Understanding Platforms, Marketplaces & Ecosystems
Of late every discussion includes terms such as Platforms, Markets, Aggregators and Market Networks. These terms are used interchangeably and sometimes used as distinct entities leading to royal confusion. I sincerely believe the difference between knowing something and knowing the name of something is exactly the difference between outcomes and optics. Hence I wanted to really know them for my own clarity, be able to tell them apart and also to make sense of the lingo shrouding it. This blog is an attempt to demystify the terminology.
Marketplace is pretty simple to understand. Souk, Bazaar or Mandi are all examples of marketplaces for centuries. It is an enclosed or dedicated place where buyers and sellers meet. These are the go to places in a given town or a city to buy anything you need as there are many sellers and buyers at a given time in a marketplace. And there are marketplaces for specific category of items such as produce, sea food, agri-tools, or cloth markets, etc.
Similarly, marketplaces exist in the digital arena too. These are the digital twins of physical marketplaces. A marketplace on a digital space (website) curates and sells the products and services of different sellers and partners at a single place. Amazon and Flipkart are now canonical B2C marketplace examples while AWS, ZOHO, Salesforce are B2B marketplaces; And Ethereum, Hyperledger Fabric, Corda are Enterprise Blockchain marketplaces.
By bringing together numerous traders/partners on a single platform, marketplace offers transparency and complies sellers to compete not just on features, price, and service but on customer experiences as well. Then incentive for sellers to join the platform is massive savings on marketing and customer acquisition and a provision to transfer those benefits to their customers. This creates far more efficient markets where both consumers and vendors would benefit from having more options with better infrastructure and data. The firm/brand only acts as a mediator and doesn’t own the products or services provided. Hence, the prices are largely influenced by the sellers themselves. Marketplace only charges a commission (% of GMV) as they are providing sellers with a platform (efficient distribution and access to customer base) to sell. Dialog Axiata IdeaBiz is a plain vanilla API marketplace example for Telcos. And if you love marketplaces as we do, relish this killer whitepaper on Telco marketplace we have authored.
As a recap, the defining characteristics of a marketplace
1. Various products and services from competing vendors at a single place
2. Secured and personalized customer journey experience right from discovery to post-delivery
3. Analytics-driven, cloud-native, omnichannel & rich CX
It is important to note that marketplaces are different from Aggregators. The Aggregators own the products and services in terms of branding. For similar categories of products and services, pricing and quality are almost always the same (aggregator determines pricing). Uber is a good example.
Enter Market Networks. This is another term that pops up often. No one in the room gets it but they nod vehemently, apart from the fact it is a hybrid word!
Market Networks combine the strong network effects such as defensibility and scalability of direct networks like LinkedIn or Facebook together with the lucrative revenue models of SaaS or marketplace businesses such as Amazon or Alibaba. Market networks are also unique from a monetization standpoint. These define the market networks:
- Combine the main elements of both networks and marketplaces
- Use SaaS workflow software to focus action around longer-term projects; not just a quick transaction
- Promote the service provider as a differentiated individual to help build long-term relationships
In the last decade, we were obsessed over on-demand labor marketplaces for quick transactions of simple services. Companies like Uber, Mechanical Turk, Upwork or Urbanclap and many others made it efficient to buy simple services whose quality is judged objectively. Their success was based on commodifying the people on both sides of the marketplace. However, the highest value services like event planning, tech overhaul etc. are neither simple nor objectively judged. They are more involved, complicated and longer term. As you can realize, there is a massive collaboration among multiple participants on the platform to deliver a service or a project. This is the marked differentiator between marketplace and market network.
- Fritjof Capra on Ecosystems: https://www.ecoliteracy.org/article/ecology-and-community
- Non-traditional B2B Platform: https://www.kloecknermetals.com/
- Platforms and Ecosystems: Enabling the Digital Economy (WEF)
- The Next Great Unbundling: https://a16z.com/2019/09/11/platforms-verticals-unbundling/
- Book: Invisible Engines: https://mitpress.mit.edu/books/invisible-engines
- Roadmap: B2B Marketplaces: Bessemer Venture Partners
- What do you mean by Platform: TM Forum Analysis
- Platform Business Model: https://www.applicoinc.com/blog/what-is-a-platform-business-model/
- What I Talk About When I Talk About Platforms: Martin Fowler