Evolving marketplaces

In today’s day and age, the consumer has a lot of choices to buy a product or a service to meet his/her need. If we look, consumer choices evolved with time. The increase in consumer choices represents the importance of the consumer.

Now, we will ask the question – Why should the consumer have so many choices?

During the industrial revolution, the consumer didn’t have so many choices. So if he wants to buy a product he has to pay cash upfront. There is no affordable pricing or a credit card like we have now. In a later period, if a consumer wanted to buy a car, there was a waiting period associated with the sale.

Previous century businesses based on selling products that were commodities. As many companies were selling the same or similar product, consumers started to ask – “Why should I buy from you – the company?”. This is the answer to the first question. 

Companies answered this question in a lot of ways. To name a few, 

1. They’ve announced discounts, 

2. They made superior products, 

3. Offered superior services etc. 

They differentiated themselves from the competition in the marketplace. 

Modern internet in the 1990s gave rise to a new business model – Offer services in form of downloads. The feature of download is unique to products or services offered via the internet. We cannot have our clothing or food downloaded. But the download of software offered a unique proposition for the buyers & sellers.

The unique feature of download means 

1. The cost of production is non-zero. 
2. But the cost of distributing is zero. 

This is the deviation from the conventional businesses whose distributing costs are non-zero. Although the business models of the physical world apply to the software world. It is not the other way around.

This unique feature changed the way we view the marketplace. Before, the marketplace has physical boundaries. Now the digital marketplace doesn’t have boundaries. Digital marketplaces have erased the physical boundaries. Examples include e-commerce companies, mobile applications stores. With this, the business model of the companies also changed.

Before, we rarely had any service for free. We have to pay for our news service, education, music, food etc. But we never pay for social media sites. They are free. But also more profitable than media companies, music labels & fast food companies. Now, this is where the new business model comes into play.

In pre-internet days, business models delivered value 

1. By selling a product or a service.
2. By differentiating themselves from the competition. 

In post-internet days, internet companies created value from what a platform. The platform offers functionality that is useful for a user/customer. 

Example of functionality – 

1. Search the internet for information, 
2. chat with your friends, 
3. buy common stock online etc. 

The New Business Process Steps

1. Users use their service, their service becomes popular. 
2. As the services become popular more people join the service and use them. 
3. As more people use the service, the service provider collects the data. The data can be in the form of various metrics like number of webpage visits, number of app downloads etc. 
4. It analyses the data, creates insights from the data. 
5. Now after creating the insights, it goes to the companies selling products/ services. It offers them the data for a price to let them talk about their product to the user via an ad.

Can the companies selling products/services offer the same to these platforms? No.

To sum up, we evolved from selling in a marketplace to creating a marketplace. This is making all the difference! BTW are we better off with these online marketplaces?