European households spend $9 trillion a year on housing, food, transportation (together two-thirds of household spending), holidays, healthcare, education and various services. The delivery of these products and services is evolving rapidly through technology-driven innovation and shifts in consumer expectations.
Key industry themes are explored, from the emergence of $100 billion+ global marketplace giants like Booking.com and Uber, to the unbundling of horizontal marketplaces into niche players, full-stack marketplaces, ibuying models and more.
The initial wave of marketplaces from the 2000s such as Leboncoin, Marktplaats, Rightmove tended to be supply-driven (e.g. aggregating an existing supply of second-hand goods to increase transparency), asset-light and with a classifieds listing fee business model. Annual spending on classifieds ads in Europe is a $8 billion market and still growing at about 5% per year, according to IAB.
The second wave of marketplaces enabled the transaction to take place on the platform and also facilitated payments. An example is the transition from yellow pages (listing fees) to Just Eat (commission).
The third wave of marketplaces also added logistical processes to form a full-stackmarketplace. A good example is the evolution from Just Eat (processing orders, but restaurants have to do delivery themselves) to Deliveroo or Glovo (own riders do delivery). Each step involved greater ownership of the transaction, needed to unlock new markets.
This trend continues as the next generation marketplaces are often even taking inventory supply from the seller (so called iBuying).
What is iBuying?
The prime iBuying example is Auto1 Group which buys used cars directly from consumers, using its own balance sheet, and sells the car at a small mark-up, usually to a dealer network. For the consumer this creates some assurances that the price is sold both fast and at a fair price, without having to negotiate. This creates an entirely new experience for consumers. The model is of course complex, and requires scale, capital, years of market experience (some others have failed).
In real estate, this same model is gaining traction: Opendoor (U.S.) buys homes directly from consumers, refurbishes them and puts them on the market. Variations of the model have since emerged. Kodit (Finland) also buys real estate directly from consumers, but uses a pool of investors, and so keeps its own balance sheet light. A big difference between real estate and cars is that almost every home is unique, whereas cars are somewhat standardized (miles, make, model, etc).
Investment and M&A
Investment and M&A activity in marketplaces has been abundant across all verticals but been especially spectacular in mobility and food. The market potential there is huge and customer-life-time values are high. But upfront investment requirements are high too, hence requiring billions in investment.
Housing, cars, and jobs may soon be next, as new models (iBuying) and tech (Artificial Intelligence) are enabling formerly asset-light marketplaces to take greater ownership of transactions even for products that are traditionally difficult to transact online, thus pushing the boundaries as to which markets can be ran as full-stack service.
Corporates betting on fundamental changes in consumer behavior, investing billions in mobility and food, with a focus on new innovative models: frictionless marketplaces, unbundling, full-stack.
Private equity firms meanwhile are more focused on traditional models (online classifieds) in second-hand goods, real estate, cars (less in jobs) as this market still provides solid growth (5% in Europe) and high profit margins (30-60% typically).
Which marketplaces will thrive?
What will the next generation of startups look like? Benchmark’s Bill Gurley wrote a famous article called All Markets Are Not Created Equal which provides a robust framework for evaluation of marketplaces. A key factor is #1: startups creating a totally new user experience. More than just a better interface, this means an overall experience that is “10x better” than of the product it seeks to challenge.
One lesson from recent years is that the overall market size is not a key driver per se. Successful marketplaces have shown that being very efficient in matching supply and demand in a smaller niche can lead to much more value (e.g. Just Eat: online delivery, Airbnb: apartment rentals). In addition, it’s become industry best-practice to start with an even smaller initial market in order to break into a larger eventual markets.
Our report concludes with a review of hundreds of selected companies to watch by industry segment, from category leaders to new entrants and rising stars. Download the report now for free, courtesy of sponsors & supporters Schibsted, Point Nine and Speedinvest!