We will look at the marketplace model using Uber’s example.
It was 8.30 PM and my Abuja flight had just landed at Murtala Mohammed Airport, Lagos, popularly dubbed MM2. With no bags to collect from the luggage guys, getting out of the airport was quick. Get a taxi, get a taxi, I need to get home.
The airport taxi cabs, however, were playing hard ball. The cheapest I could find was a N3,500 cab. I wasn’t having it, so I whipped out my phone, tapped open a cab request app and requested a ride. My ride arrived in about 10 minutes, I installed myself comfortably in the back, and was home soon; N2,000 only spent.
Lagos, Nigeria is very notorious for its traffic situation. Getting around in that city can sometimes be a subject for days and days of planning, after which there are still no guarantees of success. In the past many months however, a thief in the night has appeared on the scene and they are successfully carting away commuters to their destinations in style, comfort and most often, at cheaper rates.
How does Uber manage to accomplish these tasks? How do they manage so many cars? And how do they keep the cab fares competitive? Hopefully by the end of these few lines, we should have more answers than questions.
Let’s start from the beginning. Who or what is Uber? The best answer to this question comes from Uber’s tagline: Uber is “Everyone’s private driver”.
Uber is a tech-driven company (no pun intended) that operates a fleet of cars, without owning any, by making these cars available to anyone who needs to go anywhere, through the use of their mobile app.
Yes, you read right, without owning any. This is where the marketplace model comes into play. Car owners simply register their cars onto Uber’s platform, thereby making it available to Uber. How about the drivers? Drivers come from the same pool provided they have the valid documents, drivers register with Uber, and are tested, especially on the use of smartphones. Along with a comprehensive mixing and matching with available cars, the rest is driving history.
Needless to say, not every age of car nor every type of car is allowed into Uber’s fleet. Uber’s value proposition is to ferry you around in comfort and safety, therefore, the acceptable cars are always very clean ones, with a working radio and AC, preferably with electric windows and can’t be older than a certain number of years. Those are great (defining) distinctions from the competition. You only need to think of the no-AC, manual wind up and the sometimes not-so-clean alternatives, and it won’t be hard to make up your mind.
In this way, Uber is able to provide the customer with a convenient way to ride in style and comfort without breaking the bank.
The marketplace model
Marketplace models have existed for a very long time. Today, however, tech companies and tech-driven companies are able to leverage marketplace models to great advantage using powerful software.
In Uber’s case, by only owning the software that brings all the players together, they are able to take customers from point A, in a fine, comfortable car driven by trained, courteous drivers, to point B, after which you only need to hop out if it is a card trip or pay cash if it is a cash trip. You can also leave a review of how the driver performed for Uber to see. Uber launched in Lagos in August 2014 and only launched in Abuja in March, 2016. The company itself, however, was founded in 2009 in the US.
The regular marketplace where we all buy foodstuff and condiments from is probably the oldest and most easily forgotten model. Here, everyone converges in one location and offer different wares. From that single location, customers are able to purchase all they need for making their desired meals. Imagine if you had to visit each condiment seller or food item seller in different locations. Surely, eating on time would be a more difficult endeavour.
Other very notable tech and tech-driven companies running the marketplace model include:
- Facebook – the world’s most popular media owner, creates no content
- Alibaba – the most valuable retailer, has no inventory
- Airbnb – the world’s largest accommodation provider, owns no real estate.
In simple terms, the marketplace model works to solve a mass market problem by congregating solution providers onto one platform. That way customers can have easy access. The resulting marketplace which, ideally, should be made up of high quality solution providers thereby provide customers with high quality providers to choose from and at competitive prices too. The benefits, however, do not accrue only to the paying customer, but also to the providers. This is because this model brings them steady business by merely being present on such a platform; case in point, my ride home from the airport. If any of the taxi drivers at the airport had been Uber drivers, they would have claimed the ride, since they would have been the closest to my location. As it were, I was content to wait 10 minutes for an Uber cab and ride home in guaranteed comfort.
The greatest benefit belongs to the platform owner, the convener who has brought everyone together. By collecting a set percentage on every sale, Uber also smiles to the bank.
Certainly, the marketplace model, combined with powerful software can be used to provide an end-to-end solution to almost any mass market problem. Will you be adopting a marketplace model in your next gig? Tell us all about it.