Window shopping: The rise of the new marketplace

The marketplace is the epitome of social commerce

Commerce is as old as the human race, whether in the form of bartering, trading, transactions, cash payments, or whathaveyou.  Mutual needs have resulted in the creation of value systems and an intricate supply-and-demand ecosystem for as long as humans have lived together in groups (note: I’m not an anthropologist, so I can’t verify that with facts).

One of the oldest manifestations of an organized commercial system is the marketplace.  It’s a very basic system: you have a bunch of people with things to sell, and you have a bunch of people who need things.  But there are interesting nuances to it—like the social aspect, or product and price comparison.

The online marketplace is no different.  EBay is probably the most recognizable online marketplace, and it’s one of the few that survived the Dot Com bust.  Amazon’s marketplace has also thrived. 

And now there’s a whole new breed of marketplace out there—the vertical marketplace. 

The vertical marketplace

While eBay and Amazon are one-size-fits-all marketplaces that have made a name for themselves by their expansive selections, other marketplaces are honing in on discovery.  Etsy, which operates under the seemingly narrow definition of “arts and crafts,” has become a veritable goldmine of unique items that covers huge swaths of product categories, including clothes, toys, jewelry, household items, and so on.

The marketplace model has since branched out to other industries that you wouldn’t normally think of as marketplaces—like Airbnb, TaskRabbit , and Uber.  Why has the marketplace suddenly exploded like this?

“The technology today is able to rationalize supply and demand in a way that wasn’t possible before,” said Micah Rosenbloom of Founder Collective, in an interview.  For example: Handshake.com, which Rosenbloom founded in 1998 as something of a precursor to TaskRabbit.  “We took information online about someone’s house or car and scheduled cleaning or auto repair.  We’d get job and try to fill it.  But 95% of the time, we were faxing it—and there were problems.  People weren’t getting their faxes…it just took a long time.”

Evolving technology

New developments in communications and smartphone technology have had a huge impact on the marketplace as a whole.  Airbnb, for example, recently revealed that more than a quarter of all of its traffic comes from mobile devices, and that users respond to messages three times faster on mobile devices than they do on the Web.

Evolving technology has created a plethora of opportunities to create marketplaces in industries and areas previously inaccessible to the peer-to-peer model.  Etsy, for example, started out as a place where founder Robert Kalin could sell his handmade furniture.  It was highly disruptive of the typical online marketplace, which has traditionally focused on mass-manufactured products and overstock items.  And it has developed an almost cultish following.  The items are unique and one-of-a-kind—they have stories behind them.

“People are much more engaged with that type of product,” said Mike Volpi of Index Ventures, in an interview.  “The one-size-fits-all markets don’t create the kind of engagement that vertical markets do.”

The peer-to-peer marketplace makes commerce accessible to anyone with something to sell, but Etsy was arguably one of the first social commerce companies, since it focuses on the dialogue between the buyer and seller. 

An interesting company that has gone one step further from Etsy is CustomMade.com.  Where Etsy is a marketplace for handmade goods, CustomMade.com is a marketplace for custom made goods.

What piques my interest with CustomMade.com is the fact that it looks like e-commerce, but it’s not.  You can go on the site and browse items that makers are creating, but you can’t simply buy one.  The site is a place where carpenters, woodworkers, metal workers, jewelry makers, and so on can connect with people who want certain items made specifically for them to meet their unique needs.  It might be a person with a weird living room who needs an entertainment center that will fit in a certain type of space, or someone with a dream of a perfect kitchen table that they can’t purchase anywhere.

Marketing dialogue

Just as Etsy drove home the dialogue between buyer and seller, CustomMade.com is—at its core—a dialogue between the customer and the supplier.  The key to CustomMade.com’s survival and success is enabling buyers to communicate their needs with makers.

“One of the biggest challenges we run into is helping customers articulate what they’re looking for,” said CustomMade.com CEO Mike Salguero.  “People might know what they’re looking for, but they don’t know how to explain what they want.”

To that end, CustomMade.com offers tips and suggestions, like using pictures, specifying materials, identifying style (rustic, modern, etc.), dimensions, and so on.

Because dialogue is imperative to the process, there is a lot of back-and-forth between the buyer and the maker to not only communicate what the buyer wants, but also to track the building process to make sure it’s meeting the buyer’s needs.  In many ways, the platform is emphasizing the root of commerce, which is dialogue.

Another interesting thing to note about CustomMade.com—it’s been around for a long time—much longer than Etsy.  Originally founded in 1996, the site has been connecting makers and buyers for 16 years, but until fairly recently, it operated by charging makers an annual fee of a couple hundred dollars to be on the site.

Mike Salguero bought the company back in 2009.  At the time, there were 350 makers and the company was pulling in $30,000 in revenue a year. 

Shortly after Mike and business partner Seth Rosen bought the company, they flipped the model from an annual subscription model to a transactional one.  Now CustomMade.com makes money by taking a 10% cut of each transaction, and making that switch has made a huge difference in CustomMade.com’s community.

Now the site boasts some 4,200 makers, it’s seeing 600,000 visitors each month, and it’s doing $1 million per month in transactions.

Can it scale?

The beauty of the vertical marketplace is the ability to discover new things.  A visit to a site like 1stDibs.com—a marketplace for high-end and luxury items—is going to turn up a lot more interesting and unique stuff than a visit to Amazon.  But how does a site like that scale within the limited confines of a single vertical? 

Commerce has three main drivers: price, convenience, and selection.  How can marketplaces devoted exclusively to crafts or luxury items scale when they may not be able to offer the lowest prices or a broad selection across multiple product categories?

“A lot of these sites can get pretty big.  I’m sure a lot of people didn’t think Etsy would grow to be as big as it is today,” said Mike Volpi.

Creating demand

What’s unique about the marketplace model is that it can be applied to different industries in such a way that it can ultimately create a whole new category in itself.  TaskRabbit took the marketplace model and applied it to everyday tasks and errands.  Airbnb applied the marketplace model to vacationing and travel.  They not only created the supply side—they created a demand that might not have been there before.  

People who place an order on CustomMade.com, for example, do so because they have a unique item they want made.  They might not have thought to look online for someone to make that particular item, but they stumble across the site the way Mike Salguero did a few years ago and the proverbial lightbulb clicks on.

Because of CustomMade’s relatively high average price point—$1200—the platform doesn’t really see people making multiple purchases, but Salguero says that the company is definitely seeing repeat business, particularly from the trades.

As the marketplace model continues to disrupt new industries, it will mean the disruption of everyday life—literally.  Who would’ve thought that one day a website would pop up that would allow you to find someone who you could pay to assemble your Ikea furniture or do your grocery shopping for you?  And all this time I've been doing my own grocery shopping like a schmuck.  

One industry that Micah Rosenbloom wants to see disrupted by the marketplace model is used cars.

“It hasn’t happened yet, but it feels like it should,” said Rosenbloom.

Image source: yesteryearsnews