When marketplaces work and when they don’t

Thanks to Uber’s meteoric rise in valuation, several startups are trying to mimic the idea of building marketplaces with instant gratification. So much so, that there is an aptly titled poem, “Uber for X“, devoted to this. Though the jury is still out on Uber or Airbnb, some others like Exec and Homejoy have already failed to be sustainable businesses. Here are a few thoughts on the characteristics of marketplaces, including so-called sharing economy startups, which decides their eventual fate.

Characteristics of an on-demand marketplace

  1. Price
    For a low-ticket item like Uber ride whose average price is 16$, chances of a buyer looking for cheaper alternatives are lower. For a high-ticket item like Airbnb where an average rental is ~100$, the chances a buyer will look for alternatives is higher. That might explain the success of VRBO/HomeAway which undercuts Airbnb with lower fees.
  2. Standardization/Commoditization of goods/experiences sold
    Riders are OK with their Uber drivers as long as the drivers are good enough. And the driver has to provide, more or less, the same service to every customer.  That’s not true for a  cleaning service like Homejoy, both the cleaner and the cleaning job has a huge amount of variation.  This makes the job of providing a consistent service much harder.
  3. Interaction frequency
    The frequency of use should be high, or else buyers or sellers might forget that the marketplace even exists. PiggyBee is Uber for shipping goods, a traveler whose journey matches with the journey of your good to be delivered. Such a service would have a hard time converting and retaining users. This is crucial, a marketplace not only needs users but needs the right balance of suppliers and buyers in time and if interaction frequency is low, it is very challenging to attain that.
  4. Low platform leakage
    The underlying structure should be such that there is no practical advantage for a bond outside of the marketplace. Regular Uber riders can’t just take the phone number of a driver and call him for the next ride. Since the driver might not be in the proximity or might be with other riders. That’s not true for say hiring a home tutor, once you have found a good one, you can take the next purchase offline undercutting the marketplace of its revenue share. That is what probably killed Tutorspree, touted as “Airbnb for tutors”.
    An even better structure is where taking the dealing outside would be disadvantageous. Consider, for example, buying goods on eBay. It is better to perform the transaction on eBay to get the buyer’s protection. Or, for example, when borrowing money directly outside of LendingClub, the borrower will have a  little negative consequence if s/he decides not to pay back.
    Another thing which encourages platform leakage is the lack of urgency. An Uber rider might not want to wait one hour for his/her previous driver to be free, but a homeowner would usually be fine waiting a few hours or sometimes days, for a good cleaner.
    In almost all cases, though, a transaction can migrate to a similar platform if service being provided is commoditized/standardized. For example, Uber will have a higher chance of losing customers to Lyft than StyleSeat losing customers to LifeBooker, as long the same service providers are not listed on LifeBooker.
  5. Trustworthiness
    While the platform does vet both the supplier and buyer to some extent including providing insurance for the transaction, there might be a further requirement of trust. An Uber rider and driver would have much less requirement of mutual trust that the guest-host pair staying in the same house. The problem is worse for renting physical goods since the lender does not even know if the good returned is the same shape or not. So, a car owner renting a car on RelayRides (now Turo), would require more trust in the borrower than a homeowner would require in an Airbnb host.
  6. Fully online vs. online-to-offline interaction
    Lending club is a purely online experience for the lender and the borrower; Uber is not. A purely online model not only allows for easier scalability but also it makes intermediation easy in case of a dispute. This point, though, is relatively minor compared to others.
  7. Goods vs. experience
    If a dispute arises, it matters whether the transaction involved a good or an experience. It would be relatively easier for the marketplace to be an intermediary in case of a dispute involving a good. When it’s an experience, it is words of buyers against the words of the seller. This point, though, is relatively minor compared to others.

Below is an analysis of some popular marketplaces based on the above characteristics

Note: Some ideas mentioned in this post are based on conversations with friends and are not entirely mine.

Thoughts on Tizen

Users won’t buy a phone till they know that their basic set of apps are available on the device.
That pretty much rules out players like BlackBerry 10JollaUbuntu OS and Firefox OS.
Even Microsoft is still struggling.
OEMs like Samsung, HTC, LG, Sony have been hit hard by commoditization of Android. Google makes money from Google Play, cheaper phones imply more users. So, commoditization of Android OEMs is good for Google.
These OEMs have to customize Android as per Google’s requirements which have increased over time.
They cannot manufacture a competing version of Android (like Amazon’s Fire Phone) either.
This leaves us with iOS and Google-experience Android duopoly.
The only way to break that duopoly is Samsung, which is big enough that it can convince major developers to develop apps for its devices and throw money at marketing to reach out to end users.
It can make money from selling devices as well as selling apps (via app store).
A completely open source OS can pull open source developers from GNU/Linux and Android to develop it.
A completely open source OS can convince other OEMs to use it and in lieu, they can partner with Samsung on app store revenue sharing.
It remains to see what Tizen’s delayed launch eventually leads to but its a matter of survival for Samsung.

 

“Material design” and Google’s strategy

 

Android

Before 2008, smartphones OS market was fragmented.
There were a few big names like Palm and Symbian, but most phone manufacturers were doing their custom operating systems. For example, Motorola alone had five operating systems.
In 2008, Google came out with an open-source smartphone OS.
Mobile phone manufacturers like Samsung, Motorola, and HTC, embraced it and made short-term profits till they got commoditized by a standardized OS controlled by Google.
On the other hand, Nokia and Blackberry decided to ignore and badly lost market share.
Eventually, they embraced it as well, albeit, in different forms but it seems its a bit late.
The only winner (till now) is Apple, who was simultaneously working on iPhone and has held its ground well primarily, due to superior UI design and user experience on iOS.

Material Design

Till 2014, web design has been fragmented, flat design is popular, but no one controls it.
There are a few big names in web UI development like BootstrapFoundation but most companies are either using homegrown or open source jQuery libraries/CSS libraries for design.
In 2014, Google came out with Material Design, and just like Android, it’s being given out for free.
Even Android 5.0 is using the same material design.
While app developers are almost bound to replicate material design for Android apps, the choice of offering the design to web developers is an interesting one.
If a sizable chunk of web developers decide to embrace material design, Google will control look and feel of the web.
If the android apps and websites look similar, then it will only persuade more and more iOS developers to use material design in iOS apps.

The end game is to corner Apple in user experience by producing a design which Apple will be either forced to adopt or create something different and superior.
As far as others big players are concerned, both embracing and ignoring material design will be an equally lousy proposition.

Disclaimer: Thoughts are solely mine. 
Disclosure: I used to work at Google.

Internet activists, the advent of snap judgement and Internet’s permanence

In 2013, we saw how internet activists’ snap judgements about interpretation (or misinterpretation?) of jokes at pycon destroyed the  professional career of two individuals (Source: A Dongle Joke That Spiraled Way Out Of Control).
The internet activism first sympathised with Adria Richards and then decided to side with the developer, eventually both of them (and SendGrid customers temporarily) took a major hit which could probably have been resolved offline and would have never become a part of permanent history.

As if this was not enough, this year the same story has been repeated with Gurubaksh Chahal and his girlfriend Juliet Kakish.
The claim goes that he allegedly hit his girlfriend 117 times and she allegedly suffered bruises and injuries, there is an alleged video of that proving the same (I haven’t been able to find one yet that does not imply it does not exist though) (Source: A Letter To The Board Members Of RadiumOne).

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Thoughts on fixing tech recruiting

Enough articles have been written about engineering crunch in the valley while some solutions like increasing equity grants to engineers have been suggested, the bigger issue of the broken recruiting pipeline has not gained the attention it deserves. Its a job of recruiters to source potential candidates and most recruiters are compensated in form of a percentage (usually 20-30%) of the annual base salary of the hired individual.

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Why Nokia’s (rumored) Android phone is doomed

In Feb 2014, WSJ is reporting that Nokia is working on an Android phone.
In Sept 2010,

Anssi Vanjoki, outgoing head of Nokia’s smartphone division, likens mobile phone makers that adopt Google’s software to Finnish boys who “pee in their pants” for warmth in the winter. Temporary relief is followed by an even worse predicament.  [source]

As someone who has advocated Android for Nokia in the past, I think its just too late now to do that.

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Three reasons why Intel might lose server market even faster than consumer

One of the biggest challenges to Intel’s x86 hegemony in the consumer market has been the emergence of smartphones where ARM-based processors have 90% market share. The PC market where Intel has a stronghold is declining at (estimated) 10% annual rate.

While a lot of coverage has been to given to Intel’s decline in the consumer market, I believe Intel has a tough road ahead in server market too. One major advantage Intel has is the amount of (legacy) code which has been written for x86 (the same thing which keeps Cobol on life support), this advantage is diminishing rapidly due to following trends.

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Thoughts on Bitcoin

A short summary of bitcoin

Electronic money is all about ledger (transactions) which tells who sent money to whom, in standard financial system, central/federal/reserve bank (different nations have different names for these) and by extension, financial institutions are “trusted” to maintain that ledger. Any work which requires a “trusted” party can in principle, be done using cryptography without requiring a “trusted” party and bitcoin is manifestation of that applied to ledger. For more thorough treatment have a look at original paper or this blog post.

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Thoughts on Snapchat’s snafu

Background

A security company reverse engineered Snapchat’s android client and found all the api endpoints (source).
Bigger issue: The published proof of concept of using “find friends” feature to find whether a phone number is registered on Snapchat or not, and if it is, then its associated username and location of the user.
Their claim was that despite informing Snapchat about the hole, Snapchat did nothing about it.
As expected, someone published data of 4.6M registered users (source) using the proof of concept provided. Snapchat responded saying that soon users will be able to opt-out of find friends feature.

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