Online Marketplaces: Entering the Next Phase

About a year and a half ago we teamed up with Adevinta, Point Nine Capital and Dealroom to publish a report about the future of online marketplaces. We had planned an update for early 2020, but then COVID-19 hit and the world changed dramatically.

Now, approximately 3 months into the pandemic, we have a better view on what this means for the broader tech startup ecosystem in general and, in particular, the global marketplace landscape. In this article, I would like to summarize and share my interpretations of the key takeaways from our 2020 Online Marketplaces report.

Before doing so, I would like to highlight that COVID-19 is, first and foremost, a tragic humanitarian health crisis that has led and, unfortunately, still is leading to an immense amount of global suffering and pain. There is no way to sugarcoat that fact, nor should it be. So this will not be forgotten when discussing the societal and economical shifts resulting from this crisis.

At the same time, it would be irresponsible of us as a society and disrespectful to the victims if we did not make every effort to learn from the crisis, thereby enabling us to come out of this stronger, more resilient and therefore more prepared to meet such challenges in the future. This is the perspective we took when updating the report which was first presented at the San Francisco edition of The Marketplace Conference on May 28th by Ovidiu Solomonov from Adevinta.

Due to COVID-19, the conference was fully virtual and by donating all profits from the conference to charities, including the San Francisco Marin Food Bank and the COVID-19

Solidarity Response Fund for WHO, we hope we are able to contribute to a faster recovery in some small way.

The “sneak peek” of the report along with all virtual sessions will be uploaded to the conference YouTube channel shortly.

In the meantime, here are the four key takeaways from the report and my analysis of them.

COVID-19 is driving digital adoption and accelerates already existing, underlying trends.

While the pandemic, in a purely economic sense, has created some short-term “winners” — in sectors such as e-commerce (goods & logistics) and food delivery- and “losers” — in sectors such as Real Estate (Proptech) or Lending (FinTech) — we believe that the underlying structural trends driving the future of marketplaces are accelerating. We observe a massive boost in e-commerce sales and switch from brick and mortar to online sales, i.e. a “second wave” of e-commerce adoption happening in weeks rather than years.

While this drastic, short term “hockey stick” growth will certainly not be sustainable, e-commerce penetration will level off at a higher level post-COVID-19 than where it took off in a pre-COVID-19 world. Some of our portfolio companies such as Byrd or Packhelp, who are building the “picks and shovels” of e-commerce, are beneficiaries of this development.

The pandemic highlights the importance that marketplaces play in our daily lives.

As discussed in detail at our last Marketplace Conference a few days ago, platform businesses such as Doordash, Handy, Amazon or GrubHub have seen a surge in business activity throughout these turbulent times. These are established marketplace businesses that already had a strong foundation pre-COVID-19. The proliferation of services like these in combination with contactless payment methods has made it easier for people to cope with regional lockdowns and follow shelter-in-place-orders. At the same time, social media platforms like Snap or Houseparty helped people to stay connected but still safely, physically distant.

The most promising verticals continue to be “evergreens” such as Mobility, Housing and Work.

Over the past few years, the most “obvious” categories which have a high share of wallet on a per capita or per household basis have been disrupted by vertical marketplaces. These categories are Mobility (Cars), Housing (Real Estate) and Work (Jobs). We believe that this trend will continue to evolve in a post-COVID-19 world. However, several trends accelerated by the pandemic will reshape these categories in different ways:

• Mobility: During uncertain economic times, consumers refrain from larger expenditures, and this plays into the existing trend of the sharing economy. At the same time, consumers and cities alike, try to provide for greener and, now also healthier, transportation methods. In times of COVID-19, there is an increasing trend towards individual transportation. In our view, micro-mobility companies like TIER Mobility, while negatively affected in the extreme short-term, will be long-term beneficiaries of this development.
• Housing: In a pre-COVID-19 reality, instant buying platforms (a.k.a. “i-Buyers”) such as Kodit.io (in Europe) or Opendoor (in the US) have been on the rise. As debt funding is becoming more challenging and with the real estate market at a crossroads, many i-Buyers have temporarily halted their (buying) activities. However, we believe that they offer the best customer experience in a post-COVID-19 world: Consumers faced with economic difficulties will appreciate fast and uncomplicated liquidity. There will be an increased demand for affordable, individual housing — ultimately not only, but also for health reasons.
• Work: The pandemic has forced companies and employees worldwide to adjust their work habits and routines in no time. While remote work had been on the rise pre-COVID-19, this trend has undoubtedly accelerated and will continue to evolve. However, many blue-collar workers, who cannot switch to a remote work setup, have been furloughed or permanently laid off. We believe that, going forward, the job market needs to be rebalanced and recalibrated — from sectors that face a long-term negative impact from the crisis to sectors which are long-term beneficiaries and hence have greater staying power in tomorrow’s job market. This may result in an increased push towards “upskilling” (e.g. Lambda School) as well as helping affected employees to find new jobs in other, more promising sectors and companies. We, therefore, project that LinkedIn will be verticalized and unbundled just like any other horizontal marketplace.

New, “up and coming” verticals that hold a lot of potential for marketplace approaches are Education and Healthcare.

While online marketplaces already have a combined value of $814 billion globally, the real opportunity is ahead: Looking at current overall household spending categories and their online penetration, health and education are still mostly untapped. In our view, there is still a lot of potential to disrupt these sectors through a platform or marketplace approach.

When it comes to education, following COVID-19, the lines are now blurred between physical and digital classrooms. “Work” (see above) and “Education” are strongly connected — especially as education will have to play a big role in helping to recalibrate the job market as described above (e.g. with regards to “upskilling”).

Consumer healthcare, albeit heavily regulated, is increasingly embracing telemedicine, AI, connectivity and predictive diagnostics. Both categories, education and health, are benefiting from strong public tailwinds brought on by the COVID-19 crisis.

In-Depth: Explore the full report here

Read more in Sifted, Information Age

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