Challenges For “Market Networks”

An article posted on the TechCrunch site in June, 2015, From Social Networks To Market Networks, discussed the rise of market networks, which combine features of social networks like Facebook and LinkedIn and marketplaces like ebay, Etsy, Uber and Lending Club.

The article lists some qualities said to distinguish market networks from social networks and marketplaces:

1. Built to support complex services that cannot be objectively judged.
2. The unique qualities and perspective of the provider matters.
3. The projects often involve collaboration among several providers over a period of time.
4. The market networks enable the forming of long-term relationships like social networks, but which are used for commerce and transactions.
5. The process will encourage referrals, which should be simpler and more frequent.
6. They are designed to increase the velocity of transactions and enhance customer satisfaction.

The author offers as examples 2 sites that are clearly pitched as meeting places for providers and customers: Houzz, which allows customers to connect with professionals as they design their home and buy furnishing products, and AngelList, which is a kind of combination job-fair and capital-raising marketplace for startups.

Also included are 3 other sites whose primary offerings seem to be more typical SaaS functions like providing platforms for providers to simplify and proceduralize administrative details of their business — preparing estimates, budgets, proposals, invoices — so their owners can focus on “doing what they do best.” The examples are HoneyBook for event planners, Joist for building contractors and DotLoop for real estate brokerage firms.

The concept of using outside-purchased software to turn annoying-but-necessary selecting, selling and administrative tasks into staff-and customer-friendly processes and procedures has been around for awhile and remains appealing. And it seems natural to experiment with bolting on the capability to connect multiple providers with customers — an “open platform” idea borrowed from insurance, annuities and stock brokerage companies, who’ve been using it for decades.

But as with financial services, some important questions have to be addressed when this hybrid approach is applied to other complex and advice-based products and services:

1. Will providers start to appear more alike than they actually are? Think of businesses you know that have distinguished themselves from competitors by offering self-educating choices and by making it easier to do business with them. Many have successfully charged a premium for that added value. If everyone uses the same SaaS tools, will there be a perceived blurring of differentiators among competing providers? Forcing competitors to look more alike may encourage price wars, lowering quality, and the exit of some good businesses.
2. How to satisfy the see-hear-feel aspect of buying decisions in advice-based transactions. With the increased reliance by customers on subjective criteria in evaluating complex products and services comes a greater trust in “gut reaction” to the fit with provider’s approach, personality and vibe. How will customers be able to get that experience?
3. Free samples? Customers buying complex and expensive products want a sample before they make the buying decision. As we pointed out in a previous post, “…many businesses still continue to promote the features, advantages and benefits of their products and services by talking about them rather than finding ways to help customers experience them for themselves.” How will market networks let customers try out the products and services of the multiple vendors on their sites?
4. Reliability of referrals? Most people won’t buy a complex product, especially one that’s bundled with an advice component, without hearing about it from someone they know and trust. How will market networks reconcile facilitation of referrals, which necessarily involves singling out one provider over others, with offering a “level playing field” for competing providers.

As experience with the financial services industry has revealed, buyers rely on nuanced and subtle factors and cues in transactions involving more complex products and services, and this complicates the selling process when compared with one where simpler products are offered in a quick, one-time transaction.

The challenge with market networks will be to provide enough standardization to make these platforms attractive enough for significant numbers of providers to see the value in participating, while allowing them enough flexibility to promote their own respective differentiators.