Originally published on LinkedIn, September 16, 2020.
COVID-19 has shaken peer-to-peer marketplace businesses to the core — how can you encourage dynamic, unscripted interactions while also safeguarding the health and safety of your customers during a global pandemic? To meet today’s evolving social norms head on, marketplace businesses are stepping in and expecting more from the marketplace than ever before to provide the consistency and quality that society demands.
Uber, Lyft, Airbnb, and Turo have all managed their supplier bases with a heavier hand to promote rigorous cleaning protocols. At Turo, for instance, we’ve started requiring disinfection training and applying mandatory buffer times between trips to give germs a chance to dissipate — essentially with an aim towards improving the quality of the experience the suppliers are providing to meet our guests’ elevated apprehensions and expectations.
But this trend transcends the current health crisis — COVID-19 is only shining more of a spotlight on a decades-long trend moving away from unfettered, unregulated marketplace dynamics toward more managed, regulated marketplaces that focus on elevating quality, consistency, and reliability of service. While suppliers expect to retain autonomy around the services they provide, when they provide them, and how much to charge for them, marketplace facilitators expect (and must guide) suppliers to provide a safe, high quality, and well lit marketplace.
Increasing sophistication with the digital age
Online marketplaces started as a digital version of the paper classifieds of yore — a sort of directory connecting people with common interests. eBay and Amazon emerged as digital platforms for buying and selling items, and they were revolutionary. But instead of letting consumers reckon with consumers, wild-west-style, it quickly became evident that the platforms needed to influence some key pieces of the puzzle — payments, fulfillment, and quality control, to name a few.
Marketplaces started moving away from the bazaar paradigm — vendors hawking goods in an unregulated swirl of negotiating and haggling — toward a more predictable ecommerce paradigm — vendors selling their own stuff in an organized venue that delivers the quality, consistency, and reliability that savvy digital consumers have come to expect.
There is thus a delicate balance to strike between accommodating the supply and demand sides of the marketplace — both are your customers, and it’s important for both to glean value from your service. You need to ensure your suppliers fulfill consumer expectations (the aforementioned quality, consistency, reliability) while empowering those suppliers, adding value to their lives, and providing access to opportunity.
Balancing both sides of the marketplace: eBay
Take, for instance, the use case of shipping at eBay. For years, they had let sellers do whatever they wanted when it came to shipping; they only charged fees on items sold — not the shipping cost. Sellers were thus motivated to charge very high shipping rates to their buyers, since they kept 100% of that revenue stream. Over time, this seller-positive loophole mushroomed into a massive issue as it started to impact the buyer experience materially — someone could win an item for $50 and then pay another $50 in shipping fees. This appalling customer experience ended up alienating their shoppers and injuring their brand reputation.
When eBay eventually said enough is enough and started managing shipping, sellers were outraged — this bootleg income stream had become a treasured loophole. So for consumers, eBay became correlated to crapshoot shipping, while correcting that crapshoot experience eroded trust with their sellers. And all the while, Amazon grew its competitive advantage by building its reputation on unrivaled speed and transparent, standardized cost structures.
Balancing both sides of the marketplace: Turo
We recently overcame a similar milestone at Turo, setting rules for the distance settings over which our hosts previously had free rein. For years, hosts could set distance allowances to control the mileage guests put on their cars, which is reasonable. Until recently, however, hosts could set their own fees for additional miles driven over that allowance, of which they kept the lion’s share (between 65 and 85%, depending on their chosen protection plan).
Some hosts could set very low daily rates to attract demand (say, $25 per day), include a low distance allowance (say 100 miles, which would mean $0.25 per mile), and then set a high fee for each additional mile driven (say $0.75 per extra mile driven), thus generating additional income from their unsuspecting guests, who, like buyers who expect reasonable shipping rates, aren’t in the habit of doing convoluted arithmetic before booking a car for a weekend.
Guests would get walloped with what felt like sneak-attack fees after their trip, both increasing our operating expenses via customer support contacts, and alienating our customers, damaging the brand and ultimately the bottom line.
Expectedly, closing this loophole has inspired some chagrin from our host community, but I also have faith that they’ll understand the business rationale for ripping off this costly bandaid.
“Managed marketplaces,” Andrew Chen notes, “take on additional work of actually influencing or managing the service experience, and in doing so, create a step-function improvement in the customer experience.” That improvement in the customer experience is essential to growing and maturing the business, to leaving those wild-west adolescent days in the rearview mirror.
The tide that lifts all boats
Budding marketplaces start by prioritizing growth. Growth is the holy grail; it’s the thing that tantalizes investors, kickstarts the business, and sets the proverbial flywheel in motion. Once you’ve achieved product-market fit and that flywheel is spinning, you have enough volume and liquidity to reorient your focus to quality of service (read: managing your marketplace). Managed marketplaces yield a yin-yang balance between supplier empowerment (providing opportunity, with quality as the barrier to entry) with consumer confidence (facilitating a high-quality, consistent, and reliable service). And once you’ve struck that balance, the next phase in your marketplace’s evolution is striving to scale while maintaining those quality standards.
The progressive swing towards a more managed marketplace is not an arbitrary flex of power from the facilitator, but is an essential evolutionary step in the business’ lifecycle. To meet the quality standards of the ever-savvier consumer, and galvanize the business’ leadership position in its space, the focus swings to elegant execution with quality. From preventing hidden fees to enforcing health and safety protocols, brands must create a scaffolding that empowers suppliers to provide high-quality, consistent, and reliable experiences, and those cornerstone characteristics simply can’t be left to the invisible hand.