Remember when Ebay started in 1995, and all anyone could talk about was how the Internet was going to change our lives? Well, almost everyone happened to be proved correct. Today, online marketplaces are dominating product and service distribution channels across the globe – from U.S. e-commerce behemoth Amazon or Alibaba in China.
From 2014 to 2016, Jack Ma’s Alibaba enjoyed an incredible 50% annualized growth rate, while Jeff Bezos’ Amazon has grown a similarly praiseworthy 55.8% annually. Some estimates put global e-commerce retail sales at an astounding $4 trillion (trn) by 2020, comprising almost 15% of projected retail spending.
While online marketplaces like Alibaba and Amazon are dominating product distribution marketplaces, gig economy growth continues to skyrocket. There are an estimated 34% of the workforce in the U.S. economy deemed as gig economy workers as of this year.
Brad Smith, CEO of Intuit (INTU), the owner of TurboTax, remarked during an earnings call earlier this year in May that the number would rise by 43% by 2020. He was referring to freelancers of all sorts – from those working for taxi firms like Lyft and Uber as well more traditional freelancers like electricians and plumbers.
A joint project initiated by Emergent Research and Intuit has indicated that in the U.S. there are about 4 million (m) gig workers, but driven by the newer online platforms they expected that this figure would grow to 7.7m workers by 2020.
However, the exact figure is not easy to gauge precisely. While global consulting firm McKinsey has found that there are roughly 68m freelancers in the U.S., the U.S. Labor Department has admitted that it has struggled to quantify the number. And, new government statistics on freelancers in the U.S. will not be issued until next year.
Before we know it, freelance work could overtake the traditional 9-5 job. And, the rise in digital nomads – folks who use technology to complete their work, independent of a company office – has led many to question where online marketplaces can go from here.
Currently, service marketplaces are dominated by names like Fiverr, Upwork, and TaskRabbit, the latter which was acquired recently this September by the home furnishing giant IKEA for an undisclosed consideration. These online platforms allow users to purchase freelance work and services through a centralized marketplace.
Services range from Internet marketing help to installing a flat screen T.V. Niche sites like DesignCrowd and Project4Hire respectively focus on marketing designs and traditional business services like accounting and finance.
Massive Holes In The System
Yet, whether it is Amazon, Upwork, or Project4Hire, each of these platforms have something in common – they run off of centralized platforms. There is one internal system that matches buyer and seller together, whether based upon algorithms, search criteria or other proprietary methods.
But oftentimes what is lacking from these platforms are two key elements, namely transparency and social interactions. These twin pillars of commerce – whether online or in person – reflect the most important aspect of making a sale, and that is trust.
Traditional online marketplaces can change their internal fee structure as they choose. Many times the result is an ever changing fee structure that hurts buyers and sellers alike. (Note: For the fees of various online marketplaces see this list).
Additionally, there is a lack of transparency with these centralized platforms. There is no sure way to know who is behind the “anonymous” username, and there is not an easy way to identify previous transactions. This results in growing amounts of online marketplace fraud.
Blockchain Tech: Next Frontier For Online Marketplaces
lockchain technology has been growing at an unbelievable pace over the past two or so years. Through 2021, some see a 61.5% annual growth rate. As the revolutionary technology increases in popularity (see Jamie Dimon’s latest endorsement) more blockchain-based companies are dreaming up the next big step for a variety of industries.
Certainly the impact that blockchain has had over in recent years has been nothing short of stellar. And, on the investment front billions of dollars have been poured into blockchain companies so far in 2017. Initial Coin Offerings (ICOs) or token sales have zoomed to around $2 billion (bn) this – versus $256m in 2016.
Figures contained in an analyst research note (‘Blockchain: An update on ICOs and VC investment in the blockchain’) for the third quarter of 2017 from PitchBook, revealed that private investments into blockchain companies had topped $4.5bn so far this year to that point in time. This contrasted with the corresponding period last year when 203 transactions raised $624m in aggregate.
Against this backdrop, several blockchain-based companies in particular are looking to revolutionize the way business is conducted through online marketplaces. These companies are creating decentralized platforms to foster peer-to-peer (P2P) interactions.
For example, take Soma, which stands for ‘Social Market’, is a new Blockchain-based platform that creates a digital community where users are able to buy and sell items or services through a P2P network. By creating ‘cards’ that represent the physical item or service, the platform has created a way for users to sell goods and services with transparent history and feedback.
Having started a month-long ICO late this September, it also seeks also to address fraudulent sellers on classifieds platforms such as Alibaba, Amazon, and Ebay.
On that score, according to report published from research firm Frontier Economics this February and commissioned by the International Trademark Association (INTA) and the International Chamber of Commerce, it has been estimated that counterfeiting and piracy could rise to $2.3trn by 2022.
Add in associated social, investment and criminal enforcement costs it could push the total to $4.2trn and put around 5.4m “legitimate jobs” at risk according to the analysis.
The latest figure contrasted with the global value of the counterfeit market standing at $1.7trn in 2015 and shows no sign of slowing. Indeed, Frontier estimated the global value of counterfeit and pirated goods and services back in 2013 was between c.$923bn to $1.13trn, a figure equating incredibly to the size of the Spanish economy in 2015.
Buyers and sellers benefit from clarity, pricing freedom, and effectively immediate compensation. The platform utilizes a token called the SCT.
Here think of a digital ‘coin’ with real value that can be exchanged for traditional funds and currencies like US dollars or Sterling. Buyers purchase SCT and can then use them on the platform, and sellers agree to accept SCT as payment. (Note: Individuals wishing to participate in cryptocurrency or token offerings should be aware that it is highly speculative and that the market is largely unregulated).
In this way, and contrary to traditional platforms, users can connect directly without the nebulous middleman involved. Potential clients select and communicate directly with the seller, who will be providing the service instead of working through a third party. The result is lower fees and increased communication.
Jukka Hilmola, a Finn who is Co-founder of Soma that has worked in various start-ups during their early phases and possesses an LL.M from Queen Mary University of London, commenting said: “Inevitably, the disruption of C2C-markets is currently happening. By utilizing blockchain to leverage its disruptive business model, Soma will be able to differentiate from the other mobile-first startups in the industry.”
The greatest advantage of these decentralized platforms is the blockchain technology itself. As a blockchain – think of a ledger or database that contains a history of all transactions that take place on the platform – the platforms are completely auditable by all participants.
This leads to fairer pricing for clients, as all prices are visible and verifiable. Potential customers are able to select the provider that best suits their needs, both financially and practically.
P2P Services Safety
Start-ups like CanYa, a recently launched working platform in the home and digital services industry currently made up of mature iOS & Android apps to find, book, pay and review service providers, is among plaforms that offer decentralized service marketplaces powered by blockchains.
In CanYa’s case its web app, which is described as a “hybrid between an on-chain cryptocurrency payment layer” using CanYa Coins, was beta-launched in a small Australian city in late December 2016, and subsequently soft-launched in a major city in the country at the start of this year.
Such developing platforms connect users directly and allow for enhanced communication between parties. Funds for a service are escrowed (i.e. money, property, a deed or a bond put into the custody of a third party) until the task is complete and specified conditions met, at which time the buyer of the service releases the funds directly to the seller/freelancer, eliminating trust issues and fraud.
The blockchain technology also allows service providers to offer their skills with a price plan they choose. They can offer one-time services or sell ongoing maintenance plans. Sellers are not bound by a central system that limits what they can and cannot do. Nor are buyers limited to what a third party host puts in front of them.
And these services are not simply digital. Want to hire a gardener, an acupuncturist or a nanny? CanYa’s platform allows you to do just that will a fully integrated trust system that protects both buyer and seller. Contracts can be mutually agreed, both in the making and the finalizing, and compensation is immediate and guaranteed. No more stopped checks to hassle with.
Reflecting his thoughts on the state of play with the market and what he envisages for the future, CanYa’s Thorbjornsen said: “Everything we know about today is going to be disrupted by blockchain technology as we start to see a prevalence of start-ups raising funds through ICOs and consumers getting in on the ‘ground floor’ of the future tech giants.”
Through blockchain platforms that allow direct peer-to-peer interaction, buyers and sellers can conduct business in a more social setting while still maintaining security and transparency. The middleman is eliminated and the “anonymous” user on the other end is no longer a stranger.
Thirty plus years ago, Ebay and Amazon stepped onto the scene and sought to revolutionize online marketplaces. Today, blockchain start-ups like CanYa and Soma hope to have a similar effect.
Given their flexible platforms and transparent nature, coupled with greater pricing fairness for both buyers and sellers, it is hard to imagine a future where marketplaces have not changed our everyday lives. But for a bright future these new platforms will have to deliver at the end of the day. Carpe diem.