THE BLOG
10/07/2016 03:31 pm ET Updated Oct 08, 2017

These 3 Online Service Marketplaces are Killing It

Ever since eBay came into the picture, the potential for online service marketplaces has existed. However, it really took a good 10 years before entrepreneurs began to maximize this opportunity. But now that the infrastructure is in place and customers are warming up to the idea of hiring and paying for goods via third party websites, savvy entrepreneurs and their companies are taking full advantage.

The Rise of Online Service Marketplaces

“The service industries account for 68% of the United States GDP and four out of five jobs, but until now e-commerce growth has been dominated by product sales from the likes of Amazon, eBay, Staples, Wal-Mart and Best Buy,” Glenn Laumeister, CEO of a freelance marketplace, wrote back in 2014 when the industry first began to experience massive amounts of growth. “That is changing fast as just in the last few years the growth of new services marketplaces have exploded and provide us a glimpse of what is possible in the future.”

Whether you’re an entrepreneur looking to join the trend or a customer who simply enjoys the convenience of using these services, the rise of online marketplaces is exciting. But why are they so successful and what does this mean for the economy?

Ultimately, it comes down to speed and convenience. The internet is simply the medium through which speed and convenience are maximized. See, online service marketplaces are valuable because they eliminate the biggest points of friction customers have when hiring for services: researching, vetting, contracting, and transacting with the company. With an online marketplace, all of this happens in one fell swoop.

Then, there are the cost advantages. When a professional is able to offer services through an online marketplace, there’s less of a need for a physical location and expensive marketing and advertising strategies. This reduces operational expenses, which is reflected in the end price consumers pay.

How Three Online Marketplaces are Succeeding

“The e-commerce business of selling products has become a ruthless game of razor thin margins requiring massive scale to compete with Amazon, eBay, and the big box retailers on price, selection and speed of delivery,” Laumeister notes. “However with so much of the economy based around services where the vast majority of the transactions are still taking place offline, the opportunities for building new billion dollar plus services marketplaces represent an exciting growth area in e-commerce.”

A number of entrepreneurs and businesses have recognized this opportunity and leveraged it for their benefit. Let’s take a look at three examples to give you a firsthand look at what’s happening:

1. UrbanClap

Indian-based UrbanClap is one of the more exciting and promising online service marketplaces on the internet. It currently offers a number of services in a variety of categories – including health and wellness, repairs and maintenance, weddings and events, academic tutoring, and business – and has proudly served more than 1.2 million customers to date. But what really stands out about UrbanClap is how it benefits both customers and service providers.

Customers get convenient access to cost-effective services that deliver real value. Every service professional is required to go through a rigorous verification process and quality control measures to be eligible to serve customers on the site. So, not only do customers get access to services that otherwise would be difficult to find, but they can rest assured the work will be done well.

The professionals benefit as well. UrbanClap seems to create a culture of micro-entrepreneurship among verified professionals. From salon specialists to freelance developers, the site gives everyone a marketplace to expand their business. The potential for high earnings is also there. The site has salon professionals making as much as 120,000 INR ($1800 USD) a month in India, where the typical salary is just 10,000-15,000 INR ($150-$220 USD) per month.

UrbanClap is the perfect example of how these online marketplaces don’t just benefit customers or businesses. They can benefit both parties and deliver real value across the board.

2. Etsy

One of the most popular online marketplaces is Etsy. It’s essentially an ecommerce website that allows artists to sell handmade products to buyers from around the world. Much like UrbanClap, it benefits both buyers and sellers.

“On one side Etsy helps sellers sell their handmade crafts and earn a living while on the other side it helps buyers own one of a kind products,” digital marketing expert Ajay Deep explains. “This fact has led to the massive growth of Etsy. It started as a simple website in year 2005 and is now listed as a public company with over $360 Million of total funding.”

The thing that sets Etsy apart is that it only lists unique products that are handmade. Etsy also allows anyone to set up a shop, assuming they follow the guidelines and rules. This low barrier to entry creates a variety of product offerings. Though some worry that it could eventually water down quality, Etsy isn’t worried about it. When customers search for products, they are ranked by popularity and reviews. Thus, low-quality vendors don’t get much visibility.

Deep believes that the success of Etsy’s business model is rooted in the fact that, unlike Amazon and eBay, Etsy started (and stuck with) a very narrow domain. While they could technically go after whichever categories they want at this point, Etsy has stuck by its focus on art and handmade gifts. This has led to a strong identity and incredible brand loyalty.

3. TakeLessons

The rise in online learning, coupled with the viability of the online service marketplace, is what led to the concept behind TakeLessons. With TakeLessons, customers can search for local instructors across a broad variety of categories. Need a dance teacher in San Francisco? There are plenty of choices. Want your child to get some SAT test prep in Dallas? You’re in luck – there are instructors standing by.

But it’s not just local lessons. With TakeLessons, a customer can actually find their dream instructor and meet with them via a webcam. This opens up a world of opportunity for students and gives instructors the chance to expand their footprint beyond the city in which they’re located.

Another benefit of TakeLessons is that everything from scheduling and communication to bills and payments happens within the online student account. This safeguards both parties and allows for the emphasis to be placed on teaching and learning.

The TakeLessons business model is one that many companies have tried, but few have been successful. What sets TakeLessons apart is their size and versatility. There are thousands of instructors in hundreds of locations offering dozens of learning opportunities.

How Will You Tap Into the Changing Marketplace?

From an entrepreneurial standpoint, how will you tap into this shifting marketplace that’s now being controlled by forward-thinking online marketplaces like UrbanClap, Etsy, and TakeLessons?

Don’t assume that it’s as easy as launching a marketplace and reaping the rewards. It takes a lot of careful strategizing and a detailed understanding of who your customers are to make it work.

By studying these three examples and keeping track of how they continue to grow, you can get an accurate pulse on the industry. Keep an eye out for new shifts and be prepared to jump in when the time is right.