Document Note: AI technology is a significant shift in the marketplace world, creating a rare opportunity for startups to innovate and incumbents to remain relevant. Marketplaces are evolving towards a better user experience, and AI has the potential to improve the experience for demand, reduce the cost of accessing and curating supply, and increase the efficiency of the entire operation of a marketplace. AI automation allows expanding the pool of supply in ways that previous technologies couldn’t, while AI copilots can increase productivity in certain service marketplaces. Three major opportunities for the next generation of AI-First marketplaces are identified: native, AI-First marketplace, AI leapfrogging, and unlocking supply with meaningfully better experiences for demand.
For example, smartphones with GPS gave us Uber and Lyft. This breakthrough technology turned everyday drivers into potential taxis – unlocking a whole new form of transportation supply and gave demand the opportunity to book rides in real time. (View Highlight)
The rise of search and SEO allowed a range of marketplaces like Trulia/Zillow to carve out market share in real estate, or startups like Indeed to spin up liquidity at very low cost in the job search market where powerful incumbents with strong network effects dominated. (View Highlight)
The rise of the fintech enabled marketplace was another example. Embedded fintech made the transaction a seamless part of the marketplace experience – and today we expect to complete all or most of the transactional process on platform. That has allowed marketplaces themselves to capture increased share of the transaction (i.e. through take rates, etc) and new marketplaces to be formed. (View Highlight)
While autopilots are the most likely endpoint, in the case of the marketplace, the co-pilot is actually a powerful intermediate step. AI copilots can dramatically increase the productivity of certain service marketplaces, and through that mechanism, increase potential supply even before full autopilots emerge. Copilots also solve for the inherent trust issues that rise with new technologies focused on important problems. (View Highlight)
That said, it’s not clear there will be a large profit pool in massively increasing supply. Whenever you are dealing with AI advancement, it’s important to understand how available training data is to all parties and how proprietary your model and entire experience is. Whenever it is easily accessible, it will be easy for your service to be copied. This opens up the possibility of a race to the bottom. (View Highlight)
The overarching principle for you, as a marketplace, is to provide a service that offers a high frequency and highly retentive experience that makes it easy to monetize downstream transactions. (View Highlight)
The modern marketplace starts with a search box. You look for an item, (or find something you didn’t know you wanted). You find it using keywords or matching algorithms. You buy it.
But if you zoom out, the classic “buying cycle” contains far more steps than that:
Awareness: customer realizes they have a problem (this is the stage where most marketing efforts are targeted)
Consideration: Customer seeks detailed information to solve that problem
Intent: Customers makes a decision based on that information as well as other financial, or emotional cues
The keyword-based search box is going to be complemented by intelligent, personalized guide mechanisms.
Over time, we expect this to mature into a “push” rather than “pull” based consumer experience in the marketplace. (View Highlight)
(A side point: That uncanny feeling is important to note. The most successful push-based marketplaces will be subtle. While an algorithm might have the perfect match, customers don’t want an “arranged marriage.” Rather, they’ll want to be able to see everything that’s available. Improved, hyper-relevant matching will make the search process easier, and less frustrating.) (View Highlight)
On the demand side, AI leads to improved personalization, marketing automation, enhanced SEO or automated SDRs and customer services. Even small savings here will allow marketplaces to operate faster, enable reinvestment in the product or improve profitability. (View Highlight)
Existing digital marketplaces with large amounts of data, distribution, capital and talent will be major beneficiaries of AI. This is important to note, because incumbent digital marketplaces are far more aware of the threat posed by potential platform shifts than they used to be. (View Highlight)
• Modern technology stacks for tech companies are built in a modular fashion, allowing the fast adaptation of new technologies via microservices and APIs. Companies behind foundational AI models know this and will continue to make their products easy to integrate.
• The last big platform shift for marketplaces was the rise of mobile. But mass adoption was dependent on consumers buying a new piece of hardware. Adoption of AI is entirely software driven which massively increases the near term addressable market.
• Many tech investors and executives realize that they didn’t move fast enough to jump on the mobile paradigm. They won’t make the same mistake again. (View Highlight)
Level 1: AI Enhanced
If you are not using some form of AI to become more efficient, you’re leaving resources on the table. AI-driven scheduling, marketing, coding support, product management…there are many systems that can be automated today that couldn’t have been yesterday.
This is the bare minimum. We will expect all companies, marketplaces or not, to use AI to enhance their own business activities in some way. (View Highlight)
These companies should focus on using AI as a locking mechanism to secure that PMF. A company executing this well right now is NFX-backed Triple Whale. Triple Whale, a full-service AI data and analytics platform for small businesses, has leveraged generative AI to create platform-native creative ad generators. (View Highlight)
These companies feature AI as the central selling point. This can be a powerful, but fragile place to be. You must ensure that you are using the AI to offer a complete, one-click solution to a real problem that you uniquely can solve. (View Highlight)
Ten years from now, marketplaces will look very different from the way they do today. Now is a rare opportunity to build at the very beginning. (View Highlight)
