Commodity vs non-commodity marketplaces

Sharing with you a post I published this morning in the Everything Marketplaces community. It’s a subscriber-only community, but in full disclosure, the founder Mike gave me a free month in exchange for contributing content and mentorship to the community.

Identifying whether your marketplace (or, which categories within your marketplace) are commodity vs non-commodity is important to informing both the ideal UX and the revenue model.

In this post, I’ll introduce the concept of commodity and non-commodity marketplaces, and the high level implications for UX and revenue models. In future posts, we can deep dive into each.

I define a marketplace (or, a category within a marketplace) as commodity when the demand-side customers are hiring the marketplace to solve a Job To Be Done but don’t really care who the supplier is, as long as the supplier satisfies the JTBD. Uber is an example of this: I don’t care who the driver is, as long as they are on time and get me to where I need to go efficiently and safely.

Other examples: trade labor like plumbing, electricians; transportation like rental cars, flights; e-commerce with 3rd party sellers.

Non-commodity is the opposite: demand-side customers care a lot about the various attributes that differentiate individual suppliers. Airbnb is an example of this: even after filtering for availability, # of bedrooms, and various amenities, customers will still inspect the profile of each result, sifting through photos and customer reviews to find the one right for them.

Other examples: interior design; most types of wedding vendors; child care practitioners.

Of course, it’s a spectrum, with lots of examples that are in-between. For example, when choosing a doctor on Zocdoc, there are some ratings and customer review information, but most people choose a doctor based on location proximity, insurance plan acceptance, and appointment availability (above and beyond a minimum star rating threshold). However, when choosing a mental health therapist, people spend more time investigating the individual profiles of therapists, looking into their practice philosophies and areas of expertise.

From a UX perspective, the problems that the design needs to solve are different. In commodity marketplaces, the design goal is primarily creating the most efficient way to complete the transaction with any supplier that meets minimum criteria. The UX should abstract away from the customer the work of sifting through the consideration set of potential suppliers, like how Uber doesn’t show you a list of available drivers for you to review and choose from.

For non-commodity marketplaces, discovery IS the value. Customers desire the ability to sift through the consideration set, learning about the ways one is differentiated from another, and making an intentional choice.

There are also revenue model implications. Commodity marketplaces lean towards transactional marketplaces, whereas non-commodity marketplaces tend to be lead generation (either charging per lead or subscription based). This is due to the differences in how confident customers are (or are not) in making a purchase decision prior to any interaction with the chosen supplier, and whether or not the final price / cost is predetermined or variable. 

The rule of thumb that I use is: if the risk of choosing the wrong supplier is low, because most suppliers are “good enough”, it’s a commodity. If the price is also knowable upfront, then it should also be transactional.

On the other hand, if the risk of choosing the wrong supplier is high, because there is variance or uncertainty about match quality, then it’s non-commodity. And if the price is not knowable upfront, then the model should either be cost per lead or subscription. (The pros and cons of cost per lead vs subscription deserves to be a whole other post.)

To summarize:

1. Commodity marketplaces are ones where demand doesn’t differentiate between supply, beyond a minimum threshold. 

2. Non-commodity is the opposite: demand cares about the differences between supply.

3. Correctly identifying if your marketplace is commodity or non-commodity can help you choose the right UX design and revenue model.

4. For commodity marketplaces, focus on making the transaction (or appointment booking, etc) as quick, easy, and trusted as possible. Charging per transaction is often the best model.

5. For non-commodity marketplaces, open up the discovery process and highlight all the differences between suppliers via search, recommendations, filters, photos, reviews, etc. Charging per lead or subscription is often the best model.

Please let me know if this was helpful! And if anyone has feedback, I’d love to incorporate it. In future posts, we can deep dive into more specific examples and analyses of how commodity and non-commodity marketplaces differ.

The Workshop

This is a newsletter-only section where I share a half-baked idea in hopes that y’all who are smarter than me can work it out with me.

Slack is revealing its product strategy and it’s pretty interesting: Salesforce is transforming Slack into a collaborative project management tool

This hypothesis reminds me of Figma: merge the work with the conversation about the work. Or, in this case, merge the tracking of the work with the conversation about the work.

It really goes to show how badly Slack is losing to Teams (and Microsoft deserves huge credit for their Teams strategy and execution).

I’m rooting for them, but I think competing with Atlassian / Asana / [insert many others] is going to be a steep hill to climb. That said, I love the idea of using collaboration and communication as the attack vector. Us humans are such intensely social animals, we’re drawn to interaction even over tools that might be more polished or have more features.