Goods versus Services: The next trillion dollar opportunity
Marketplace startups have done incredibly well over the first few decades of the internet, reinventing the way we shop for goods, but less so for services. In this essay, we argue that a breakthrough is on its way: The first phase of the internet has been about creating marketplaces for goods, but the next phase will be about reinventing the service economy. Startups will build on the lessons and tactics to crack the toughest and largest service industries — including regulated markets that have withstood digital transformation for decades. In doing this, the lives of 125 million Americans who work in the services-providing industries will join the digital transformation of the economy .
In the past twenty years, we’ve transformed the way people buy goods online, and in the process created Amazon, eBay, JD.com, Alibaba, and other e-commerce giants, accounting for trillions of dollars in market capitalization. The next era will do the same to the $9.7 trillion U.S. consumer service economy , through discontinuous innovations in AI and automation, new marketplace paradigms, and overcoming regulatory capture.
The service economy lags behind: while services make up 69% of national consumer spending, the Bureau of Economic Analysis estimated that just 7% of services were primarily digital, meaning they utilized internet to conduct transactions .
We propose that a new age of service marketplaces will emerge, driven by unlocking more complex services, including services that are regulated. In this essay, we’ll talk about:
- Why services are still primarily offline
- The history of service marketplace paradigms
- The Listings Era
- The Unbundled Craigslist Era
- The “Uber for X” Era
- The Managed Marketplace Era
- The future of service marketplaces
- Regulated services
- Five strategies for unlocking supply in regulated markets
- Future opportunities
Let’s start by looking at where the service economy is right now and why it’s resisted a full scale transformation by software.
For the social network companies, it didn’t take long to realize that the latter form of value creation should be the real focus of their business models. Early ventures like MySpace
primarily focused on the social activity among their account holders, working to provide better tools to help them manage their relationships. Today’s social networks see social tools not as their end product but as a means for acquiring data. Facebook, in particular, saw the big opportunity in the “information exhaust” produced by all that user activity to produce a higher-level intelligence layer that would be useful to other businesses. Having graphed its users’ relationships and interactions, it could offer anyone else interested in those users the insight to reach them with highly targeted services.
Let’s say, however, that you are a business that would like to see that kind of social graph of the interactions among enterprises and not just individuals – perhaps because you sell to business customers, or perhaps because of your need to deal with suppliers. All businesses operate within their own networks of vendors, partners, clients, competitors, and other entities — the favored term these days is to talk of their “ecosystems.” Wouldn’t that be a valuable space to map?
This is the next step in the evolution of the social graph — let’s call it the emergence of the “commercial graph” — and it is happening now. Commercial graphs depict relationships between businesses, based on their actual interactions as they are captured digitally. And they support highly relevant information sharing, analogous to the TripAdvisor example above. Commercial graphs will help businesses manage their own partner relationships better, and also help third parties to those ecosystems understand them and spot ways to make targeted offers to those within them.
Of course, businesses already use supplier and customer relationship management tools to manage their commercial relationships. We might see these as analogous to the MySpace era of social networks. The tools help individual businesses manage their interactions, but they do not generate a higher layer of intelligence to aid with new business development or new supplier discovery. They offer no visibility into another enterprise’s connections with other businesses, or its reputation based on a track record in dealing with others. By adding this new level of insight, commercial graphs will allow businesses to connect far more efficiently.
Commercial graphs visually display three things: the companies in an ecosystem, the relationships among them, and the reputations they have earned through their mutual dealings. As with social graphs, the depiction of the nature and strength of relationships between companies is based on actual interaction data. Unlike with a social graph, a company does not have to explicitly opt to join a network for it to be included in a commercial graph. Instead, its connections to others can often be derived from interactions recorded by other companies.