People Marketplaces

It seems like there has been a veritable explosion of companies that are leveraging technology to build “people marketplaces” that provision various services.  On one side of these marketplaces, consumers are afforded a new channel to procure needed services.  On the other side, individuals are empowered to earn money performing the services.

These marketplaces come in two general flavors.  There are horizontal platforms like Zaarly, TaskRabbit, Gigwalk and Fiverr that let consumers find providers of a wide variety of services.  And there are vertical platforms that focus exclusively on one service vertical, such as Lyft and SideCar for hopping a ride, Homejoy for house cleaning, Instacart for grocery deliveries and DogVacay for boarding your dog.

I am a huge fan of the concept of economically empowering a community of users.  eBay has done this for 15 years in goods (and that mission is what most attracted me to the company), and these new companies are now doing it in services.  And this economic empowerment is critically important: It’s becoming obvious that the concept of permanent employment is waning, and the resulting persistently high unemployment rate creates millions of people who need economic opportunity.

After meeting with scores of these companies, we’ve been drawing a few hypotheses in the space:

Vertical vs. Horizontal Plays

While many of the horizontal platforms are doing interesting things, we tend to think that the vertical approach is resonating more with consumers.  Most of the companies that are showing early signs of breaking out tend to target one vertical.  Our hypothesis is that the horizontal plays may suffer from a potential “paradox of choice”: Consumers could be getting overwhelmed by the seemingly infinite array of potential service options presented by horizontal platforms, but consumers can easily understand the highly specialized value proposition of a company offering services in one vertical.  When you use the Lyft app, for example, it’s immediately obvious that you can get a ride from where you are to where you want to be.

My partner Chris Dixon points out that vertical approaches have additional advantages.  From a product perspective, the vertical apps can tailor their workflow to the unique characteristics of that vertical—the best way to find someone to clean your house is different than the best way to find a ride.  And from a marketing perspective, a narrow focus on one vertical lets the company do things to potentially accelerate each side of the two-sided marketplace.  For example, some companies work to jumpstart their business in a new market by initially subsidizing their early service providers to ensure that the marketplace has liquidity for consumers when it launches.

Convenience vs. Value

There seem to be two high-level value propositions emerging for these services:

  • Some position themselves as primarily a convenience and typically charge a premium for it.  There have been mobile car wash services that will come to you to wash your car, but they would typically charge you more than a physical car wash would for that convenience.
  • Others position themselves as both a convenience and a value, typically by disrupting an inefficient legacy supply chain.  YourMechanic will come to wherever your car is to perform any of a wide variety of car maintenance and repair services, and will charge you less than you’d normally pay if you were to drop your car off at a garage.  It turns out that the service department at your car dealer has become their only segment that earns decent returns, and service typically subsidizes other less profitable auto segments.  Not surprisingly, these garages then pay mechanics a very small share of what they charge consumers.  Their bills get so bloated that YourMechanic can charge significantly less than garages for a service, pay their mechanics higher wages to perform it, and still earn attractive returns.

It appears that the early breakouts in the space are those that offer both convenience and value.  It’s clear that the market size of people who are willing and able to pay a premium for convenience is much, much smaller than those who are attracted to both convenience and value.  For example, a service that charges a premium to come to you to wash your car may work well on Sand Hill Road, but it’s unlikely to have broad national appeal and disrupt the physical car wash industry.

We believe that some very interesting companies are in the process of emerging in this space, and we plan to remain active in it.

(Note: a16z has a venture investment in Lyft and is a seed investor in DogVacay, Homejoy, and YourMechanic).

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