Ridiculously Good Outsourcing. (888) TASK. From The TaskUs Library

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1 From The TaskUs Library Manipulating Peer2Peer Marketplaces: Controlling What You Arenʼt Supposed To Control Ridiculously Good Outsourcing (888) TASK

2 Manipulating Peer2Peer Marketplaces: Controlling What You Aren t Supposed To Control Online marketplaces are red-hot again. Led by the recent wave of successes from the likes of Airbnb, Zaarly, Etsy, the notoriously tricky business of connecting buyers and sellers of goods online is experiencing a renaissance. In fact, the rising popularity of marketplaces like Craigslist have become so well known that they solidified a place in pop culture and the english language (i.e. I craigslisted my old couch ). However, for every Craigslist, there are several failed marketplaces that have since descended into obscurity. The temptation of creating the next big online marketplace is enticing, but the actual execution is where most peer2peer marketplaces fail. When implemented correctly, an online marketplace has near-limitless scale. For example, the Gartner Group estimates that the peer-to-peer financial-lending market will reach $5 billion by Frost & Sullivan forecasts that car-sharing total marketplace revenues will reach $3.3 billion in North America by Not to mention, the surging peer-to-peer rental market will shortly become a $26 billion dollar market sector. Marketplace startups are challenging because they have two clients to serve--shoppers and sellers--and they can't get one without the other. Bad ideas aside, failed marketplaces usually have one problem in common: They lack liquidity. Why else would Craigslist reign supreme after 17 years of near-zero improvements to their layout or user experience? The sole reason behind their success: Craigslist holds liquidity. Unlike other e-commerce ventures, peer2peer marketplaces are incredibly difficult because in terms of the factors which determine liquidity, you can control very little. Zappos used superior customer service to catapult their brand into a known fixture in e-commerce. Amazon s heavily funded backers afforded their large marketing budgets which have allowed them to dominate several markets. For the average peer2peer marketplace startup, these are luxuries and resources they do not have. Thus, achieving liquidity depends solely on the three factors you can control: centralization, supply and demand. Despite the precarious nature of centralization, supply and demand, you can achieve marketplace liquidity through manipulation of all three factors. Determining Centralization The first step in attaining liquidity is deciding how centralized a marketplace should be. Simon Rothman of Greylock Partners defines a centralized marketplace as one where most elements related to the inventory are controlled in-house. Black cab service Uber, for example, is very centralized. The company's workforce of drivers is very carefully vetted. The selling (in this case, the driver) does not determine things like pricing, transaction terms, or customer support. Even the communications between the driver and rider are automated by Uber. In fact, the only thing left out of Uber's hands is the drivers' starred ratings, which, as a result of the app's meticulous user experience, are consistently high. With $49.5 million in funding and outposts in 22 cities (and counting), the demand for Uber has been well established. Continuously screening and recruiting top notch drivers is imperative to Uber s success as they look to tether their supply to meet the growing demand.

3 The flip side of Uber is a marketplace like Etsy, which allows its sellers free reign over the kind of inventory they upload. Etsy does not control the photos and descriptions of the inventory, nor does it control the shipping or the communication between buyer and seller. This relieves Etsy of a heavy workload and allows the inventory in its marketplace to grow very quickly. Since its start in 2005, Etsy has consistently grown like a weed, doing more than $500 million in merchant revenue, a 70% increase from the year prior. Meanwhile Uber's success has been very deliberate; it has slowly entered around 15 cities, one at a time, over the past three years. The other drawback of a decentralized Etsy-style marketplace is the potential for low quality inventory--see the mock blog "Regretsy" for evidence. Despite Etsy s early success, their business model will force them to identify additional factors they are able to control in hopes of maintaining their market share. Unfortunately, their decentralized marketplace allows for very little control or guarantee of continued success. Manipulating Supply & Demand Building up quality inventory can be just as challenging as bringing in buyers. And it's a catch- 22: a marketplace without a healthy balance of both buyers and sellers is doomed from the beginning. But, if the need for a better way to buy is strong enough, the supply and demand can be manipulated. With the marketplace category as with any, the first to market or best idea doesn't always win--the best-executed ones do. That's why Google reigns supreme over the myriad of search engines already in the market and why Facebook has turned the original social networks, Myspace and Friendster, into pop culture punch lines. In the case of peer2peer marketplaces, execution depends entirely on your ability to balance supply and demand. When these factors cannot balance themselves naturally, you must turn to shear manipulation. New marketplace startups are increasingly looking outward for help in those crucial early stages. As outsourcing becomes more commonplace, startups are tapping various outsourcing solutions for increasingly sophisticated, core functionalities of their business. It's particularly useful--even necessary--for cash-strapped, time-constrained startups whose founders prefer to focus on the product. Sometimes hiring a community manager to foster seller and buyer enthusiasm isn't quite enough. Boosting Supply White glove services like those offered by outsourcing companies like TaskUs, help startups balance their marketplace supply. Taskus did just that with Redbeacon, a marketplace that allows home service professionals like plumbers or electricians to bid on jobs. The company had tapped into a deep market need and thus had already succeeded in creating demand. But home services professionals are largely a local, analog workforce. Getting them to join Redbeacon's system (thereby creating inventory) was a challenge. Waiting and hoping their target market would adopt their technology would lead to certain failure, but finding and hand-holding thousands of busy professionals with almost no online presence was too timeconsuming for the resource-constrained startup. The company instead tapped Taskus, which

4 quickly built a team which personally onboarded local professionals and effectively matched them with existing bids on Redbeacon's platform. In that way, Redbeacon was able to engineer the connections it would eventually be able to make seamlessly, and at scale. It lost no customers due to a one-sided marketplace in its crucial early days, because Taskus ensured the opportunities posted were matched with professionals, who stayed on the platform once they saw the lead generation it was capable of. The outsourcing worked--redbeacon built an attractive enough which led to $7.4 million in funding and eventually being acquired by Home Depot in January Spurring Demand Airbnb is another example: The home rental site invested heavily in Google display ads and YouTube video ads to lure in customers and increase awareness of the company within the larger home rental market (previously dominated by sites like vrbo.com). AirBnB founders, Brian Chesky and Joe Gebbia, discovered at an early stage that renting spaces during times of high demand (i.e. conventions, holidays, seasonal peaks) would be easy. It was sustaining demand during the less popular times that would require greater efforts. The answer for AirBnB was relatively simple: high resolution photos. Through consumer research, it was revealed the number one concern for any renter/guest was what the space actually looked like. High resolution photos that showed off an AirBnB host s place would alleviate concerns and ultimately dramatically increase the chances of that space being frequently rented. Simply communicating the need for high resolution photos to their network of hosts via the AirBnB site or network was insufficient. The definitive solution was building a host success customer service team. Outsourced agents would contact hosts directly via phone to explain the necessary steps required to successfully rent your space on AirBnB frequently. The most crucial step of this process was explaining the importance of high resolution photos. For example, spectacular photos of a domed cabin located in the Santa Cruz Mountains has led to 80,000 views on the AirBnB network and subsequently 20 reservations booked last summer. It s a cabin! The power of photographs is alive in the rental market. This particular process, also known as soft sales, is ideal for outsourced or crowdsourced daily business solutions. Because AirBnB allows the host to control how they market their rental, it s quite difficult to control the overall consumer experience. Thus, daily business operations like implementing an host success team can allow AirBnB to match supply with their demand. The New Rules of E-Commerce The very factors which companies like Amazon, Netflix and Walmart leveraged to become market behemoths, simply does not exist for peer2peer marketplace businesses. Without the ability to control the consumer experience and the supply chain from creation to delivery, peer2peer marketplaces have great difficulty achieving liquidity. Putting the power in the hands of your buyers and sellers can spark initial interest and plenty of press, but that s never enough to sustain growth. Businesses are frequently turning to outsourced daily business process solutions that will provide control where they didn t have control before. By harnessing the power of talented professionals from the most advantageous areas of the globe, you can

5 effectively balance supply and demand. Regardless of how centralized your marketplace is, absolutely every component of a marketplace can be manipulated. The question becomes whether or not you will be able to implement solutions in a cost effective matter that allows your business to continue growing.