Marketplaces: Disintermediation, disruption, and destruction
By Justin Hall March 27, 2015
- Marketplaces are potent in SEA because it’s still really hard to do business here
- Some of largest financial exits in the region will be in online marketplaces
I’M going to put my investor hat on for a moment.
Tom Goodwin, senior vice president of strategy and innovation at Havas Media, has been making the rounds lately, thanks to a particularly enlightening quote: “Uber, the world’s largest taxi company, owns no vehicles ... Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate.”
Successful marketplaces are prime examples of disintermediation, or simply put, the reduction in the number of intermediaries between producers and consumers.
These marketplaces displace those intermediaries – those taxi companies, those brick-and-mortar stores, those hotels – simply by disseminating information.
Intermediaries win when they control or have access to more information than your typical consumer; consumers are essentially paying only for what the intermediaries are providing them, not knowing that there might be better alternatives elsewhere.
Hence, prior to marketplaces, information was asymmetric: Consumers didn’t know where to get cabs, didn’t know where to buy the cheapest goods, didn’t know where to find the most affordable room.
After marketplaces, consumers could easily find the closest available cab, compare and purchase from the cheapest supplier, and select the best rooms. Information becomes more symmetrical, to the detriment of the intermediaries.
There is tremendous value in disintermediation, especially for the consumer. Another fancy buzzword is ‘disruption,’ or as the intermediaries might call it: “This company is totally destroying our entire business model and we’ll be dead by the end of the year.”
In South-East Asia, marketplaces are king. Some of the most successful companies creating value, scaling across the region, and securing the largest rounds, are marketplaces.
Look at Malaysia’s GrabTaxi, Indonesia’s Tokopedia, the Philippines’ ZipMatch, and Singapore’s Carousell. These are all prime examples.
But marketplaces are particularly potent in South-East Asia not simply because they are solving that problem of information asymmetry; they’re potent because it’s still really hard to do business in South-East Asia.
Go back up and read that Goodwin quote again. See the words, “don’t own”?
Marketplaces not only provide that primary value of information symmetry, they leapfrog the endemic inefficiencies on the ground by simply not having to deal with them. Information asymmetry is one thing; being completely unable to sell your wares or collect payment is entirely another.
This is precisely why marketplaces win in South-East Asia. Because you don’t need to struggle to implement effective payment gateways on your website to grow; you don’t need to suffer through hour-long traffic jams to get your products to your customers’ door; you don’t need to build and manage large, expensive warehouses.
Technically speaking, they’re relatively painless to create: You’re not reinventing the wheel, so to speak, but simply giving buyers and sellers a platform in which to communicate with one another.
And so while they’re indefensible from an intellectual property perspective, they benefit from a resilient network effect. Suppliers will follow buyers, and vice-versa.
That’s what makes marketplaces so effective: Even at their simplest, they tie buyers and sellers together. Even at their most primitive, they still allow companies to provide tremendous value with relatively less hassle.
And at their most developed, marketplaces can even disrupt more traditional e-commerce models and create incredible value for consumers.
If and when a marketplace become sufficiently liquid, i.e. enough buyers and sellers now exist to allow for relatively quick transactions, they can devote resources to iteratively improving the tools available to the market.
In South-East Asia, that means providing a quick and easy way to transact on the platform itself: Through credit and debit cards, mobile phone credit, even cryptocurrencies.
Once that’s done, the sky is the limit – namely because this is the first and best way for marketplaces to now become self-sustaining and profitable.
And when this does happen, marketplaces go from being an alternative to traditional e-commerce to a very real, very significant competitor.
And in a region where online consumption is still relatively nascent but the structural, economic, and geographic inefficiencies still so entrenched, this distinction between marketplaces and more traditional models becomes tremendously significant.
Some of the largest financial exits in South-East Asia will be in marketplaces. So long as the target market is large enough – buyers and sellers, renters and landlords, tutors and students – then there is a very real possibility of creating a massive, sustainable marketplace.
The most successful marketplaces in the world (Read: the ones that will become the most profitable) are those that introduce disintermediation into industries with the greatest number of entrenched intermediates: Travel, real estate, e-commerce, to name a few.
But in South-East Asia’s case, you can add to the list the industries that suffer from the most severe inefficiencies exclusive to the region: Think transportation and logistics, and you perhaps get a finer appreciate for why GrabTaxi, Gogovan and other companies like them are really beginning to grow.
This unique bottom-up approach will be validated soon and it’ll be validated in the form of massive acquisitions, exits, and funding rounds in the next two to three years.
Justin Hall is a principal at Golden Gate Ventures, an early-stage fund based in Singapore. A former Rakuten Network manager and scholar at NUS, he sources investable early-stage technology companies from South-East Asia. You can reach him via Twitter at @JVinnyHall.
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