Apr 12, 2024

What is a managed marketplace?

Most mainstream marketplaces are managed marketplaces. But what are managed marketplaces, and how are they different from a standard marketplace model? Let's break it down.

Definition of a managed marketplace

A managed marketplace is an online platform that connects buyers and sellers while handling some of the operations and ensuring customer satisfaction on one (or both) sides.

Consider a managed marketplace like the upgraded version of an online classifieds site like Craigslist. It's not just about connecting buyers and sellers anymore; it's about providing a whole package of services to ensure everyone's happy.

In a managed marketplace, you can expect things like quality checks, support throughout the buying or selling process, and even help with operations. This extra care adds value by building trust, ensuring things happen on time, giving peace of mind, and making sure prices are fair.

Because of these added perks, versions of the managed marketplace model have become common, and most of today's most successful marketplaces, from Airbnb to Uber, are, to an extent, managed. Furthermore, embracing a higher degree of manual management can be especially great for new marketplaces trying to get off the ground.

Now, not all managed marketplaces are the same. Some are more hands-on than others. So, depending on the extent to which the marketplace is managed, there are three specific types of marketplaces:

  1. Unmanaged marketplaces, where it's pretty much just connecting people on an online platform

  2. Lightly managed ones with a bit more support

  3. Fully managed (or full-stacked) ones that really take care of everything

Let's look at each type in a bit more detail.

What is an unmanaged marketplace?

Let's start with the simplest form of marketplace, which is an unmanaged marketplace. 

Unmanaged marketplaces are as straightforward as it gets. There are minimal to no quality checks, often no online payments, and the platform simply serves as a connection point between buyers and sellers. Craigslist and other classified sites, and Facebook Marketplace to an extent, are examples of unmanaged marketplaces.

The unmanaged marketplace model typically works in peer-to-peer rentals or product selling format. These platforms act as a meeting point for buyers and sellers, aiming to facilitate the discovery process between the two parties.

Thus, an unmanaged marketplace often positions itself as a product or service 'discovery' service. Their unique selling point (USP) is often their 'search' functionality, making it easier for users to find what they're looking for among the listings.

To build trust, an unmanaged marketplace typically includes features such as one- or double-sided ratings and reviews. They may also display certain attributes like email or phone verification status, the user's age on the platform, and the number of hours or projects completed.

However, the unmanaged nature of Craigslist has also made it vulnerable to competition winning market share by offering a smoother and more trustworthy user experience.

As the marketplace model has matured, most marketplaces across markets have adopted a more managed approach.

What is a lightly managed marketplace?

A lightly managed marketplace is an upgrade from an unmanaged marketplace. Such a marketplace goes beyond merely connecting buyers and sellers by offering additional features that facilitate the transaction process.

Most mainstream marketplaces fall into the lightly managed category. This intentional approach aims to ensure quality and reliability on both sides, ultimately making the platform more trustworthy.

One of the primary challenges faced by marketplaces is the fear factor. Users, especially on new platforms, fear not receiving what they paid for, receiving faulty products, or getting subpar service. Sellers, on the other hand, fear fake requests or bookings. The fear factor is particularly pronounced on marketplaces that deal with trust-intensive services: if you're renting out your car, hiring a babysitter, or booking home services, you'll need certainty that  you can trust the other party. 

Establishing trust from the outset is crucial in overcoming these fears. Two-sided reviews have been a standard marketplace feature since the early, unmanaged days. Lightly managed marketplaces typically have a whole slew of additional trust-building mechanisms.

One effective way of building trust is through lightly managing the transaction. First of all, this involves offering smooth, secure, and compliant marketplace payments. On top of that, you could consider conducting quality checks and verifying details, either manually or through software checks, before processing orders. This extra layer of execution from the marketplace instills trust and reliability in users.

Additionally, offering insurance, money-back guarantees, and buyer protection further enhances trust in the marketplace.

While most of today's most successful marketplaces are lightly managed, Grubhub and Airbnb are excellent examples. In addition to online payments and reviews, they both have stringent vetting processes and quality checks in place. Yet, most of these services are automated, requiring little to no involvement from humans. This is a core differentiating factor between lightly and fully managed marketplaces.

What is a fully managed marketplace?

A fully managed or full-stacked marketplace takes the concept of an online marketplace to the next level by handling a large part of the e-commerce experience for both buyers and sellers. These marketplaces go beyond simply providing a platform for listing and selling products and facilitating their transactions; they become heavily involved in the transaction, almost acting as a partner to both sides.

For example, a fully managed marketplace might become heavily involved in the matching experience, manually vetting sellers, facilitating communication, making verifications, and sourcing the required documentation. 

Fully managed marketplaces are common in B2B transactions where stakes are high, and purchase processes are very complex. However, there are examples in the B2C space as well. TheRealReal, for instance, employs a team of expert authenticators who take care of the entire selling process on behalf of the seller. The seller simply drops their luxury item at a drop-off point -- TheRealReal staff examines each item and lists it for sale. In addition to making selling very easy, this adds a layer of quality control and trustworthiness not typically found in traditional second-hand fashion marketplaces.

Another second-hand marketplace, thredUP, works very similarly -- the seller is sent a bag to fill with their used clothes, which is then sent to thredUP, after which the entire reselling process is handled on their behalf.

Because fully managed marketplaces are deeply involved in transactions, they tend to incur higher expenses. To support these value-added services, they often charge a higher take rate. For example, the lowest commission on TheRealReal is 30% and the highest is 80% , and thredUP takes up to 97% of the sale price. On both platforms, the biggest sellers have the lowest commission.

So, there are markets where the managed marketplace model works well. In addition, a more managed approach is beneficial for early-stage marketplaces, as it can help solve liquidity problems and create a superior experience for early adopters. By focusing on curation and quality, full-stacked marketplaces can overcome the chicken-and-egg problem before eventually scaling to a more lightly managed model.

Characteristics of a managed marketplace

So what makes a managed marketplace a managed marketplace and differentiates it from traditional platforms? There are certain characteristics many managed marketplaces share. These are:

  1. Curation and quality control. Managed marketplaces emphasize curation over discovery. They often have multi-level quality checks in place before allowing listings from buyers, sellers, or both. These checks serve as a barrier to entry, filtering out low-quality or illegitimate listings, thereby making the platform more valuable for users.

  2. Policing and standardization. Managed marketplaces typically have stringent policies and focus on standardizing user behavior. They establish clear rules and guidelines for both parties to adhere to before, during, and after transactions. Additionally, these marketplaces enforce policies regarding post-transaction activities, like conflict resolution and support, ensuring a standardized and reliable user experience.

  3. Selective seller participation. Due to the stringent policies and standards of managed marketplaces, not all sellers are allowed to engage with the platform. Only those who meet the criteria are accepted. As a result, there may be wait times and a notable rejection rate for sellers seeking to join the platform.

  4. End-to-end transaction management. Managed marketplaces play a central role in the transaction process. They either conduct or facilitate booking, payments, and delivery. In some cases, these marketplaces handle the entire fulfillment process: for example, listing creation, packaging, shipping, and managing returns.

  5. Added value services. Managed marketplaces always add more value in the form of services like sourcing, installation, repairs, and after-sales support.

  6. Higher take rate and commission structures. Because managed marketplaces add more value, they are able to charge higher and have a higher take rate. This is essential for their existence since the cost of service often adds up consequently. Most marketplaces have commission-based payment structures in place where they take a percentage of the revenue generated by transactions on their platform.

  7. Community building and brand loyalty. In many managed marketplaces, the focus is on bringing together a community of like-minded users who share certain values. Because they have these shared interests, they're more likely to engage in transactions that are typical for the platform. This sense of common ground and understanding leads to brand loyalty, as users feel a connection to the marketplace and keep coming back for more.

A marketplace may possess some or all of these characteristics depending on its market and user needs.

Examples of managed marketplaces

Managed marketplaces are growing in popularity because consumers of today demand a better, safer experience. A managed approach can be a powerful way to win over users from a less-managed competitor.

So, let's look at 6 mainstream marketplaces in the lightly managed and fully managed categories.

Airbnb: lightly managed marketplace

Airbnb's success story is a testament to how they tackled the trust challenge head-on from the beginning. When they first launched, both hosts and guests were hesitant about the idea of staying in someone else's home or letting strangers into their own. To build trust, founders Brian Chesky and Joe Gebbia rented out their own spare rooms to three guests, laying the foundation for what would become a global phenomenon.

And they deliberately positioned themselves as a better alternative compared to the unmanaged Craigslist.

Today, Airbnb boasts over 7.7 million active listings worldwide, with hundreds of thousands of bookings each month. To manage this vast network and ensure safety and quality, Airbnb operates as a lightly managed marketplace.

They verify listings, double-check addresses, and conduct background checks on hosts before allowing listings. For guests, the process is simpler and has fewer formalities. In addition to the core host-guest booking service, Airbnb offers services such as insurance and exclusive software partnerships.

This lighter management approach gives Airbnb the flexibility to onboard enough hosts without overly stringent requirements that might discourage participation. They also leave most of the work of fulfilling a service to their suppliers. Hosts are responsible for managing their listings, including availability, pricing, and guest communication.

While Airbnb provides a framework for communication and dispute resolution between hosts and guests, it does not directly handle all customer service interactions like some fully managed platforms. In most cases, hosts are expected to handle guest inquiries and resolve issues directly.

This light management approach allows Airbnb to offer a vast selection of unique spaces, catering to diverse traveler needs and budgets. This diversity wouldn't be possible if Airbnb strictly curated properties like a fully managed marketplace.

Hired: lightly managed marketplace

Hired is a marketplace for job seekers to find the right jobs. However, unlike an unmanaged job search marketplace, it has a thorough vetting process in place for candidates, making it a lightly managed marketplace.

Hired markets itself as a platform to "Instantly Access Top Tech Talent" and is used by companies like Dropbox, Walmart, Zoom, and Citi for recruiting purposes. Since top companies seek the best tech talent, Hired needs to ensure it has the best candidates, which is where the vetting process comes in.

Every candidate that applies at Hired needs to create a profile, which is held back and approved only after a verification and vetting process. This involves assessment through machine learning algorithms and manual checks.

Similar to Airbnb's approach, the vetting process isn't as rigorous as some fully managed platforms. Freelancers might need to complete tests, build profiles, or go through portfolio reviews, but it may not be as in-depth as a fully managed platform that curates talent based on specific needs or verifies and matches talent with jobs manually.

The lighter screening process enables freelancers to join the platform and start working quicker compared to marketplaces with more in-depth vetting procedures while still maintaining a high level of curation and quality.

Initially, the team had to educate both sides, talent and companies, to gain traction. In our interview, Sophie Adelman, who led the global expansion of Hired, shared how her role in the early days was "boots on the ground," hustling to get companies using the platform.

Drive lah: lightly managed marketplace

Drive lah, a Singapore-based ride-sharing company, operates on a peer-to-peer car rental model. The platform connects car owners with individuals looking to rent a car for a specific period, facilitating car rentals between private individuals rather than professional chauffeurs.

In Singapore, where the cost of car ownership is high, Drive lah's model addresses the need for car owners to reduce costs. However, the challenge for Drive lah was to build trust among car owners who were hesitant to give their cars to strangers.

As a lightly managed platform, Drive lah handles some aspects of the verification process. Users are required to complete their profiles and provide NRIC/FIN and driving license information. However, the final decision to rent their cars to a specific user rests with the car owner. This approach has proven to work extremely well. Drive lah is a Sharetribe customer, and in our recent chat with them, they revealed that 95% of users find a car to rent through the platform.

Drive lah has also succeeded in balancing verification and trust-building features with ease and convenience. With Drive lah Go, renters can hand over their cars to a pool of verified users remotely. Users can unlock the cars with their smartphone, making the transaction even more intimate.

Such a level of trust would have been impossible had Drive lah been an unmanaged marketplace.

thredUP: fully managed marketplace

Thrift shops are incredibly popular in the US and around the world. thredUP competes in the crowded space with a managed model that offers a higher level of convenience and quality.

thredUP offers a fully managed service that handles pick-up, quality checking of the clothes, listing creation, delivery, and payments. It is involved end-to-end in the transaction process for the seller, like a partner. Sellers can send a bag of clothes to thredUP through the clean-out program, and the company sorts through them, checks the quality, photographs sellable items, and creates listings. This resembles a more managed service.

Then, once an order is placed, the items are shipped to the buyer. This creates a higher level of trust among buyers than they would feel while buying on eBay or Craigslist.

But there's a self-service offering, too, for the seller. It's more like a peer-to-peer service, where buyers and sellers are responsible for the quality and pricing. This ensures there are enough listings available for the buyers to choose from.

This managed marketplace approach convinced investors and let thredUp raise $168 million at a $1.3 billion valuation when it went public in 2021.

Havenly: fully managed marketplace

Havenly is a marketplace that connects interior designers with homeowners looking to build or renovate their homes. Users can consult with an online designer one-on-one and get the best designs for their spaces.

Once a design is complete, Havenly handles the rest, ranging from sourcing furniture to shipping to installation and even after-sales service. Thus, it is involved in the end-to-end transaction, from the discovery of an interior designer to installation. This makes Havenly a fully managed marketplace.

Users essentially outsource their work to Havenly and are more at peace knowing that a team of experts handles everything.

This end-to-end management makes Havenly super valuable to users looking for certainty and security. Havenly also has price guarantees in place that ensure that customers never overpay.

Mayple: fully managed marketplace

Mayple is a hiring platform exclusively for marketing folks. It's a marketplace that helps businesses find the right marketing talent.

What sets Mayple apart is its use of data and algorithms to match businesses with the best marketers. They even keep an eye on project performance to make sure things go smoothly. This hands-on approach is more involved than on most hiring platforms.

For every company hiring through Mayple, Mayple offers a "Mayple Growth Strategist". This service involves a person diving deep into your marketing needs, overseeing the whole process, and offering unbiased advice.

The value proposition works for companies who would otherwise need to comb through thousands of candidate profiles or read hundreds of applications to find the right talent. The vetting process is a barrier to entry for freelancers, but in return, they get access to top hiring companies and a seal of approval from passing Mayple's vetting criteria.

How the managed marketplace approach can boost your growth in the early days

Marketplaces are challenging to build and scale. A marketplace founder needs to solve a real problem for both sellers and buyers better than any other existing solution. It takes work to find the right sellers and buyers, convince them to join, and help them transact.

At the same time, many niches already have an incumbent marketplace that has gained the lion's share of the market. They've developed complex and feature-rich platforms and built a solid user base thanks to network effects. Competing against them in scale or price takes very deep pockets. Adopting a more managed philosophy can help you tackle both these challenges by helping you solve the chicken-and-egg problem, reach liquidity faster, and deliver value from day one without spending a fortune on platform development. 

Solve the chicken and egg problem

Users don't want to use a platform that lacks offers and variety, and sellers don't want to use a platform that doesn't have enough buyers. That's the classic chicken-and-egg problem.

Queenly, a marketplace for buying and selling used formal dresses, faced a similar challenge. Co-founder Tisha Bantigue decided to tackle the supply side first. She targeted amateur beauty pageants whose participants often wanted to sell their outfits after use. She contacted them manually, asked them to list, and made sure to contact both the seller and buyer after the purchase to ensure both were happy with the experience. By getting the supply side set up and being involved in the first transactions to ensure a great experience, Queenly smartly solved the classic problem.

Something somewhat similar happened with Curtsy's founders. They began their journey by targeting sororities and took a very hands-on approach to onboarding their initial sellers. They literally took a rack of dresses from sellers and went directly to sorority houses, allowing customers to rent dresses straight off the rack.

Hence, managing your marketplace in the early stages allows you to identify which side needs more attention, onboarding help, or quality checks. This approach makes the other side of the platform more receptive to engaging with the marketplace compared to if it were open-ended without any quality controls.

Reach liquidity faster

Marketplace liquidity means the likelihood that a supplier will sell what they list and that a customer will find what they're looking for. Liquidity is the lifeblood of a marketplace. In the early days, focusing on achieving liquidity with a small, engaged user base is often more effective than simply aiming to sign up a large number of users who may not actively engage in transactions.

A managed marketplace approach can be very helpful in reaching those crucial first transactions.

For example, the landscaping marketplace, Greenpal, did everything it could to match its early buyers and landscapers. As Brian Clayton of GreenPal told us in our interview, "Basically we would hand crank everything. The introduction of the quoting process to the homeowners, by actually calling the service providers and making sure that they would show up on time. If they didn't show up, calling around like crazy trying to find a replacement."

GreenPal went out of its way to ensure the quality and reliability of its platform and increase bookings. Since then, they've repeated this playbook in each new market and are consistently growing 100% year-on-year. Another great example is WhiteHat, a talent accelerator that helps people launch their careers. Sophie Aldeman, one of the co-founders of WhiteHat, said in our interview that WhiteHat's early days were hands-on and low-tech. They started with a basic website and a form, but most interactions happened over the phone.

The process was manual, with detailed assessments done in physical centers using paper, spreadsheets, and whiteboards. They manually matched candidates and roles, sending emails one by one -- and were able to provide a great experience matching experience for their early users.

Build an MVP

Continuing from Sophie Aldeman's interview, she highlighted the advantage of their early manual process at WhiteHat, noting that being able to generate revenue without relying on technology demonstrated the viability of their business model. This allowed them to confidently invest in developing a more sophisticated marketplace platform.

Building a state-of-the-art, feature-rich marketplace platform is time-consuming and expensive. And the risk is high that you invest in building something users don't need. That was the case with James Younger, founder of TempStars, who spent a month building advanced features for a platform that users found less valuable.

In most cases, a quick no-code Minimum Viable Platform and some manual work is all you need in the early days to validate your idea.

At Sharetribe, we've seen this approach work time and time again. Our marketplace software is designed to help founders launch a fully-featured marketplace in a day without coding. When the marketplace starts showing traction, founders can customize their platform infinitely with custom code while keeping all their no-code tools.

For example, our customer Swimmy validated their idea with Sharetribe's no-code platforms, and it later grew to hundreds of thousands of users. Studiotime was launched in a single day, became profitable after just six months, and was later acquired.

So, accept and embrace a more hands-on approach in the early days, even if you plan to automate things later, and go with a lightly managed model. You save valuable time and money, learn from your users, and gain a competitive advantage by understanding your users and offering a great marketplace experience from day one.

Key takeaways

  • A managed marketplace is an online marketplace that is more involved in the transaction between a buyer and seller.

  • Depending on how involved it is, the marketplace can be unmanaged, lightly managed, or fully managed.

  • Most mainstream marketplaces are lightly managed, while fully managed marketplaces are better suited for complex B2B transactions.

  • Managed marketplaces have a higher take rate because of the surplus value they generate.

  • Early on, a managed marketplace approach can help founders solve critical problems like the chicken-and-egg problem, reaching marketplace liquidity, and building a cost-efficient Minimum Viable Platform. 

  • Finding the balance between how much to manage and how much to delegate to users is key since overt and strict management can affect listings, which then affects all the users.

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