How On-Demand Marketplaces Are Disrupting Old Businesses

Glenn Laumeister, founder and CEO of CoachMarket, discusses the drastic acceleration and takeover of online marketplaces in his Forbes article, “Why Online Marketplaces Are Booming.”

“The secret sauce is not the technology, although that plays an important supporting role. It is the single-minded obsessive focus on solving one big universal problem for the buyers, and removing that friction that existed in transacting offline” – Laumeister, Forbes.

What is enticing about Laumeister’s article is his discussion of how marketplaces are creating new categories of commerce as well as countless new jobs that didn’t exist a few years ago. 

Consumers are familiar with the growth of e-commerce companies such as Amazon, WalMart, and eBay. While Amazon helped re-invent the way consumers purchase books, it also wildly expanded and pushed consumers to become more accepting of the digital store-front. Similarly, Uber, Airbnb, and TaskRabbit, to name a few, are greatly disrupting traditional business models and creating new solutions in industries we didn’t even realize needed improvement.  

For example, in the Washington Post article,“The Future of New Business is Disrupting Old Business,” Barry Ritholz discusses how the on-demand economy creates a “new class of labor that straddles the line between being self-employment and working for a firm.” Marketplaces are able to thrive when they threaten a market that is inefficient or expensive. Uber attacked taxi services and took over the market at an incredible pace. Uber’s simple onboarding and independent contractor cost advantage–characteristics of on-demand solutions–made adoption much easier. But, most importantly, Uber, like many on-demand services, solved a few simple problems that tied into inefficiency (payments and accessibility). Today, there are part time drivers, full time drivers, and drivers who use Uber to make the extra dollar. These drivers straddle the line of self-employment and truly working for Uber since they can pick their hours and work on their own time. Uber has been able to strategically lure drivers with surge pricing, which helps offset the lower pay during no-surge periods. 

If the marketplace idea can solve an issue and create appropriating technology such as Uber, they greatly threaten the idea of traditional business, in regards to efficiency and cost. “The biggest factor is that these firms have identified economic inefficiencies in major markets. They are bringing new efficiencies to underserved consumers” (Ritholz).

When it comes to the on-demand model disrupting traditional business, Laumeister uses the example of Airbnb and Craigslist. Customers who use Craigslist understand that the company does not spend too much effort on user experience (it hasn’t changed much in years), it just merely connects two parties for a specific transaction. Craigslist’s approach with little personalization and fewer bells and whistles drastically differs when compared to Airbnb, who strongly considers their consumer’s experience and how to better their provided services. Airbnb saw that Craigslist conveyed little ambition to expand beyond serving as a simple broker and sought out to make apartment renting more efficient and user friendly. As a result, customers are moving to Airbnb to rent out their apartments instead of Craigslist.

In order for a marketplace to survive, it has to consistently deliver a quality user experience for their product or service. Every single customer interaction – from the front-end experience to the final delivery – must be flawlessly executed. The importance of perfect experience leads to traction, as well as improved satisfaction in both sides of the marketplace. Uber has to satisfy their drivers and consumers. Airbnb must please both those seeking apartments and those hosting their apartment. While this is much different than than a one-sided business model, the payoff is tremendous as the network effect begins to take place, and marketplaces can focus on economics and experience.

Uber has grown to more than 8 million users, and averages 1 million rides per day. Last year, Airbnb’s website surpassed 800,000 listings worldwide, meaning they now offer more lodging than Hilton Worldwide or InterContinental Hotels Group or any other hotel chain in the world (Inc.).

There is no question that marketplaces and the on-demand economy will continue to disrupt many industries. Marketplaces solve a problem in an efficient and cost friendly way, and their technologies better customer experience. Uber improved the problem of overpriced, uncomfortable, and inefficient taxis. In doing so, they both created thousands of jobs and provided savings for their buyers. Airbnb improved renting apartments – and allowed both the consumers and renter to more easily benefit from such a service.

The move to on-demand economy has been a drastic one, and while many ideas will remain in limbo, there is no doubt that others will thrive and improve a previously inefficient process. Some will even be able to solve a consumer’s problem they didn’t even know existed. As many of these sharing and on demand economy companies have proven, no industry is immune to the threat of these emerging marketplaces. 

Read the full Forbes article here.

Washington Post Source

Inc. Source. 

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