James Allgrove, is the head of UK growth at Stripe. In this article, which features new data, Allgrove shares his perspective on what it takes to build a successful marketplace in today’s market.
Marketplaces have been with us for most of human civilisation.
Their enduring presence is simple to understand: they give sellers a simple route to market and bring choice to buyers.
However historically, while buying and selling on a marketplaces has been easy, actually building one has been anything but.
Barriers to building a marketplace
This is nothing new. In the offline world, the fundamentals of starting and running a marketplace — from prime real estate to special permits — have made it tricky for most entrepreneurs.
Even in the online world, where the economic promise of the internet is that anyone can start a business online, this has held true until recently.
Why? Would-be marketplace entrepreneurs have required significant resources: engineering resources to build a functioning platform; the know-how to handle compliance for sellers and also reassure buyers that their transactions will be secure; a marketing team to help reach critical mass before competitors; and capital to fund the lot.
The runaway successes in this category, such as Airbnb and Uber, have all been well-backed startups with the capital to invest in hiring and marketing from a very early stage.
But this is changing.
The scalable marketplaces built by British entrepreneurs today are emerging as a magnet for VC capital.
Last year UK marketplaces raised more than $850m venture capital — this is more than double what we saw in 2014 and represents an eight-fold increase since 2013.
If VC investment in marketplaces continues on this trajectory, it will break $1bn this year.
Levelling the playing field
So what has driven this rapid shift?
In part, entrepreneurs building marketplaces benefit from all the tools that fuelled the new startup economy, including cloud computing services like AWS.
These services have changed the game by providing ubiquitous access to best-in-class infrastructure, allowing entrepreneurs to scale internet businesses quickly without worrying about huge upfront costs.
But 2015 was also the year that new infrastructure tackled some of the specific challenges felt by marketplaces, which have suffered to a disproportionate extent from the deficiencies in online global payments systems.
At Stripe, we’ve wanted to fix this for some time, which is the rationale behind Stripe Connect: a set of tools designed specifically for marketplaces.
Now, entrepreneurs can optimise the buyer experience on mobile, on-board sellers instantly and scale internationally faster than ever before.
Tools like this are levelling the playing field for marketplaces — from fashion ecommerce platforms like Lyst to sharing economy services like TaskRabbit — to scale internationally without having to deal with the peculiarities of a payment infrastructure designed decades ago.
Better, not just more
The momentum behind marketplaces shows no sign of abating.
In the last few weeks alone, London-based marketplaces LendInvest, Property Partner, Student.com and Pushdoctor.co.uk have raised over $100m between them.
But marketplaces aren’t just multiplying, they’re evolving.
From on-demand mobile services like Quiqup delivering everyday essentials, through to crowdfunding platforms like Seedrs bringing projects and backers together.
Even the social media giants — Facebook, Twitter and Pinterest — are experimenting with the model, becoming marketplaces themselves through the introduction ‘buy buttons’ for businesses to sell directly to a global audience of billions.
The internet is a force for the democratisation of commerce.
More than two decades since the birth of the internet, this is still its economic promise: to make it possible for anyone to buy goods and services from anyone else, anywhere in the world.
Breaking down barriers to building online marketplaces will take us one step closer to fulfilling that.