How The Platform Business Model Is Disrupting Sales

Today we tip our hat to a specific type of platform business that is pushing the envelope and evolving the business model–commoditized service marketplaces.

Difference between commoditized and non-commoditized service marketplaces?

Service marketplaces can be characterized by whether they are commoditized or non-commoditized. Where they fall on the spectrum is a function of how much the service they market can be standardized. For example, Uber is commoditized platform. The provide a standardized service because their consumers are only concerned with getting from point A to point B. On the other hand, a platform like Airbnb is non-commoditized as their renters consider many factors when choosing somewhere to stay.

While we’re thankful for the “Airbnbs for” of the world, the “Uber for X” platforms are doing something we think is important: these platforms are rendering salespeople obsolete.

What is wrong with traditional sales?

Up until now, selling services was highly labor intensive. Services are inherently local and because the service is highly dependent on “humans”, delivering a standardized and consistent service level was hard to ensure. Considerable resources were required to sell services at scale, including salespeople and infrastructure.

Uberification of sales

But now, commoditized service marketplace platforms are making purchasing services like buying items on Amazon. There is far less human input required, which drives massive scalability. Think about it? The Uber platform can sell 140+ million rides per year with only 4,000 full-time employees. Of course, they have an army of 160,000 + drivers, but these are independent contractors and not full-time employees. Uber really did the unimaginable by creating a new type of economy. Talk about platform efficiency from a labor perspective!

Uber has scaled to the point organically where it can now afford to roll-up individual accounts into business accounts through its human sales team. However, there’s no way Uber could have been efficient with that strategy before reaching critical mass. Uber first had to make those 1:1 connections between large fragmented supply and demand before it’s now able to afford a human cost to acquire businesses.

Yet again, platforms are disrupting traditional business models through the novel use of technology. These commoditized marketplaces are taking a fresh approach to services, and replacing the “old-fashioned way” of doing things. But as it were, marketplace platforms actually have a lot to learn from traditional businesses.

What can tech marketplaces learn from traditional sales?

In particular consistent pricing and a strong brand.

Not to belabor the point, but setting prices in a commoditized service marketplace is a must. By standardizing a service and doing away with some of the superfluous purchase considerations, consumers are highly focused on price. Having control over pricing as a platform like a traditional business is advantageous.

This is a bit counterintuitive. So many non-commoditized platforms have been massively successful precisely because suppliers have been able to set their own prices. They’ve acted as virtual spaces (hence “marketplace”) for entrepreneurs to do business, and the terms of how they do that business is left to them.

But when you move into the commoditized space, all of the conventional wisdom needs be flipped upside down. They’re no longer acting as virtual space, but rather a way to streamline and scale. Two goals that are best helped by simplified pricing.

Up to now we’ve talked about commoditized platforms as having somewhat indifferent consumers. That isn’t quite right. While consumers might not care about having a wide variety of characteristics to choose from, they still care about quality. We might call them “commoditized,” but that doesn’t mean they’re selling actual commodities (though the “Uber for” crude oil stands to make a killing).

Importance of brand and trust for platforms

Thus the importance of brand and trust. Non-commoditized marketplaces are insulated from this concern. Take eBay as an example. Their model is completely unconcerned with maintaining universally consistent brand from producers. In fact, one of the main features of the site is the ability to rate sellers for better OR worse. Mobile technology has provided an avenue for commoditized marketplaces to create significant value, but they have no such insulation. When you’re upset with Uber, you complain and they have to respond. Here they have to think like traditional businesses and concern themselves with maintaining a consistent level of quality.

Unfortunately, service marketplaces don’t have the benefit of controlling supply directly. Rather, they act as a sort of filter. Their brand is determined by their ability to connect people with consistently high quality providers. Oftentimes early-stage commoditized platform businesses run into the problem of lacking a reputation. The platform may lower supply standards to maximize growth and this is always an error.

Commoditized platforms should think of themselves as referral providers. Their job is to provide a “seal of approval” to their service providers and accompany it with a simple user flow to make the connection. In this way, they are a lot like old-fashioned franchise businesses. McDonald’s may provide franchisees with access to a supply chain and other tangible resources, but above all they give them a powerful brand image which lets consumers know exactly what to expect when they step into a restaurant. The franchisees have to meet that expectation, so a high standard is set for them by McDonald’s. Commoditized marketplaces should act likewise. Uniformity isn’t necessary, but quality control is a must.

Filed under: Platform Innovation | Topics: platform innovation, sales