If you ever read my blog you know that Sameer Patel (CEO of Kahuna) is a good friend and someone who challenges me from time to time on how to explain things.
No, I won’t be doing any more one-page summary of complicated topics, sorry.
But, I appreciate that Kahuna (actually, good friend and newly minted CMO for Kahuna Jeff Nolan) gave me early access to a report they commissioned, written by Brian Solis at Altimeter, on marketplaces (I think I am done dropping names for now, thanks for asking).
If you have been following the topic, Kahuna has been doing really, really well taking on marketplaces and building a market around that and with good reason, they are the economic model that powers the next generation of commerce known by many names: the sharing economy, the API economy, and the platform economy (none of the names I’d’ve used to describe ecosystems, but sure – let’s go with them).
The report is a data-based study of companies that have already adopted marketplaces, congealed with existing research on marketplaces, and it highlights the benefits and the challenges faced by those early adopters. It also lays a framework on how to understand and decide on adoption for marketplaces. It does a good job of tackling a complex decision point for an early market and it has
great interesting data points any organization can use to both understand and justify adopting marketplaces.
What it did not set out to do, though, is to explain a little better why marketplaces matter and why the platform economy matters. I’d like to take on that a little since that’s a concept I’ve spent the better part of the last decade promoting (with different names, my marketing skills are not that good apparently… have not created a new TLA for a market since I was at Gartner over a decade ago).
Simply put, marketplaces are multi-sided markets. OK, not very simply put.
A traditional market has a buyer and a seller. You need something, you find a vendor for that item and purchase it. You complete a commerce transaction, you pay, you get the product or service. Vendors compete for your attention using traditional marketing (read outbound) techniques where they promote their product, and compete on features, price, or reputation. There is not a lot more to it, and it has been around for many centuries, unchanged in spite of the technology improvements. Even in the eCommerce world were we lived until about 5-10 years ago, this was the prevailing model (back when Amazon only sold books and few other items directly).
Companies like eBay, Uber, AirBnB, and Amazon (after they embraced marketplaces – which now represents over 50% of their volume at a higher profit margin) saw this as very inefficient model (and they are right). A more efficient model is to have as many vendors as possible in one location, and have them not just compete on features and price, but also on service and delivery — and ultimately, on experiences. In exchange, these vendors would benefit from not having so spend massive amounts of their hard earned dollars on marketing and client acquisition, and would (potentially) pass those savings down to their customers. This would create far more efficient markets (instead of 1:1 as traditional transactions are, these would be many:many – therefore, multi-sided markets) where both consumers and vendors would benefit from having more options with better infrastructure and data.
Do you want to go to dinner? Using Yelp, Opentable, Restaurando, and the many others like them around the world you no longer are restricted to what you know; prefer to say home? Postmates, GrubHub, UberEats and many others help you there. The list of potential vendors expands (and your knowledge of them, based on reviews and experiences shared by other consumers), and their list of potential consumers does as well (not to mention, their knowledge of the consumer is immense, compared to an unknown entity walking in the door – marketplaces compile and share profiles for the purpose of personalizing experiences, among others amazing uses of data). In the process, the marketplace providers charge a fee or commission for referring people or for carrying out the transaction for the vendor (in effect, also reducing the costs for the vendor who can depend on the infrastructure built out by the marketplace provider, therefore furthering reducing their costs).
Truly a win for everyone: cheaper for vendors to sell more, easier for consumers to find what they need, and profitable for providers to aggregate data and experiences – not to mention much more personalized and customized for each participant at a lower cost for everyone involved.
Platform Economy (Ecosystems)
Unfortunately, or fortunately for people like me who like ecosystems and platforms and hate old technologies, marketplaces cannot exist in a traditional monolithic computing architecture.
The key to leveraging the power of the marketplace is to have a platform-based ecosystem. There is no other way about it, period. We can have long-debates about hybrid models, “private platforms”, enterprise PaaS and a bunch of other
crap inventions stuff that is totally irrelevant – but none of that will work as well as an open three-tier cloud, platform-based ecosystem. Here’s why:
- Data. having access (and using) complex data models integrated into a single profile is every marketer’s dream, and it can be done from a platform efficiently and easily; not on a platform? not so much.
- Integration. using data from many applications is just one of the benefits, having verified, permitted, and secured access to multiple applications – some of them even from partners and associates – is another major benefit, and one that platforms allow easy and cheap versus the complexity of point-to-point integration as in monolithic architectures.
- Dynamic Operations. building new business models on-the-fly, allowing customers and users to build no-code, low-code applications for their use simply, making changes to processes fast and effectively due to changes in environment, never having to say “that’s the way we always did it” – these are all examples of things you can do with a platform and nowhere else
- Security. the inherent trust built into the platform model, and the inherited trust platforms bestow on users and applications when working with other platforms or applications is the easiest way to guarantee security and access based on needs, and to promote secure sharing and exchange of data and applications; not possible outside of an ecosystem
- Scalability. one the least used but most powerful benefits of an ecosystem is the ability to scale up and down (as well as out) as needed without any effort; as operations become more complex or time-sensitive – or even if a temporary increase in operations is necessary – platforms allow for growing and decreasing resources on-the-fly without issues
Of course, this is my biased opinion (biased by the fact that I despise the concept of “private” or “hybrid” cloud as it distorts the actual value of distributed computing with antiquated models perpetuated by lazy CIOs — but hey, what do I know?) and am sure you can come up with your own justification. An ecosystem model of multiple platforms working together is the basis for a marketplace and something that you will end up having to fulfill from your enterprise platform – either for yourself or a partner. A single use ecommerce platform was the early days of conducting business in the commercial internet, but 20+ years later we are ready for an upgrade, and multi-sided markets (i.e. marketplaces) are the way to go.
To get there, start investing in the platform economy and ecosystems. This is one of the three topics that continuously comes up as an investment strategy for the near-term and mid-term (2-7 years) in all my conversations with CIOs and CEOs.
Bottom line? whether you want it or not, your customers will push towards a marketplace, since that is what they
want are going to use. This report helps you start the conversation.
Are you ready?
disclaimer: as i said, Kahuna and the leadership are friends, so is Brian Solis. All the opinions are mine, and mine alone, and if they agree is because they are smart and over the years they listened to me (if i am allowed to take credit; else they figured it out on their own – but they did listen to me whether they want it or not over the years). i don’t have a commercial relationship with them, but they asked me to read the report and that’s it – i decided to blog this following that because of what i thought was missing in it. the crossed-out text and corrections, as always, are featured courtesy of the pioneering Jon Reed of Diginomica, who uses it so much better than me – but allows me to copy his style.