Master Marketplaces
I wanted to share some thoughts I’ve had on what I’m calling “master marketplaces.” I believe most successful marketplaces so far have dealt with relatively commodity, low-price goods and services. However, I feel there is also an opportunity in master marketplaces or master networks.
One of the discussions that usually revolves around marketplaces or platforms is that they will be very effective at gobbling up the mass market, but the best individuals or firms will still transact based on more traditional channels. A simple example is oDesk (Upwork) – they have done an incredible job at capturing relatively low cost labor throughout the world, but the vast majority of “high-end” development firms are not participating in the platform. Those connections to the best web design agencies still happen through word of mouth and good old fashioned relationships. Buyers will choose Upwork if looking for commodity services and will pay 5x the price and go through word of mouth if looking for a more specialized or ultra high quality service. I talked about this trend in more detail in marketplaces are eating firms.
In almost every industry, there is a huge number of small firms out there. The marketplaces are threatening the undifferentiated long tail. The conventional wisdom is that many of the long tail of firms will die, but the “best” will continue to thrive. Think of HourlyNerd and McKinsey, or UpCounsel and Orrick. Most people believe these pairs will continue to happily coexist and the marketplaces only threaten the standard, average quality firms. HourlyNerd does not present a threat to McKinsey, but rather to the vast number of much smaller and less differentiated firms. Likewise, I don’t think Orrick is fearful of UpCounsel, but individual lawyers or small firms may feel threatened and are at a risk of disruption.
But, a new trend is coming. The master marketplace threatens the high end of the market - the Orrick’s and McKinsey’s of the world. Meanwhile, the commodity marketplaces (Upwork, Uber, Rev) threaten the low and medium side of the market. Therefore, I believe the industry may evolve from single winner-take-all markets to potential two-winners take all markets. That means that in an industry like web development - there could be two big winners, one that focuses on standardized, routine, low-cost work. And another winner that focuses on the opposite - fairly expensive, ultra high quality work w the absolute best individuals in the world.
Let’s look at health care. There are a number of marketplaces tackling the commodity service, e.g. Heal and Medicast. But there’s also Grand Rounds. Grand Rounds has rolled up the best medical professionals in the world and provided access to that network for a hefty price.
Let’s look at education. In the world of ongoing adult education, there are 2 interesting marketplaces to point out. First, the commodity marketplace is Skillshare - relatively low cost classes in just about everything. Then there is MasterClass - relatively expensive online video classes by world-class masters in their craft.
In a commodity marketplace, the platform needs to focus and deliver on low cost, speed, convenience, and a suitable standard of quality. Rev delivers audio transcription services that will beat any small, local transcription firm on speed, quality, and cost. Every small, undifferentiated transcription firm in the world should be on alert that their days are numbered.
The defensibility in a commodity marketplace stems from economies of scale, productivity, and liquidity - that leads to the lowest costs, fastest speeds, and good quality.
In a master marketplace, the platform needs to focus on exceptional quality and sell access to an elite pool. GLG delivers on this promise by allowing me to connect with executives and experts that I would otherwise not have access to contact. Grand Rounds provides a service that gives anyone access to the world’s highest caliber of doctors – a feat that would be impossible without them.
The defensibility in master marketplace stems from quality and engagement of the masters themselves. MasterClass has aggregated some of the world’s top experts and celebrities and provided access to everyone in the form of online video classes. Other masters will want to participate in the same network and be associated with the current masters, including Serena Williams, James Patterson, and Gordon Ramsay. This is a virtuous cycle that will be tough for anyone else to replicate.
Here are two supporting excerpts from Sangeet Paul Choudary’s Platform Revolution.
Winner-take-all markets exist in certain platform markets. They are driven by four main factors: supply economies of scale, network effects, multihoming and switching costs, and the lack of niche specialization. In winner-take-all markets, competition is apt to be particularly fierce.
And a commentary on a potential master network.
A surviving handful of world-class experts will increasingly focus on a tiny subset of the most highly specialized and challenging assignments, which they can tackle from anywhere in the world using online tools. Thus, at the very highest level of professional expertise, winner-take-all markets are likely to emerge, with (say) two dozen internationally renowned attorneys competing for the splashiest and most lucrative cases anywhere on the globe.
Master networks will not apply to all industries, but I’m certain there are more opportunities out there. Industries with a wide spectrum of quality and highly specialized or niche needs will have a master marketplace evolve and turn into a two-winner take all market.