How online marketplaces are transforming traditional services models
Identifying and developing your virtual service provider offering
Online marketplaces are online and/or mobile platforms that act as virtual stores and environments connecting your service offering to consumers who require this service, instantly. They remove the physical barriers of time and place to allow transactions to happen securely online.
We can be online anywhere, anytime. We have access to more information and data than ever before. We are no longer reliant on geography, serendipity or social networks to connect groups of people.
This has fuelled the emergence of fast growing companies that are having a large impact on their respective industries, such as the likes of ride-sharing service Uber and accommodation provider Airbnb. The service industry is next, directly connecting consumers with individuals who want to provide services, instantly. These businesses are a real and imminent threat to traditional markets ranging from construction to in-home healthcare to professional services.
A set of interviews with small-to-medium business customers, consumers, sector participants and subject matter experts has identified how online marketplaces are impacting the way we do, well, everything.
Online marketplaces are online and/or mobile platforms that act as virtual marketplaces. They connect service providers, mostly individuals, with consumers, in a way that removes traditional corporate scale benefits.
The convergence of anytime/anywhere technology and consumer willingness to engage with these platforms has created an environment ripe for further disruption across industries. Marketplace start-ups are testing the idea that any market can be disintermediated via an online and/or mobile platform.
Explore the Local and Global industry start-ups table below to view a snapshot of start-ups across a range of industries highlighting the breadth of these services.
Casting a wide net
A subset of these start-ups focuses specifically on the field workforce market. They act as a nexus between the consumer and service providers, and provide an aggregate view of the market. This is of particular benefit to the consumer, who can access a significantly larger and more competitive workforce. The impact on the traditional, large field workforce providers and smaller, independent operations is complex and not yet well understood. Regardless of how well it is understood, it is here now.
The field is highly fragmented; marketplace providers have shown a preference to build a strong, loyal user base in niche markets. Marketplace platforms can be broken down into three broad categories focusing on the types of tasks that they deliver:
Historically physical assets were needed to deliver a service. Now all you need is a virtual database of willing individuals.
The anytime, anywhere virtual workforce
The implications for the workforce are also quite interesting. Individuals are no longer tied to a particular employer or workforce structure; employees can become individual contractors and benefit from the flexibility of self-selecting when and where to work.
With consumer attitudes shifting towards an anywhere, anytime expectation, the 9-to-5 work day and the 5+2 work week are struggling to keep up and show relevance. No longer at the discretion of traditional suppliers, consumers also benefit from one less layer of costs and the ability to select certain individuals based on desired traits and characteristics such as the language spoken and level of experience.
So what does that mean for corporates and traditional employers? They are now (or very soon will be) finding themselves competing for talent and trying to justify why consumers should continue to pay more for their services.
“If clients are allowed to exercise their choice of services and care worker, then efficiency, quality and value will improve as a direct consequence” Founder and CEO, healthcare start-up.
Service marketplaces are a reality, they are here now and they are expanding. Have you thought about using a trade’s person lately? Did you look for one through a market place? We completed a recent quick survey and found that 54% of consumers found tradespeople via online marketplaces.
No industry seems to be completely immune to this disruption – from personal care workers, couriers, to tradesmen. Any industry that relies on a field force directly providing a service to a consumer is up for disruption. Once a marketplace reaches critical scale, it becomes a major force in any industry, monetising the consumer and workforce community in areas such as referrals and reviews.
Online workforce regulation and governance
Despite the many, evident opportunities offered by service marketplaces, it is still a developing business model. The main issue marketplaces are likely to need to overcome is ensuring that workers’ rights are protected. Contingent (or contract) workers are not entitled to the same benefits as employees (e.g. healthcare, leave, training, insurance). While this reduces costs for the marketplace, it presents additional risks for the contractors.
In addition, the marketplace model is driving down the potential remuneration for contractors. In auction model marketplaces, it is likely that a race-to-the-bottom due to pricing and competition will occur. In auto-assigning marketplaces, the pay-per-task model can drive hourly wage below minimum wage.
Finally, contractor reputation is very much tied to the marketplace platform. This means that ratings and reviews cannot be decoupled from the platform and applied outside of that channel. Further, there is significant reliance on consumer ratings, opaque matching processes and ranking algorithms.
The marketplace and service provider partnership
To compete, established players need to rebuild their offering to align with the needs and wants of both their consumers and their employees. Recognising that marketplace platforms are the new models for working, many established businesses are partnering with marketplaces to expand their offerings in the service space, to capture new business and revenue streams.
This means they can bypass the initial investment of building a marketplace of scale and more easily place pressure on traditional service providers to remain relevant. For the marketplace, they are able to leverage an established source of supply and demand as well as the brand to establish credibility. Some examples include:
- IKEA Australia encourages consumers to use HIPages for installation services, and advertises this service on the IKEA website
- GE’s investment in Quirky gives it access to a community of inventors that can help fill its product pipeline
- Home Depot enlisted Uber as a freelance delivery service during the 2013 Christmas season to offer home delivery of Christmas trees to parts of New York City
- Walgreens partnered with TaskRabbit, a personal services marketplace, to offer home delivery of over-the-counter cold medicine in any of the 19 cities in which TaskRabbit operates.
When partnering is not an option, businesses should explore developing competing offers for lower valued/ lower margin services. Or bite the bullet and self-disrupt, becoming a marketplace using their existing field workforce and consumers to establish initial scale and potentially a first mover advantage.
Overall, the rise of the marketplace will significantly benefit consumers and established players who capitalise on the early opportunities presented by these services. Existing service providers must adapt to this new marketplace, or risk losing both market share, as well as their workforce. Service providers and contractors must also understand the new business models driving market behaviour, and adopt new ways of working, to survive in a fast changing environment.