of converting those leads into transactions through mortgage, financing, closing etc. They are looking to get into Managed Marketplace territory. It's true that their TAM at the moment is expanding; but I see lot of opportunities either through M&A activities or organically growing business into service industries for example building out Thumbtack-like business for home repair & services.
Thanks! Do you think this actually will take them into managed marketplace territory, is it more of a way to deepen monetization on the lead gen model?
I believe yes, just thinking in terms of different costs. In current scenario, if you want to buy a house you go to Zillow.com browse and maybe request a tour. That's about it. Everything else is outside of the app. Zillow is looking to change that, plan your affordability, get a loan, inspect, & close. All this to keep you in the funnel, provide you the services and monetize those services (convenience!)
Also, thinking in terms of marginal cost of serving new customer and transactional cost will go down as those services scale.
Enjoyed this article so much. Alibaba still remains a monopoly in lead gen and they nail the problem of the discovery very well. Transaction is still a challenge but cross border commerce, language barrier and fragmented factories still exist which makes it sticky. So much opportunity for a company to build and create a strong discovery + transaction tool for factories. The challenge I foresee is how do create stickiness at scale.
So glad you enjoyed it and very much agree on that opportunity space
Thank you for writing this, thoroughly enjoyed reading all of it. This essay reinforced a lot of learnings from my time as a PM at Urban Company in India - a managed marketplace for home services.
I very strongly resonated when you wrote 'winning at enforcement and distribution tends to be more defensible precisely because it is harder' and how a services marketplaces need to move beyond led gen to unlock their true monetisation potential.
I have seen this play out at Urban Company bc their moat has been their very efficient ops at scale. They don't have a single competitor at the same scale because they have cracked the full stack model in services AND at scale WHILE maintaining customer's experience & trust. Very hard to replicate without an obnoxious amount of capital.
I am very excited about reading your next essay right after! Cheers.
Appreciate the kind words and very glad it resonated!
It is interesting how often people bring up Urban Company in response to my essays on marketplaces. I am not deeply familiar with their business, but they must be doing something right!
In India, 'Urban Company' has become a verb when it comes to booking a plumber/electrician/a beauty professional for waxing etc. So I guess yes, they are doing something right. :)
Very good piece about transaction costs and marketplaces.
Very informative! Really enjoyed reading it.
Insightful essay - clarified my understanding of marketplaces with first-principles-led facts. The last point about the services industry reminds me of Urban Company, a 10 year old startup in India that has been trying to build in the fragmented everyday services space (beauty, house/electronics repair etc) and very recently became profitable.
Stumbled across your newsletter from Lenny's - learning tons. Thanks for putting out your knowledge out there!
edit - saw that Sakshi has already mentioned them before! They're that good.
So glad you found it helpful! Yes, a few people brought up Urban Company which is a great example.