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How building digital marketplaces can help service industries thrive like retailers

Marketplaces can work just as well for service companies as they do for retail companies.

How building digital marketplaces can help service industries thrive like retailers
[sirichai/Adobe Stock]

If you’ve received a package from Amazon, eBay, or any other online retailer lately, then you probably have a good idea of just how big—and convenient—e-commerce has become; global retail e-commerce sales are expected to grow by 50% to $7.4 trillion by 2025. At the core of this industry sit digital marketplaces, which allow sellers and consumers to complete transactions with little friction.

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Online platforms have played a crucial role in developing the digital economy, which has seen an even more notable explosion since the start of the pandemic. These platforms facilitate interactions among consumers and providers, businesses, and other actors in the digital economy. Greater uptake of such platforms can have a tremendous impact on smaller businesses, often embodied by local service providers, which tend to lack the resources and skills to develop their own digital infrastructure.

We need to start paying attention to the ways leveraging online platforms and marketplaces can help smaller businesses capitalize on the benefits of digital transformation like their e-commerce forebears.

WHAT’S HOLDING US BACK FROM DEVELOPING DIGITAL MARKETPLACES FOR SERVICE COMPANIES?

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Digital marketplaces provide three primary valuable functions. Two of these, discovery and convenience, make it easier for consumers to find what they’re looking for and get it quickly. The third function is trust; marketplaces formalize what both sellers and buyers do and create standards for the operation of sales.

So if going digital is a good thing, then why have service providers been so slow to come on board over the past two decades?

One reason is the nature of interaction. Service providers can’t replicate the human side of engagement very well, which colors the entire experience. Services also tend to be more complex and subjective in terms of quality, making it tough to create any kind of standard. As services grow more complicated, the level of trust demanded by both buyers and sellers is only likely to increase.

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Although these challenges require innovative solutions, the crux of the delay is money and time. Large e-commerce platforms like Amazon have budgets and bandwidth to support key retailing tasks, such as distribution. Service providers have key tasks necessary to get and keep customers, too, such as marketing. But few digital marketplaces are equipped to handle everything service providers need to manage. To bring service companies online, marketplace developers need to see what providers do in a holistic way and offer features designed with management in mind.

SELF-CARE, THE HUGE INDUSTRY THAT’S WELL SUITED FOR TRANSITION

One service area that illustrates the above issue well, yet holds significant potential for development is the self-care industry, which includes businesses like spas, salons, and gyms. Most companies in this arena are small organizations, often having just one or two workers. These workers can even be independent partners, which means they might have different services, accounts, and tools—a salon might have both a hairdresser and nail specialist who are paid separately, along with product sales billed to the house. At the same time, people who use these services usually want to make appointments right away and do so with relative regularity no matter where they are, which lends itself back to the three main functions of a digital marketplace.

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Digital marketplaces built around foundational business management software can untangle and control these elements to help self-care companies succeed. They can provide initial value to providers through managerial support even before the marketplace has enough recognition to attract new customers. Developers can come up with a reasonable subscription fee for this help, yet keep it free to be listed on or use the platform. But as the marketplace grows, the profits that come from the increased visibility sweeten the deal. Providers can start to connect with enough new customers through the marketplace that they can easily make up for any fees charged for the managerial support subscription.

WE’RE ONLY JUST BEGINNING

Running a small self-care business can be complicated, but marketplaces can work just as well for service companies as they do for retail companies. Of course, it’s still up to individual clients to decide whether joining this type of marketplace is the right choice for them. This decision will require the client to assess how much business they’re currently doing, or have a good chance to gain, compared to the cost of the subscription fee.

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Digital marketplaces have already proven exceptionally valuable to retailers and product customers. Often operating as small local businesses, service providers and their customers can capture the same benefits. It simply requires marketplace developers to assume a customer-centric view where clients receive continuously updated support choices. Because this sector is still in the infancy stages of digital transformation, embrace the shift now to grab the strongest market position you can.


Fady “Fred” Helou has built Vagaro into a business that uses creative problem-solving to help more than 150,000 service providers annually.

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