Middlemen Must Adapt to Shifting E-Marketplace

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With services like eBay and Craigslist connecting buyers with sellers, the internet age has been very kind to “middleman” marketplaces. But as Rafi Syed and Jeremy Levine write over at VentureBeat, intermediates must adapt if they wish to survive long-term. This is because the exponential advancement of e-marketplace technology appears to be leading to a future in which buyers and sellers forgo middleman marketplaces altogether:

“One key risk facing the operators of transactional and end-to-end marketplaces, however, is the threat of disintermediation, which happens when a buyer chooses to work directly with a seller instead of using the marketplace platform (i.e., finding a host on Airbnb and then arranging a stay with them directly). It’s difficult to disintermediate a simple listing site like Craigslist because Craigslist charges for listings and, therefore, monetizes the instant a listing is posted. Listings on a transactional marketplace, on the other hand, are typically free to post, so a marketplace like Airbnb doesn’t get paid until a transaction is completed. If a buyer and seller are able to conduct their transaction ‘off the marketplace,’ they can avoid marketplace fees altogether.”

This phenomenon sort of reminds me of the “showroom effect,” which is when consumers visit stores like Best Buy to inspect and test out merchandise before going home to order it off Amazon. Yet in this case, buyers and sellers harness the marketplace to find each other and then travel outside the marketplace to fulfill their transaction. For companies like Airbnb, this presents a now-minor, potentially major obstacle.

Syed and Levine offer several key pieces of advice for intermediates in order to maintain a sustainable business. They range from the simple, such as keeping your surcharge at a reasonable rate, to the clever: encouraging users to stay onsite by providing ratings, rewards, and other appealing social media features. A good example is OpenTable, the restaurant reservation intermediary, which offers rewards to its users who make reservations onsite. This keeps people invested in the service. The user-submitted reviews also make it a trusted source for information with regard to finding a place to eat that night.

Take a look at the full piece below for more information about the lasting survival of transactional and end-to-end marketplaces.