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We're sharing a guest blog post from David Lifson that covers the topic of commodity vs. non-commodity marketplaces, examples, how you can determine which applies to your marketplaces, implications it has, and more. This was previously shared as a post in the community here.
Hey everyone, in the next few weeks I’ll be sharing a few posts on marketplace topics that I’ve been thinking about lately and discussing with others.
In this first post, I’ll start by introducing the concept of commodity vs. non-commodity marketplaces from more of a high level, how you can identify which applies to your marketplace, implications it can have for informing things like the UX and revenue model, and a few brief tips. In future posts, we can do a deep dive into each of these more specifically.
To start with, I define a marketplace (or, a category within a marketplace) as commodity when the demand-side customers are hiring the marketplace to solve a Job To Be Done but don’t really care who the supplier is, as long as the supplier satisfies the JTBD. Uber is an example of this: I don’t care who the driver is, as long as they are on time and get me to where I need to go efficiently and safely.
Other examples: trade labor like plumbing, electricians; transportation like rental cars, flights; e-commerce with 3rd party sellers.
Non-commodity is the opposite: demand-side customers care a lot about the various attributes that differentiate individual suppliers. Airbnb is an example of this: even after filtering for availability, # of bedrooms, and various amenities, customers will still inspect the profile of each result, sifting through photos and customer reviews to find the one right for them.
Other examples: interior design; most types of wedding vendors; child care practitioners.
Of course, it’s a spectrum, with lots of examples that are in-between. For example, when choosing a doctor on Zocdoc, there are some ratings and customer review information, but most people choose a doctor based on location proximity, insurance plan acceptance, and appointment availability (above and beyond a minimum star rating threshold). However, when choosing a mental health therapist, people spend more time investigating the individual profiles of therapists, looking into their practice philosophies and areas of expertise.
From a UX perspective, the problems that the design needs to solve are different. In commodity marketplaces, the design goal is primarily creating the most efficient way to complete the transaction with any supplier that meets minimum criteria. The UX should abstract away from the customer the work of sifting through the consideration set of potential suppliers, like how Uber doesn’t show you a list of available drivers for you to review and choose from.
For non-commodity marketplaces, discovery IS the value. Customers desire the ability to sift through the consideration set, learning about the ways one is differentiated from another, and making an intentional choice.
There are also revenue model implications. Commodity marketplaces lean towards transactional marketplaces, whereas non-commodity marketplaces tend to be lead generation (either charging per lead or subscription based). This is due to the differences in how confident customers are (or are not) in making a purchase decision prior to any interaction with the chosen supplier, and whether or not the final price / cost is predetermined or variable.
The rule of thumb that I use is: if the risk of choosing the wrong supplier is low, because most suppliers are "good enough", it’s a commodity. If the price is also knowable upfront, then it should also be transactional.
On the other hand, if the risk of choosing the wrong supplier is high, because there is variance or uncertainty about match quality, then it’s non-commodity. And if the price is not knowable upfront, then the model should either be cost per lead or subscription. (The pros and cons of cost per lead vs. subscription deserves to be a whole other post.)
To summarize:
Please let me know if this was helpful! And if anyone has feedback, I’d love to incorporate it. In future posts, we can deep dive into more specific examples and analyses of how commodity and non-commodity marketplaces differ.
You can connect with David to discuss this post in the Everything Marketplaces community here. A big thanks to David for also being active in the community, where he is often sharing his marketplace experience, insights, and helping early stage founders.
