The Anatomy of a Marketplace: Marketplaces as Living, Breathing and Complex Organisms

On the surface, marketplaces seem fairly straightforward — you match supply and demand to make the marketplace work. But, in reality, marketplaces are anything but simple: successful marketplaces are built upon multiple complex systems that are connected and intertwined. In this way, they are akin to living, breathing organisms.

This is the primary reason I love marketplaces — their complexity is the ultimate puzzle, and their potential for impact is the ultimate prize. Magic happens when, despite all the underlying complexity, the marketplace facilitates decision making for both Supply and Demand, delivering an incredibly fast, intuitive and seamless experience.

eBay, long-considered the mother of all marketplaces and one of the first to find scale on both sides of its business — Buyers and Sellers — is a great example. The business appears super simple on the surface — Sellers post things they want to sell and Buyers find the items they’d like to purchase. A transaction is facilitated. Seems pretty straightforward, right?

Not really. Behind the scenes, eBay has hundreds of people focused on search, scientifically determining which items to surface to Buyers, depending on recent purchase behavior, price, reputation, time of year, etc. It gets complicated very quickly and perfecting the model is no easy feat.

We faced our fair share of complexity at TaskRabbit as well. One distinct challenge was balancing Client and Tasker Net Promoter Scores (NPS), a measure of a customer’s likelihood to recommend a service, which were inversely correlated. When the Client NPS score was at an all-time high, Taskers were usually at a low point, and visa versa. This results in a world where seemingly simple questions are quite difficult to answer. Who is your primary customer at any given time? How do you make everyone happy at once? How do you make decisions and prioritize outcomes (product features, customer service priorities, marketing initiatives, etc.) to maximize satisfaction on both sides?

The Marketplace Anatomy

While every marketplace is different, most can be broken down into similar building blocks (the cells, so to speak), which are essential for the business to function and scale. I call this the Marketplace’s Anatomy. In the underlying anatomy, I see two distinct components. The first, I call the Core Engine, which runs the marketplace and all of the interactions between Supply and Demand. This includes things like messaging, payments, dispute resolution, and fraud detection. The second is the Administration Layer, which allows the internal team to run the operational aspects of the business. This includes things like analytics, user imitation, onboarding and more. Both are equally and critically important.

Automating the Building Blocks

When I founded TaskRabbit back in 2008, none of these building blocks existed as standalone, off-the-shelf tools and every single piece had to be built (often painstakingly) from scratch. Fortunately, with the success of the Sharing Economy and other marketplace businesses, there has been an emergence of new companies — like Layer, Twilio, Lessonly, Trulioo, etc. — that simplify and automate a piece of the underlying infrastructure of the Marketplace’s Anatomy.

Consider Checkr, an entirely API-based background checking tool that completes the background checking process in seconds. At TaskRabbit, we built our background-checking process from the ground up, which required months of our engineering team’s time. What’s more, it took 2 to 3 days to actually get a background check completed back in 2008; it was an extremely manual process that required a ton of human interaction. Thankfully, if you were to launch a marketplace business today, you can use Checkr right out of the box, eliminating the hassle and time required to build this important component of any marketplace.

Layer is another great example of anatomy automation. In the early days of TaskRabbit, having a real-time messaging system wasn’t necessary. It seems like an obvious feature almost a decade later, but the customer expectation in 2008 was hours between communications, not minutes or seconds. I remember discussing how we would facilitate communications between Clients and Taskers back then. At first, we used Twilio to obfuscate phone numbers and make direct phone calls. Then we needed a way to send text-like messages back and forth, requiring us to build the messaging interactions from scratch. Now there is Layer, which provides an entire platform and API around customer engagement and communications in real time.

The Balance of Power (Tools)

The imbalance in the number of automation tools on either side of a marketplace is noteworthy. The majority of the successful marketplace models I have seen explicitly focus their time on building tools for the Supply side. At TaskRabbit, this meant the Taskers, who were completing jobs and making money on the platform. At eBay, Supply is the sellers. At Airbnb, Supply is the hosts. For Lyft, it’s the driver. In effect, this means that businesses spend a disproportionate amount of time and developer energy on building the underlying infrastructure and tools that a customer (i.e., the demand side) never see.

At first glance, this seems counterintuitive as the ROI seems negligible. However, in any marketplace, it’s critical that the Supply side have the tools they need to scale and be successful. Otherwise, the marketplace will be tenuous and may not support an influx of Demand.

For example, at TaskRabbit, we made Tasker/ Client matches within seconds, which requires information on the Tasker’s availability, preferred work area, hourly rates, skills, and current location. To get this information in real time, we had to build an entire suite of back-end tools that allows Taskers to manage their active jobs and schedule, go on and off duty, change their work areas, update their hourly rates, opt into job categories, and more — all with a couple of taps in-app. It isn’t flashy or sexy stuff, but it makes Taskers more productive and, in effect, makes the marketplace work. And, although our Clients never see this interface, it ensures that they have a positive experience using the service, connecting with the most appropriate Tasker quickly and efficiently.

I’m interested to hear what companies you are seeing that are supporting the Anatomy of Marketplaces. What companies do you find interesting? Any companies doing interesting stuff on the Demand side? Please share in the comments section below. I see huge potential in this area and, as an investor, I want to support the next generation of marketplace companies at their earliest stages!

Special thanks to Karolina Dadej who helped literally paint the picture of what has been in my head for a very long time. She is a great designer and artist; I’ve enjoyed working with her!