At some point, we stopped talking about classifieds and started talking about marketplaces. How did this happen? And what does it mean for consumers and businesses?
This report explores the critical issues facing classifieds as they transition into marketplaces. To do this, platforms must do a number of things. They must efficiently connect buyers and sellers. They must build trustworthy communities. And they must ensure that transactions are secure.
The Internet has given marketplaces an opportunity to offer these elements at scale. Hence, marketplace growth has exploded, with revenue set to double between 2017 and 2022. But growth will only continue if platforms continue to deliver efficiency, community and security.
It’s important to remember that none of the marketplaces we know and love today could have existed without classifieds. Over time, thanks to technology, classifieds have evolved into two-sided, technology-led, transactional marketplaces.
A number of distinct phases characterise this evolution. First, the Internet, then social media, then mobile. By leveraging these technologies, marketplaces have grown to be ubiquitous, with advances making buying and selling online easier, safer and available to us 24/7, 365.
The future is exciting - and at Shieldpay we’re proud to be facilitating the growth of such a thriving sector - but, before we look too far ahead, we must look back at the past and learn how classifieds began the journey that has brought us to this point.
The birth of online classifieds
Before the Internet, classifieds happened offline. Publications like The Yellow Pages acted as directories advertising services, whilst catalogues showcased products. The Yellow Pages still exists, but it’s online, and we still receive catalogues, but commerce is predominantly online.
Two revolutionary companies lit the spark that led to transactional classified platforms, or marketplaces, as we know them.
One of these companies, Craigslist, was born on March 1st 1995, when Craig Newmark emailed 10 close friends in San Francisco with a list of art and tech events. Newmark’s friends invited their friends and a community was soon recommending exhibitions and events and telling each other about items they had for sale. Recognising the opportunity to scale and help people, but not noticing how much revenue could be made, Newmark built a simple platform that facilitated these exchanges. The earliest Craigslist offered online classifieds in their simplest form - you paid the advertised price and goods (items, tickets, services) were delivered.
Later that same year, just up the road in San Jose, Pierre Omidyar created the first online auction site called AuctionWeb. Famously, one of the first items bought was a laser pointer (broken!) that sold for $15. Worried the buyer hadn’t read the advert, Omidyar contacted them to ask if they knew that laser pointer didn’t work. The buyer confirmed he did, explaining: "I'm a collector of broken laser pointers.” A business was born and an evolution was in motion.
23 years later, Craigslist is still one of the most visited sites on the Internet and AuctionWeb is called eBay and is valued at over $30 billion. What started small and local has gone global and grown into one of the most thriving sectors of e-commerce. Technology had efficiently connected buyers and sellers, but the evolution of classifieds into online marketplaces was just beginning.
One side becomes two
Now that the technology connected buyers and sellers, it was only a matter of time before a company worked out how they build a scalable, two-sided marketplace, evolving and securing the traditional classified model.
Enter Amazon. In the mid-90s, Jeff Bezos correctly predicted that digital commerce would transform business and so started building a book business to challenge the bricks-and-mortar behemoths, like Barnes & Noble. Books went online - and other products soon followed.
Building on the success of Craigslist and eBay, Amazon partnered with distributors and wholesalers to match buyers with sellers, creating a fully online market. They also created a secondary market where inventory could be bought and sold. This allowed it to carry millions of titles and gave its users access to the long tail of business. By providing market participants with a platform, Amazon positioned itself at the centre of the action, acting as a broker, and providing the infrastructure that made classifieds adverts fully transactional for the first time.
Online marketplaces already looked very different from their offline classified forebears. The evolution was well underway. But for the two-sided model to grow, an element was missing.
Trust building communities
In order for people to have the confidence to transact online, especially when purchasing from individuals rather than from corporations, trust had to be fostered by online communities. In the mid-2000s, social media arrived on the scene to help.
The growth and popularity of social media has changed all of our lives. It’s also changed the way that people bought and sold online. Early marketplaces like Amazon and eBay were popular on Facebook and Twitter, with transactions taking place on platform. Our comfort and trust using these sorts of networks began to grow ever deeper, with shopping, entertainment, banking, even dating now taking place primarily online. Our real world began to be augmented by social media, and more buying followed online.
They also became ubiquitous as social media growth shaped the marketplace landscape. The Internet allowed e-commerce businesses to scale but it was social media that allowed them to thrive. It’s important to note that the advent of social media was both a boon and a burden for online marketplaces. It offered them network effects and marketing channels like never before, but it also provided incumbents with significant challenges.
Inevitably, social media beast Facebook launched a marketplace in 2016. Before launch, 450 million users bought and sold via Facebook a month. It’s platform - Marketplace - is Facebook’s biggest move into e-commerce, and is predicted to be a huge revenue earner. Using its vast social network as a user base, Facebook connects buyers and sellers who socially validate each other’s existence and reputation. This helped foster trust between buyers and sellers.
Uber and Airbnb are examples of two-sided marketplaces who saw the value of a community. All parts of the transaction now occurred online, carried out between parties who could quickly and easily check each other’s veracity.
After social media caused marketplaces to boom, mobile tech, driven by smartphones, arrived to drive the next stage of growth. The iPhone’s 2007 launch transformed clunky devices, primarily used for communication into multi-use, mobile mini-computers. The birth of the App Store allowed developers to build software for Apple hardware. Other tech giants followed.
This was a huge moment in the evolution of two-sided marketplaces. As the market grew, tech improved, user habits evolved and mobile usage increased. Critically, users could now access marketplaces on the move and increased the opportunity for platforms to engage with their users in real time. With traffic numbers to marketplaces spiking, transactions volumes rose, too.
As social media and mobile pushed growth, costs fell for buyers and sellers as fees were cut by competition. Low barriers to entry meant that choice and user experience went up, with a platform available for every product and service. Selling creative work? Choose Etsy. Want a flight? Open Skyscanner. Need a room? Use Airbnb. Need a cab? Hit Uber.
Marketplaces had reached a significant stage in their development. Simple classifieds had been replaced by two-sided, trusted, mobile marketplaces that bridged the gap between online and offline. All parts of the transaction - from browsing to purchase - took place online and this allowed businesses to go truly global, as the likes of Airbnb, Alibaba and Amazon have shown.
Giant, two-sided marketplaces offered platforms where buyers could easily browse and sellers could easily advertise. Communities created by social media reinforced propositions, driving transaction volumes as users grew more confident transacting online. But a final element still needed to be improved. In order for online marketplaces to process billions of dollars worth of purchases and sales each year, security was vital.
Tools like PayPal offered a solution but, even today, users can be defrauded. There are so many ways to pay online - but all of them have problems. In fact, despite the increase in the quality of the technology on offer, fraud is on the rise as criminals and fraudsters grow sophisticated, too. This is impacting the platforms’ reputations and user experience, which is stunting growth.
Platforms have tried to combat fraud by employing fairly blunt methods. For example, Amazon has a policy to simply refund users that dispute the quality of products, as they believe customer experience outweighs the cost of damaging their brand’s reputation. On the flipside, eBay only protects buyers, as there seems to be no solution to efficiently servicing both sides of the trade.
For all the good that the evolution from classifieds to online, two-sided marketplaces, the lack of total security continues to be a concern. Shieldpay offers a solution - and we’re proud to be a part of the ongoing evolution of the sector. You can find out more about our offering here.
As rapid as the rate of change has been over the past two decades, it’s remarkable to think what the future holds for marketplaces.
Now we’ve established how the sector arrived at this point, we must take a look at some of the technologies that will shape the sector’s future and assess the impact they will have.
- Identity verification
As discussed, one of the dangers that has slowed the growth of online marketplaces and classifieds is their susceptibility to fraud. In a two-sided market, the importance of security that guarantees the veracity of people and product is vital. New apps and businesses are doing all they can to apply tech to this part of the process. The likes of Onfido and Trulioo are aiming to secure the transaction process.
- Payment technology and security
The payments sector is more diverse and competitive than ever, as new entrants seek to improve how we transact online. But there is much more to do. Of £98 billion transacted globally each year, 12% ends in fraud, resulting in losses of £11 billion. Tech can help and Shieldpay is proud to lead this movement. By focusing on eliminating fraud, we are promoting trust in classifieds and marketplaces as we help them help their users.
- B2B marketplaces to boom
The rise of B2B marketplaces, such as Alibaba, have added a new sense of scale. Businesses and consumers can now source the best value products from anywhere on earth, taking advantage of excess inventory and completing large transaction volumes. By 2020, B2C e-commerce will be worth $4 trillion - B2B could be worth $6.7 trillion.
So much is written about blockchain - most of it muddled with cryptocurrencies - but the underlying distributed ledger technology, upon which crypto is built, has the capacity to improve the speed and security of marketplaces in many ways, most obviously in speeding up and enforcing the security of payments. Blockchain’s ability to improve the provenance of buyers and sellers makes it an attractive proposition for the sector.
AI will help platforms reduce costs, whilst improving user experience and customer service. Right now, our interaction with it is clumsy. But in the long run, it could be transformative for classifieds and marketplaces, especially in the way that AI can churn huge amounts of data into an efficient and enjoyable browsing experience for buyers.
It’s important to be wary of buzzwords and fads when discussing new technology - but many of these advances are already being used. Payment-tech is speeding up transactions, both here and overseas. IBM blockchain technology is making supply chain management more secure. AI is slowly but surely becoming part of in-app user experiences, like at Airbnb.
Looking further into the future, augmented and virtual reality will upgrade how users interact with content. For example, imagine if users could feel and experience products in context, in their home or workplace? Imagine if you could talk to a sales representative face to face from the comfort of your own home? AR and VR will make these improvements possible.
However, platforms must not simply bolt on innovations that don’t support the core principles of efficiency, trust and security. Blockchain, AI, AR may promise the earth - but until they prove their worth beyond doubt, we should continue to view their adoption with some suspicion.
From the Internet to social media to mobile to the potential of blockchain and beyond, technology has turned classifieds into marketplaces. The principles that governed classifieds haven’t been forgotten by marketplaces. It’s just the way we interact with them has changed.
Whilst efficiency and a sense of community have been engendered and fostered in marketplaces for many years, it’s still concerning that a lack of complete security is damaging growth. Until this is fixed, buyers and sellers won’t transact online with complete confidence.
It is this security and confidence that turns classifieds into two-sided marketplaces. By securely matching buyers and sellers, marketplaces can build new revenue streams with little risk to brand or reputation. By using secure marketplace platforms, users can buy and sell items in full confidence, accessing markets of products and services from all over the world.
Efficiency and community are two crucial steps that are required to build a thriving classifieds and marketplaces sector. But without total security, those elements aren’t worth much. But with security, buyers and sellers can build a firm foundation upon which the classifieds and marketplaces of the future can be built. Security is vital. In fact, it’s the key to future growth.
At Shieldpay, we’re proud to be a part of the ongoing evolution of classifieds and marketplaces.
As we’ve outlined in this paper, even the highest level of user transparency being offered by the world’s largest networks leaves a possibility that online transactions can go wrong. Using our method of payment security - where peace of mind is given to both buyers and sellers – you can significantly reduce your chances of being defrauded when arranging transactions online.
Read more about Shieldpay, or get involved and sign up for a Shieldpay account here!