Services are ambiguous, and creating an online services marketplace requires finding a fit b/w the service and the marketplace model

The landscape of marketplaces for services is littered with failures. There are many a stories of promising startups that failed to create an enduring business. Services, by nature, are ambiguous and their lack of standardization makes it hard to create liquid online marketplaces. Plumbing, for example, isn’t a fixed priced SKU you can buy on Amazon and be 100% sure that it would solve the pipe leak in your house.

Services span a whole range complexity, from low complexity services such as food delivery to high complexity services such as home remodeling. There is no “one size fits all” marketplace model that works for all services. However, an understanding of the patterns of what marketplace models are best suited for what kind of services would make it easier to spot opportunities and to avoid failures.

My attempt here is to articulate these patterns by defining the 4 categories with a strong service & marketplace-model fit, and a couple that are misfits. Below is a chart that lays out services on complexity vs. frequency of service, and marks the 4 categories where successful marketplaces have been (and and can be) built.

Categories of marketplaces with a Service & Marketplace-model fit

Categories of Fits

Fit Category 1 — Lead generators for medium/high complexity (medium/low frequency) services

Given the ambiguity inherent in service marketplaces, lead generators have been the most obvious and the earliest way to bring services online. As the name suggests, lead generators are not involved in the transaction and make money simply on surfacing (or establishing connection) between the consumer and the lead.

The prime example of a marketplace in this category is Thumbtack, which is a lead generator for services across all complexities and across all frequencies. However, I suspect a big part of Thumbtack’s revenue comes from medium and high complexity services such as event photography compared to low complexity services such as home cleaning.

Lead generators could take a share of the market in any complexity level but typically, the value of the lead (and the trust the marketplace creates behind that lead) increases in proportion to the complexity of the service. There is no reason for one to use lead generators for procuring low complexity services when there might be specialized marketplaces, offering a much better consumer experience (Fit Category 2) for procuring those services.

A good example of a successful lead generation model in a specific domain (everything home related), but cutting across medium and high complexity services, is Houzz. It builds trust for the leads by showing detailed photos of their past projects, Houzz badges and awards, affiliations, reviews, etc. Arguably, Houzz has taken away some of Thumbtack’s market in home services but Thumbtack’s staying power comes from the trust and brand awareness it has engendered because of its breadth of services. Zola is another good example in the wedding domain.

Fit Category 2 —On-demand transaction marketplace for low complexity (high frequency) services

This category encompasses specialized marketplaces focused on low complexity (high frequency) services such as food delivery, ride hailing and grocery delivery. Prominent examples are DoorDash, Lyft, Uber Eats, Instacart, etc. These marketplaces go beyond lead generation, and into transactions, and they owe their liquidity to the demand that is generated (and maintained) on the promise of a much better consumer experience for buying services compared to lead generation marketplaces. In that sense, they deepen the market and create more liquidity than there would have been otherwise.

However, given the low complexity (and the commoditized nature) of the services being provided by supply side, trust mechanisms in these marketplaces are less important, and marketplaces in this category have a hard time preventing supply-side multi-tenanting with direct and indirect competitors. Supply-side keeps on switching across marketplaces and jobs (same person could do grocery delivery today with Instacart and ride hailing tomorrow with Uber), and this leads to very tough unit economics. Andrew Chen has a good post about it. Such marketplaces will continue to exist, though there will likely be consolidation that combines multiple low complexity and high frequency services into one marketplace.

Fit Category 3 — Managed transaction marketplace for medium complexity (medium frequency) services

This category is relatively underdeveloped, with Puls and Setter being good examples in home services, and Soothe and Glamsquad being good examples in wellness. The services offered by these marketplaces sit in the sweet spot of being complex enough that supply-side is not constantly churning (and multi-tenanting) and not complex enough that the buying experience can’t be standardized into a few clicks. This enables these marketplaces to offer a consumer experience 10x of what the lead generators could provide, thereby capturing sustainable demand.

These transaction marketplaces have a high degree of “managed” component. Puls, for example, vets its technicians and provides a 90-day guarantee on its services. Its buying experience is also very much tailored to each service with as much clarity on pricing as reasonably possible. Setter, on the other hand, introduces a trusted home manager into the mix to instantly help find the right provider.

More specialized marketplaces, on the lines of Glamsquad and Soothe, might emerge in this category as more service buying continues to move online, and more segments of services (e.g. dog training — just a random guess) become large enough to justify specialized marketplaces.

Fit Category 4 — Managed transaction marketplace for high complexity (low frequency) services

This category is also underdeveloped, with Upwork being the best example of being successful in the desk-work space. Note that some of Upwork’s services might better fit Category 3 above. The marketplaces in this category are what James Currier called Market Networks. The focus for the marketplaces here is to bring as much of the offline negotiation involved in a complex transaction online, into an interface managed by the marketplace. The power of these marketplaces comes from a few aspects (not all might be present in one marketplace): a) vetting of suppliers b) SaaS tools to work with these suppliers (before and after one has hired them) and c) guarantee when things go wrong.

BuildZoom is an evolving example of such a marketplace for home projects in the consumer space. Managed by Q is an evolving example for office projects in the B2B space for some of its services. It should be noted that the consumer experience marketplaces in this category need to create is very different from the experience that marketplaces in the Category 3 above create. Therefore, it’s very hard for a single transaction marketplace to effectively span across the Categories 3 and 4.

Note: As consumer expectations are evolving towards expecting lower and lower friction, marketplaces in Category 3 and 4 would pose a threat to lead generators (Category 1). That, in my view, is the reason Thumbtack went through all the pain to change its matching approach to be more instant and effective.

The Misfits (or Loose fits)

While it’s interesting to understand the categories of fits, to appreciate the nuances of service marketplaces, it’s also important to recognize the misfits. Below are 2:

Misfit Category A— Lead generators for low complexity (medium/low frequency) services

Prominent example of a marketplace in this category is TaskRabbit. With its positioning as “get affordable help”, TaskRabbit cornered itself into mostly being an option only for low complexity (medium frequency) services that one wouldn’t be able to find elsewhere at a better price e.g. home cleaning, or low complexity (low frequency) services that one wouldn’t be able to find elsewhere at all e.g. standing in a queue for a ticket. To be clear, TaskRabbit is not a failure in absolute sense, but it turned out to be much more of a niche player than it seemed at one point of time because it did not do what was needed to build trust in buying medium complexity services.

Misfit Category B— On-Demand transaction marketplace for low complexity (medium frequency) services

Prominent example of a marketplace in this category is Handy. Its mainstay is home cleaning, which not only is medium frequency, but also suffers from the same supply-side churn we had talked about in Fit Category 2. The medium frequency and low complexity aspects of home cleaning makes it really hard to retain supply, and unfortunately for Handy, there also isn’t any silver bullet to providing consumers a 10x experience when buying cleaning from Handy as opposed to buying it from a cheaper lead generator such as TaskRabbit. This is unlike other low complexity services such as food delivery or ride hailing, where the high frequency and on-demand nature of services at least creates an opportunity for the transaction marketplaces to offer a 10x consumer experience compared to what a lead generator could provide.


Obviously, service marketplaces are hard, and I have been wrecking my brain to understand what leads to the varied outcomes. Hope the categorization of fits and misfits above resonates with you, and it provides a framework for evaluating opportunities and avoiding pitfalls. Please share any feedback.

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