This came out of a conversation a few weeks back, and resurfaced in a conversation yesterday. There is a fundamental paradox in service marketplaces – the more useless the general quality of service is, the more useful the marketplace. Let me explain.
Let us take the market for plumbers, for example. There are several hyperlocal service marketplaces in India (like HouseJoy or LocalOye) which supply plumbers on demand. Their biggest challenge is offline transactions (as this article about US-based HomeJoy describes) – once two sides of the market are introduced to each other, they take further transactions online.
Thus, there is a huge amount of activity and value taken offline once the introduction has been made, as the long tail of the client/pro relationship takes hold. Clients are perpetually motivated to move their pro relationships off platform, because it’s one less intermediary to go through to directly access the pros they love.
In other words, once I’ve discovered a plumber through HouseJoy (for example), and find his work to be good, the next time I need a plumber I’ll simply call him rather than call HouseJoy (cutting out the middleman). If the plumber is reliable and produces reasonable service, HouseJoy has practically lost me as a customer for plumbing services for a long time.
On the other hand, if the plumber I used the first time is good but not reliable (doesn’t arrive on time the next time I call him), I’m likely to use HouseJoy (or a competitor) the next time round. In other words, the worse the service providers are (in terms of reliability, not quality of work), the greater the likelihood of the platform getting business!
This is the fundamental paradox of service marketplaces. When services are reliable, you don’t need a marketplace. So if you need a marketplace only if services are unreliable, the server side of the marketplace is full of unreliable people. The hope, and the value that the marketplace adds, is that by aggregating a bunch of unreliable people, some level of reliability is guaranteed. The question is how sustainable this is.
Think of this another way – the level of reliability offered by a marketplace can be described as the sum of reliability of service providers and reliability of the marketplace itself. So for a given level of overall reliability, the marketplace adds more value if individual service providers are less reliable!
Extending this model to other marketplaces and services is left as an exercise to the reader. Feel free to use the comments section to write your analysis.