April 7, 2024

Strategic and Tactical - Marketplace Modes

Navigating the challenges of marketplaces, from trust to value, in a digital world—leveraging insights for future businesses.

Marketplaces - Businesses in hard mode

In my reading and experience, marketplaces are challenging businesses to build. They are widely cited as example of businesses that scale. The number of such businesses are not a lot. The numbers further dwindle when we dissect them by category of business or consumer. Consumer category having a dominant share. We will focus our efforts on the business side of things.

In fields like logistics and agriculture, marketplaces of any form are set-up to increase diversity of counterparts or speed of transactions. Together both are presented as bringing efficiency.

The counter arguments to this stems from the relationship equation between counterparts. Often times when you talk about bringing efficiency, people in the industry will give you a counter argument saying that its about relationships.

This sentiment is universal as I have been subject to this across regions. The irony is not lost on me when the product that I am working for is also sold on pre-existing relationship. When you go ahead and probe into why is this the case, the answer is a version of relationships build trust and without trust it is hard to make a sale.

I am satisfied by the reason for the time being because I am yet to find an alternative that would build a counter narrative to this dependance of trust and interpersonal relationship. The question that I often ask myself, why bother to change this paradigm? What benefit do we get by changing the nature of buying and selling happens in these domains?

I don’t have a well formulated elevator pitch just yet. The long rambling version is as follows:

The motivation to design a market that engages both sides, selling and buying, in a manner which is mutually beneficial. Most marketplaces are designed to be fair, pegged to price. Price is weighing metric not a leading metric such as potential value that could be derived by either side. Price has the value of the transaction compared to other similar transactions but doesn’t isolate the value addition that could take place for one side.

For example let us take a look at plugins marketplace in Slack. The net value addition a plugin could unlock productivity for a team within slack where the entire team collaborates is exponential. To make it more concrete, take the case of Albus by Springworks which sells this plugin to enterprises according to perceived value that it could unlock.

Marketplace businesses have transactions where one side, either buyer or seller, is deviating from routine. The customer buying Albus who uses Slack is doing a purchase that is out of routine. Except trading houses not many businesses involve in buying and selling on a daily basis. Many marketplaces enter with good intentions and ill conceived incentives by associating trading businesses as the ideal marketplace examples.

Similarly in the field of agriculture with produce. When a farmer takes his/her harvest to the nearest Mandi (local market), the trader is well versed with the intention of the farmer. Buyer is doing a routine operation while the farmer is pinning all hopes on the sale (we could consider this to be first sale of the season). In these times, the trader ensures a premium is realised on the price of sale on behalf of farmer. The ultimate goal of the trader is to make a transaction happen and the way they get it done is an art that they believe cannot be replicated in the digital world.

I presented two different examples, Slack’s plugin store is strategic marketplace. Investing in a tool is a deliberate decision that buyer needs to make. Whereas in the case of the mandi, it is tactical marketplace. Every season farmer needs to take the harvested produce to the Mandi but the who and at how much is dependant on the trader and market prices of produce.

Both these marketplaces when translated to the digital world miss the cues of people participating in these marketplaces. We loose much of hidden information(cues of people) that a one could learn while interacting with an another human in a marketplace when mediating through the digital medium.

The fascinating thing about strategic and tactical marketplace in the digital world is that it can be approached with different design, native to the medium.

The design is the medium in which the transactions happens. Instead of mimicking the interpersonal communication logic to the digital world, we need to invest in translating the process. Similar to when a good book in its native language gets translated into a different language.

It involves a lot of skill and it is highly context dependant. Both of which are challenging assignments that have been living rent free in my mind.

Round up

Carriers behaviour in bidding markets

Classification of agents and defining the components of the system are trivial for experts of a domain.

When I read academic papers who spend inordinate amount of time to define the context of the system and map the particulars of the system. It helps me in distilling to first principles.

For example, right now I am reading a paper which talks about auction behaviour of carriers in spot auctions. I have been part of this industry for past 2 years and still finding it engaging all throughout. Mastodon

I updated my context thanks to this paper. Also found other papers that need my attention to dive deeper when designing the incentives in products built for carriers use.

Vertically integrated but distributed in operation

“ Intensive Buying stops short of actually manufacturing the product and may even stop short of physically handling the product at any point before it reaches the distribution center. Intensive Buying is a program of vertical interference and supervision, but not vertical integration. Vertical integration is what finished off A&P.”

This is an excerpt from Becoming Trader Joe book. It is interesting how often the intended advice and perceived are contrasting. Mastodon

I could have made a lot of money shorting startups that did vertical integration by owning everything in the stack rather than integrating across the stack.

Every single time, I come across a marketplace in agri space, I see them replicating similar playbook of owning every aspect of the supply chain only to realise it is unsustainable eventually(when money dries up).

Links that resonated

AI enabled Buyers

When a buyer starts asking AI about your product and competitor. How do you approach positoning, marketing and SEO. Food for thought.

Elevator Pitches and reinforcement

Karthik is penning down his experience launching a startup through his newsletter and I found this post on talking about what is he building at a networking event very poignant. Coincidentally, it was his book that led me into the world of marketplaces.

Internalising leverage

When we look at businesses all around us, we witness the exercise of leverage that they had on the market. This has became even more evident as I start traveling.

The naive me who started on this road of business building 5 years ago would nod against this insight thinking it is coming from an old man not excited about the future. But the present me is happy having learnt this lesson and will advocate for it in every future interaction.

Signing off till next time,

Vivek, walking the streets of America’s first planned city.