On a random afternoon at the university, a friend told me about an idea some guys were working on. You would be able to find tailors, electricians, and artisans of all kinds, that are close to you. Chances are you've thought about it or wondered why you didn’t think of it too. The details are unknown to me but the stuff didn’t get mainstream.
An app for finding artisans
Years later, a good friend floated the idea again. He wanted to work on it. I offered my thoughts on the idea and shared companies already working on it. He didn’t move forward with it.
I have encountered some attempts at implementing the idea, but they don’t “blow”. We’ll delve 🙃 into the matter and see what we can unearth. First, we clear the air on marketplaces.
Marketplace vs Platform
The two terms are familiar and largely used interchangeably. But they are not exactly the same. Many attempts to distinguish them struggle to draw the fine line. Amazon and eBay always pose a problem for authors attempting to do so. But we’d attempt to differentiate them.
Sanchez-Cartas and Leon conducted a thorough assessment of existing research on platforms, revealing a lack of consensus among academics on the definition of a platform or multisided platform, which is the main focus of their study. They describe a platform as “a technology that minimizes transaction costs, or a technology that creates a value allowing transactions that otherwise would not occur,” referencing the work of David Evans and Richard Schmalensee on two-sided platforms. Evans and Schmalensee remind us that the platform model predates the digital era. They identify “four different types of two-sided platforms: exchanges, advertiser-supported media, transaction devices, and software platforms.”
They describe a platform as “a technology that minimizes transaction costs, or a technology that creates a value allowing transactions that otherwise would not occur”
These four categories help differentiate platforms from marketplaces. Exchanges facilitate liquidity for buyers and sellers. However, Evans and Schmalensee argue that the exchange model extends beyond stock exchanges to include auction houses, clubs, travel agencies, and various brokerage services, effectively making this “platform” a marketplace.
Advertising-supported media is akin to today’s social media platforms. Businesses in this category, such as television and newspapers, use content to attract viewers, which in turn attracts advertisers. This highlights a key defining factor of platforms: the presence of a multiplicative network effect, which is crucial for understanding platform dynamics.
In discussing transaction systems, the authors focus on card schemes as their primary example. Card schemes serve both merchants and consumers by acting as intermediaries and charging a fee to process transactions. However, due to the lack of additional examples, it remains unclear if this category can be broadly classified as a platform.
The final category, software platforms, serves application developers. Platforms like Android, iOS, and Windows allow developers to build software that can be distributed to users on those operating systems. This creates a standardized environment where tasks can be replicated instead of built from scratch, similar to a marketplace limited to participants within the platform.
The authors argue that the primary role of a platform is to reduce transaction costs for the involved parties. Their paper is highly insightful and worth reading. Although they do not specifically address the concept of marketplaces, further research from other sources can provide a clearer understanding of what constitutes a marketplace.
Mitchelle Vautier posits that checkout distinguishes marketplaces and platforms—she calls it a consensus among many industry experts. In drawing parallels with physical examples, Vautier says “It’s the equivalent of shopping in a grocery store (marketplace) versus a farmer’s market (platform)”. In the former, the shopper may interact with different people—the bakery, the butchery, the fruit stand — but all payments will be made at the counter. The latter however is an open market, each customer—farmer interaction is unique as customers pay each customer separately.
Vautier further emphasizes that marketplaces take on more responsibility including “processing payments — as well as returns and chargebacks — keeping customer data safe, and staying compliant with ever-changing regulations” while platforms have limited control over “end-user experience”. This is an important defining factor for platforms that users of social media apps — which are popular platform examples — can attest to.
Payments giant; Stripe, distinguishes marketplaces from e-commerce websites and platforms in two separate guides. In both, it affirms that a marketplace is an online multi-seller and multi-buyer location for exchange of value. However, it lists Uber as a marketplace in one guide and a platform in the other. It calls a marketplace a platform in both guides.
It is a rabbit hole attempting to distinguish marketplaces from platforms because all marketplaces are platforms but not all platforms are marketplaces. Marketplaces are a less complex platform. The exchange platform described by Evans and Schmalensee is a marketplace. But, the advertising-supported media and software platforms do not fit into the marketplace model.
App stores have marketplace characteristics but they’re platforms. Amazon and Etsy are the most common examples used for marketplaces but both exhibit platform-like characteristics.
Platforms Work
Markets and in this case platforms have one major job, aggregation. This is their strength and in many scenarios, their Achilles heel. Buyers and sellers, passengers and drivers, advertisers and viewers — platforms aggregate and as earlier cited, reduce transaction costs. This strength makes it possible to leverage the network effect. The more drivers on a ride-hailing platform, the more passengers. An increase in passengers leads to more drivers — growing the size of the platform.
A new mobile operating system will struggle to edge out Android and iOS because most developers have built apps for these platforms because their devices are widely used. More people use phones with the OS because there are more apps available. On and on it goes. This network effect means platforms are a chicken and egg problem.
Anyone who has thought about building a platform must have thought, who comes first? The drivers or the passengers? The sellers or the buyers? Why will a seller list on an app without buyers? Or passengers on an app without drivers? Vice versa applies.
However, the chicken and egg problem is easy to surmount once you shift your gaze to “value”. Who is bringing value? That’s the entity that comes first — the chicken 🌚. It may be a challenge to lure drivers or sellers to the app, however, that’s where the value is. But there is one chicken and egg that is a little tricky when thinking of a platform model. Escrow. Is the value with the merchant or the customer?
The network effect of platforms makes them very competitive across categories and mostly expensive for users to switch. Social media is a great example here. If a creator intends to switch from one platform to another, they must build an audience from scratch. This explains why a creator could be widely known on one app and obscure on another. The ability to migrate content and audience from one platform to another remains a contested issue among industry observers.
Scale is a platform advantage that is particularly obvious for digital platforms. They can increase their user base faster than costs — staff size, cloud payments, marketing and taxes. This makes platforms attractive to venture capital. One can argue that B2C startups funded by VC are always platforms. Spotify, Jumia, Instacart, TikTok, and Uber are VC-funded platforms.
Taking the theory out of the way, we can ask, why isn’t there a platform to find a fridge repair guy or someone to install inverters? We’d look to other similar “successful” platforms and see what we can learn about the potential of a Services Marketplace.
Pricing Structure
Pricing is a major feature across categories and impacts how platforms operate. The number of users on Social media is due primarily to the ads model they operate. The freemium model is growing for social media platforms, but users who are willing to pay for premium features are still a minority.
The higher up the pricing pyramid, the smaller the expected user base. It is not solely because users are price-sensitive. Platforms higher up the pyramid cannot attract the same level of user stickiness — frequently returning users. You may return to Instagram every day. Multiple times in one day even. But Bolt? Glovo? Not happening.
On close observation, platforms with more human input — the Gig Economy — tend to be higher up the pricing pyramid. Since they tend to facilitate traditionally existing services, their users are quite price-sensitive. Let us not forget that demand placed on customer service increases the higher you move on the pyramid. Services marketplaces belong up there, at the top of the pyramid.
For the avoidance of doubt, the gig economy platforms are:
- Ride-Hailing
- Food/Grocery Delivery
- Services Marketplace
Quality Control
Social media platforms can roll out updates across all the countries they operate. Streaming platforms can launch new music or movies in the same manner. All their users get relatively the same quality of service. Importantly, technology will feature in most of their conversations when pushing out changes and improvements to users. The platform has more control over the quality of service its users are served.
Gig economy platforms struggle to maintain quality as uniformity of service is difficult to maintain when services are offered. Tough to deliver the same passenger experience on two trips on Uber. Even with the same driver.
A wrong order from a restaurant? No AC in the car? The painter stained the carpet? The platform will have to bear the blame. Or share in it. Having too strict rules for service providers means the platform will have fewer providers. Network effect says hi.
Gig platforms have to balance getting quality service from providers with having a large supply of providers for users. Some resort to operating a controlled marketplace, where the platform gatekeeps all the providers and users only get served by providers they choose. Food delivery runs this model for their riders and services marketplaces commonly do this. Edenlife in Nigeria has a very controlled marketplace model, providing services itself and running “a personalized curation of the vendors we trust”. This means they bear the blame 💯
Unlike pure software platforms, users and providers on gig platforms can be a threat to their business — quality providers can easily be snatched from the platform. Freelancers on marketplaces like Upwork can have future transactions with a client via WhatsApp. Frequent passengers on Uber can opt to take future rides with a specific driver without interfacing with the app.
Life tuff.
The Verdict Is Still Out On Platforms for Artisans
Presently, no one has attempted this platform vertical and had an IPO. This is an important indicator because it is a popular model — with varying tweaks — around the world. Some examples include Thumbtack, TaskRabbit, Handy, Helping, Zaarly, and Housejoy.
It is good to note that there have been numerous acquisitions in this category and a few expansions. But, the concentration of companies in this vertical in a few markets is another marker of its difficulty.
16-year-old Thumbtack raised a Series G round in 2021 — a funding round that many companies don’t reach. For Gig Economy platforms, it is not unusual. Uber raised a Series H round and Zomato — a food delivery platform— got to a Series J round before its IPO. Platform leaders in other categories do not typically get this far but their age by IPO is around 10 years and Thumbtack has shown no signs of an IPO.
What about Upwork though? 🤔
Upwork is a services marketplace — a gig economy platform. However, it overlaps strongly with asset-light software platforms. The service providers on Upwork offer white-collar services that can be done remotely, while other gig economy platforms typically offer blue-collar services that require physical interactions. Upwork is a listed company and took 5 years from founding to IPO. Last round before IPO? Series E.
South Africa’s SweepSouth acquired Egypt’s Filkhedma in 2021, two years after expanding to Kenya. SweepSouth expanded operations to Nigeria in 2022 and by January 2023 shut down its Kenya and Nigeria operations.
Nigeria’s Clickafix attempted to approach this marketplace with a membership (subscription) model for users. Fastforward Ventures made a case for its investment in the company here. Clickafix’s website no longer works and activity on its social media profiles indicates its demise.
Techpoint’s reporting on Clickafix’s launch mentions “VConnect, KeyaHelp, and Findworka” as previous attempts at the problem in Nigeria. There’s no digital footprint of KeyaHelp and FindWorka now operates an Upwork/Andela model. VConnect has shutdown operations but it was never in this vertical. Per Forbes, it was an “online business directory and local search engine”.
So nobody is doing it in Nigeria?
Not exactly. Especially when we consider the varying tweaks applied to the vertical.
Wrkman provides this marketplace but its availability across Nigeria is uncertain. Then there’s LaborHack which this author finds very interesting. They operate like startups in the vertical in India and Latam that got acquired. Will I be explaining? Nah. DYOR.
There is a French services marketplace that surprisingly works in Nigeria. This author didn’t have the mind to complete the request for an artisan solely for experimental reasons. But, you might be more daring. The company is StarOfService. You have to select Nigeria via the dropdown tab at the page's footer. Should you get an artisan via the platform, please share the experience with me.
Regardless of your conclusion on the viability of a services marketplace, remember that as with every other business vertical, difficult ≠ impossible.
Leave a clap and share your thoughts on it if this was worth your time 🙏🏾
References
Abiodun, B. (2023). Clickafix, backed by Fast Forward Ventures, aims to fix Nigeria’s home service gap with ₦24,000 yearly subscriptions. Techpoint. Available at: https://techpoint.africa/2023/09/06/fast-forward-backs-clickafix/ (Accessed: 20th July, 2024)
Evans, D. S., & Schmalensee, R., (2007). The Industrial Organization of Markets with Two-Sided Platforms. Competition Policy International, Vol. 3, No.1, pp. 151–179. Retrieved from: https://www.law.berkeley.edu/wp-content/uploads/2015/04/Evans-Schmalensee-The-Industrial-Organization-of-Markets-with-Two-Sided-Platforms-2007.pdf
Nsehe, M. (2013). VConnect.com Is One Of Africa’s Hottest Tech Startups. Forbes. Available at: https://www.forbes.com/sites/mfonobongnsehe/2013/07/18/vconnect-com-is-one-of-africas-hottest-tech-startups/ (Accessed: 22nd July, 2024)
Stripe. (2023). How to build a marketplace: A quick-start guide. Stripe Resources. Available at: https://stripe.com/resources/more/marketplaces-vs-platforms#whats-the-difference-between-a-marketplace-and-a-platform (Accessed: 13th July 2024)
Stripe. (2023). Marketplaces vs. platforms: What’s the difference between them? Stripe Resources. Available at: https://stripe.com/resources/more/marketplaces-vs-platforms#whats-the-difference-between-a-marketplace-and-a-platform (Accessed: 13th July 2024)
Vautier, M. (2019). Are you a platform or a marketplace? Fin. Available at: https://fin.plaid.com/articles/are-you-a-platform-or-a-marketplace/ (Accessed: 23rd June, 2024)
