The Evolution of Marketplaces

The next evolution is quickly approaching, moving us into an era of fully integrated experiences for regulated services.

Marketplaces have existed for as long as humans have had products and supplies to trade. Marketplaces transcend cultures and languages — from bazaars (Persian), souks (Arabic), to marchés (French) — and the definition remains consistent throughout: an open or public area where products are bought and sold. Over the centuries, marketplaces have continuously evolved from a traditional analog state to increasingly digital, which has opened a wealth of opportunities for businesses and entrepreneurs. As advancements in technology continue, the value of digital marketplaces to businesses is clear:
  • Improve and elevate the client experience
  • Condense sales cycles and increase revenue potential
  • Extend visibility and market reach
The constant evolution of marketplaces has transformed business practices, and in some cases upended entire industries. To highlight how this happens, let’s start by taking a look at the various marketplace models that exist today: Marketplaces for Physical Products and Goods: Products and tangible items that can be bought, sold or exchanged through marketplaces can be distributed completely offline through brick-and-mortar stores, online through integrated e-commerce or through a hybrid of online-offline. Offline marketplaces have evolved the least and still closely resemble the way goods have been purchased for centuries. This is due to the nature of what is being sold. For example, people generally prefer to try on clothes in-person before purchasing (this may evolve with advancements in AR/VR technology), or assess the quality and freshness of food and fine ingredients themselves. In these cases, offline marketplaces meet those needs and serve as a centralized meeting point for people to gather to sell and purchase goods. Online marketplaces were introduced in the '90s during the dotcom boom to decentralize the exchange of goods and make the process more efficient. The increase in speed and efficiency led to an explosion of growth for businesses, and it hasn’t slowed. Some of the most notable companies in this space — Amazon, eBay, Alibaba — generated combined revenue of $296 billion in 2018. With the introduction of online marketplaces, consumers can shop in real time and are no longer restricted by location, hours of operation or access to specific vendors. The world now has access to limitless item categories, across any device, at any time. See also: 3 Reasons to Use Online Marketplaces   Hybrid models exist where the entire end-to-end purchasing experience cannot take place online. For example, a person could go through all of the steps of purchasing a nightstand on Amazon — from search to product comparison and payment — and have it delivered directly to the doorstep (integrated online). Whereas if the same person bought a nightstand on Craigslist, the person could go through most of the same steps online, but would still need to pick up the item in person from the seller (online-offline hybrid). On-Demand Marketplaces for Needs and Tasks In the 2000s, technology continued to advance at a rapid pace. Through the introduction of smartphones and wireless internet, we entered a “digital economy.” Technology became more accessible and standardized than ever before, which meant industry after industry underwent a digital transformation, creating a set of standards for the way businesses interact with clients. One way to highlight this is by looking at the speed at which it took different technologies to reach 100 million users. It took the landline (1896) 75 years, Instagram (2010) two years and Pokémon Go (2016) one month. During this time, online marketplaces evolved once again to include an on-demand needs category. This introduced fully integrated online spaces for consumers to fill a specific need instantaneously. Whether it’s transportation (Uber, Lyft), accommodation (Airbnb) or ordering lunch (Ritual, UberEats), options are available for consumers through the click of a button. During this time, we saw the birth of the “shared economy,” which allows individuals to share underused personal resources (cars, property, etc) in exchange for a fee. It’s here that marketplaces took on a slightly expanded definition: an open area or technology that’s accessible to the public where products and services are bought and sold. The Next Generation of Marketplaces: Regulated Services The next evolution of marketplaces is quickly approaching, and this time we will be moving into an era of fully integrated experiences for regulated services. Regulated services often require a certified or licensed intermediary to support the client and help move the transaction forward. Some industries that use this model are legal services, real estate, healthcare, financial services and insurance. Li Jin and Andrew Chen of Andreessen Horowitz have studied this space extensively and published this great essay on why they believe the next phase of the internet will be about reinventing the service economy. Services marketplaces are currently straddling the offline and hybrid models, however haven’t reached the tipping point of full integration. A fully integrated online experience would be completely powered by technology, involving no manual or analog parts of the process. The end-to-end experience for the client is managed on one integrated platform — and incorporates the built-in trust and credibility associated with licensed intermediaries. In their research, Li and Chen highlight that “while services make up 69% of national consumer spending, the Bureau of Economic Analysis estimated that just 7% of services were primarily digital.” This is partly a result of service industries having standards that are often grounded in manual processes. This makes it difficult to digitize parts of the process that are traditionally done offline. For example, a person can go through some of the steps of purchasing a home online — from exploring listings, interacting with a real estate agent, negotiating terms and completing mortgage application forms — but signing the required legal documents still needs to be done in person with a witness present. In life insurance, advisers intermediate between the carrier and client. It’s the adviser’s responsibility to assess the clients’ needs and financial goals and identify the best carrier products available for them. The adviser also oversees the approval process, which involves many layers, including underwriting, filling out application forms for individual carriers and sending the client a list of quotes and policies to compare. Reviewing these steps, the adviser’s role as intermediary serves the same purpose as a digital marketplace — advisers search, exchange information between vendors and clients, provide relevant product recommendations and facilitate the transaction. The process is the same, but the approach is currently manual. However, we are nearing what many would consider the fourth industrial revolution. Clients rely on technology more than ever, and businesses need to adapt. In this recent article, James Currier, managing partner of NFX, claims that, “Over time, nearly all independent professionals and their clients will conduct business through the market network of their industry. We’re just seeing the beginning of it now.” Service-based businesses need to start preparing for the process of digitization now to compete. See also: The Best Approach for Small Commercial? It’s clear that intermediated industries are on the verge of a massive shift, particularly regulated services. With this in mind, it will be important to understand the advantages that digital marketplaces provide and, more specifically, what companies and business leaders can do today to ensure they’re prepared for the future. In part two of this series, we’ll take a deeper dive into these topics:
  • Four critical functions of service industries that will be transformed by digital marketplaces
  • How business leaders can prepare for the future and stay competitive in an increasingly digital economy

Aly Dhalla

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Aly Dhalla

Aly Dhalla is the CEO/co-founder of Finaeo, a venture-backed insurtech startup that is reshaping insurance distribution to help independent advisers thrive in a digital era.


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