I had an interesting debate this weekend with a friend of mine who’s also in tech which triggered this thought: will software in itself be worthless in the future?

The paradox is that software is finding its way into everything in our lives – from how we order food, a taxi, to how we run a business and increasingly recreation, gaming, education… virtually nothing is left untouched by software. And as hardware becomes more pervasive it literally will be distributed everywhere, from our attire to our kitchen appliances, the couch we sit on, the toys we play with and so on.

Yet the cost of writing software is also dropping exponentially, or seen conversely, the ease of writing software is increasing exponentially.  The cost of building a simple website in 1995 was easily in the tens of thousands, would have taken months and would require deep technical knowledge. Today anyone can build a website for free on sites like Wix.com, or WordPress, or even from scratch with minimal coding.  Or if you’re lazy you can hire someone for a few hours on PeoplePerHour.com and be done with it within hours.

Moore’s Law, one can argue, applies to software too.  But whereas for hardware what powers that is advancement in microprocessor technology, in software it’s mainly the open source phenomenon.

Coders are willing to work on projects for free, for the greater good of the community. Equally the sheer number of coders is increasing exponentially as writing software becomes easier and easier and penetrates into our earlier education system. Kids now can write programs that were a challenge to software engineers in the 90s. That trend will only grow.

Microsoft which arguably was the first software company has been battling with this for decades as has its founder Bill Gates who’s always been very vocal about coders writing software for free. Yet the business model of selling pure software has been undermined largely by that trend. Operating systems, word processors and spreadsheets are now accessible for free (Linux, Google docs is just one example of each). Microsoft in the end had to adapt its business model – arguably the most powerful business model in the world to date – to survive and launched Microsoft 365.

That’s scary: even the most powerful business model in the world, that created the worlds richest man (or vice versa arguably:) was eventually undermined and had to adapt.

Equally, compilers that translate code to a functioning program have – and will carry on – becoming more sophisticated. Its quite imaginable that soon we will be able to input English language  which gets translated into the end product by the magic black box in-between. The need to be able to code in zeros and ones (Assembly Language) has already become virtually extinct. The first coders had to write in zeros and ones; now there’s a myriad of ‘higher level languages’. The cap for that trend is simple written language – the first language we learn as kids. So if one can explain what is needed to be done by the program, the compiler will do the rest.

Seen differently, we’ve gone from a world where companies had to go to specialist to write their software – the Accentures & IBMs of this world – and spent hundreds of millions on bespoke systems that enables their business to function. Now, they can rent Software as a Service (SAAS) at a click and tailor it to their needs with very little coding needed.

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Marketplaces are notoriously hard to get going because of the chicken-and-egg problem at the start. You need supply in order to get demand and you need demand in order to get supply. In most the money comes in through the demand side of the equation and thus are considered to be demand-led. However, I would argue that in embarking on setting up a marketplace business one can be more rigorous in their analysis on the supply side.

These are the factors I would consider if I were to set up another marketplace business (or invest in one):

1. Arcane Supply

My first company was a business called Arcarnus which promised to broker the world’s ‘arcane’ places and services – secret gems as it were- to a discerning people.

That business didn’t do very well when it came to scaling but the notion of the ‘arcane’ was certainly carried forward to my next (and current) business PeoplePerHour.com and is without a doubt a big reason for its success.

Amassing inventory – of whatever kind – that has an element of exclusivity or scarcity is key to getting initial traction. It’s not always a must, but if your inventory is too easily discoverable elsewhere it will be harder, and although not impossible (as Amazon has proven) you need to innovate in different ways like price, the speed of delivery or simply having a huge breadth to become a ‘one stop shop’ destination. Whilst doable that’s without a shadow of a doubt a much more expensive endeavour.

2. Homeless supply

Arcane or not, my next question would be “is that inventory looking for a new home?”. Some things – like second-hand collectables, much to eBay’s delight, were craving to migrate from the street fair to the world wide web. Others like grandma’s hand-knit woollen cardigan also did, finding a home on Etsy.com.

Here too, timing is everything. A category seeks a new home when a) there’s enough inventory within it and b) when their current home gets crowded. If you’re selling hand-crafted inflated Baboons who pop a caramel-infused marshmallow out of their backside every time you squeeze them (now why didn’t I think of that idea before!) and you can only make a handful a day, you may find that walking up the street is all you need to sell them all. Why pay a marketplace a % of that? But if you find that your whole neighbourhood or town rip off your baboon-trade, then you may well need a bigger home for your boons.

3. Ripe for storytelling

Given an infinite amount of dollars, any business can turn into a success (even my fabulous baboon idea above). But given finite dollars, having scarce supply, that’s ripe for a new home, and, a story that others are willing to share, will almost certainly act as viral agents and catalyst for distribution and growth.

In the end, people don’t relate to facts and figures, or shapes or forms, or tastes for that matter, as much as they relate to ‘storytelling’. Even the sensation of taste is instantly followed by a story, and it goes like this “Yumm…” You instantly can’t wait to share the delight with others!

Everything that precedes it, therefore, is a means to an end. What propagates are not the facts, the smell, the taste, the form or the function. It’s the story they inspire.

Every great company has at some point planted storytelling in their customers’ mouths one way or another. For Uber it was something like ‘look at me and my own personal chauffeur aren’t I cool’ … for Airbnb, it’s the personal experience of staying in someone’s own home, and the things that hooked you. In my last stay, it was the host’s sound system and how he came over to personally show me how to hook my iPhone to it.

With PeoplePerHour, the story we hear again and again is how someone built their entire business through PeoplePerHour.com. Often while residing on some beautiful resort on the beach!

4. A friendly Macro

Sadly, success and effort are not symmetrical. If Newton’s 3rd Law of motion was translated into the world of business dynamics it would be this: “for every micro, there is an equal and opposite macro”

In other words, for every one thing, you get right internally there is some external force that opposes that success and acts as ‘friction’ point (no wonder we borrow terms from physics in marketplace lingo).

Macro is your tailwind. You need it acting in your favour otherwise, it will be much harder – if at all possible – to get there, at least without running out of fuel!

Is onboarding of the supply you are amassing helped by some macro forces?

Again, in our case, that was clearly the case. Be it out of ‘need’ (e.g., rising unemployment during the recession forcing people to seek alternative sources of income) or by choice underpinned by socio-economic drivers, such as work-life balance, freedom and the aspiration to be your own boss, it remained unquestionable throughout our journey that people’s yearning for independence was no short-term fad.

Similarly for other categories: travel’s tailwind is the long-term declining cost of travelling; the health food’s sector is people’s ever-increasing health consciousness (or paranoia of premature death), renewable energy is buoyed by people’s delusion that we are running out of energy sources (when in fact, it’s outstripping consumption) and hypocritical rhetoric on saving the planet when they destroy it in equally or more ways than the rest of us; and so on.
Delusional or not, having a friendly macro helps!

4. The 10x factor

Peter Thiel argued in his book ‘Zero to One’ that for a start-up to be a big success it needs to be 10x better than that of the incumbents. In marketplaces, businesses that criterion is almost always a supply-side criterion.

The Uber experience is certainly 10x better than waiting in the rain to hail a cab which will – in most cities – also be more expensive, a lesser quality car and a driver who may have just got off the wrong side of the bed that morning, or had an argument with his wife and doesn’t give a sh*t, is rude and scares the crap out of you because he’s behind the steering wheel and you’re inside locked doors with what looks and moves like a loony on steroids.

On Airbnb, you will find amazing homes to stay in which are (for a certain category of people at least) 10x better than hotels in terms of cost (per square foot at least) and the homeliness factor.

PeoplePerHour grew very quickly when we started because getting a logo or any piece of work done on the site was – and still is – 10x cheaper than the old-fashioned way (say going to an agency or hiring someone in-house).

5. Platform stickiness

Platform stickiness comes from both sides, albeit in different ways. However, more often than not, a marketplace is not just an exchange mechanism but also a suite of tools for the supply side to build up a regular source of income. It’s more than a one-off ‘hit’ or strike of good luck for the Sellers.

Tools, such as the ability to get paid fast, securely and seamlessly, exchange files, communicate in real time, integrate with your calendar, trusted reputation systems, and a raft of other admin tools like collating all your invoices in one place, perhaps even integrating with your accounting software – not to mention getting customers in the first place – are invaluable tools for Sellers that would otherwise be a nightmare to put together individually themselves. And very expensive!

A newer breed of marketplaces, which I am a big believer in, takes that one step further and builds deep workflows tailored exactly to the vertical they are serving. They essentially become mini ‘ERP’ systems for micro-businesses who don’t have the scale to do that themselves and overlay the transaction on top. Newer business models are arising to support these, often licensing the software hosted in the cloud (SAAS) and in other cases, a dual model where they charge in part for the transaction or in part for the software. Wahanda (now Treatwell) is one such example in the UK, as is Zocdoc.

These are powerful marketplaces as they can migrate upscale to serve larger enterprises once they prove the model for SMEs by tailoring their software and workflow to serve larger organisations. This is a big part of our strategy in the next 1-2 years at PeoplePerHour.com as well.

6. Network effect

Once you crack the chicken-and-egg problem and get going, marketplaces turn the corner and become both highly scalable and defensible businesses. That’s because ‘network effects’ kick in.

Simplistically, network effects means that the value in a marketplace is a function of how many participants are in the marketplace. So every new user you get makes the entire marketplace more valuable, for other buyers and sellers alike.

Sounds obvious. But what’s not obvious is how to get that flywheel going. In practice, it comes down to understanding why Sellers on your platform could benefit not just from getting Buyers (and hence sales) but from other sellers. Often it’s to do with complementarity. They can find other products or services that strengthen their selling power. This then gives them an incentive to promote your site and bring others in their network to the site so as to collaborate. Hence, network effect.

In certain marketplaces, this happens de facto in an unstructured way. On Etsy.com example, many Sellers turn to Buyers and then resellers of the things they bought. On PeoplePerHour.com we see the same dynamic: a graphic designer may need to work with a Videographer for a project they are doing for a client. Or a voice-over artist or copywriter.

Other marketplaces do this in a more structured way or design in their DNA from the start which has considerable advantages. For example, if you are building a marketplace for lawyers, and say you know they work with paralegals, you design the flows such that when a lawyer creates her profile she can then invite her paralegals – or other lawyers they collaborate with for that matter – and integrate all of that into their profile. To encourage that behaviour one could allow discovery of lawyers based on the size of their team, or feed that into their reputation system. These type of marketplaces can get exponential growth as each participant will be inclined to bring numerous more with them (their network), which in turn will make it more attractive for Buyers and build critical mass faster.

Epilogue

Very few successful marketplaces are built by design. Most just happen. Most even happen despite bad design, not because of it. There are so many variables needed for success that probability overtakes calculus. Which is why VCs take 10 bets for 1 to succeed. Given how many businesses they see (and a biased sample set at that skewed towards the best of the crop), if there was a predictive formula for success surely they would apply it and have 100% hit rate?

That said, one can conduct a rigorous analysis, especially – as I argue above – on the supply side, to consider whether the marketplace they are about to create has the necessary qualifying criteria for success. ‘Qualifying’ is the operative word here. Meaning: if you do tick the above boxes, you’re off to a good start. But it’s certainly not the end and definitely not a foregone conclusion.

The reason I’m so excited about our latest product SuperTasker is not just because it’s a cool product (and looks pretty according to my unbiased opinion of course !;) that solves a real need in a novel way. More importantly its driving a new macro trend which is way overdue : the introduction of SKUs for services.

SKUs (Supplier Keeping Units) are now second nature in the world of physical products.  They are the classification of all things made and sold. The worlds all encompassing ‘product catalogue’. Each SKU is tied in with specific product specs. So buying the same SKU anywhere in the world, through any site or retail store means the same thing pops out of the box. In other words: standardisation.

We take this for granted now but SKUs have marked a fundamental shift from a nation of blacksmiths to mass production and standardisation. Before the industrial revolution buying a table, or a bottle of ketchup meant going to a craftsman, blacksmith or the local farmers market. What you got that day would differ to what you’d get the next.  In a nice ironic turn of events that serendipitous discovery in the purchasing process is now finding its way back spurring new hot businesses like Birchbox and Plated amongst many others. Too much standardisation can get boring. But we wouldn’t have come this far if we weren’t able to standardise production to feed a nation en masse.  No doubt our standard of living has massively improved since then. You can buy mass produced items for a fraction of what a craftsman could afford to charge you however hard you bartered.  In economic terms:  we reaped ‘economies of scale’.

Yet in intangibles we are STILL a nation of blacksmiths. Try getting a simple logo done on 5 different platforms. The cost will vary drastically as will the quality, and other service elements bundled in the purchase such as number of revisions or the ‘return’ policy.  It’s a hit and miss experience, much like buying goods was before mass production.

Some argue that one of the reasons is that you can’t commoditise creative work.  Well. I’m sure that’s exactly what the blacksmith or craftsman in the case above would have said before Henry Ford put them out of business.  There is creativity in virtually EVERY production process. Whether you’re making a table, a pair of shoe laces, a home made ketchup recipe or a logo. There is no reason for them to differ.

That’s what we are fundamentally doing at SuperTasker. We are the world’s first catalogue of SKUs in digital services. And we aim to eventually expand to more. But for now we ‘stick to the knitting’ as they say. A design edit, a WordPress fix, an Infographic or creative banner production, to name just a few, are all SKUed. In other words we define what the cost should be, the delivery time, the penalty on lateness, the quality standard (all the ‘producers’ are curated and trained to that standard), and those other service elements like number of revisions per purchase and refund policy. We leave no guesswork to the ‘craftsman’ or the customer. It’s SKUed.

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Operating in the labor / outsourcing space for almost 10 years now (first with an offline business and then online) this is something I’ve spent a lot of time thinking about and in many ways have been part of its evolution. What does the Future of Work look like? In this post my aim is to highlight the trends that I think will shape it versus the applications and solutions it will manifest itself in.

1. The West-East playing field will level out

The outsourcing industry has its origin in the labor rate arbitrage between developed and developing economies. The first labor marketplaces like Elance & Odesk were in essence online versions of the Wipros & Infosys’ of this world, connecting businesses in the more developed Western economies with cheaper labor where it was abundant in the East, mainly in IT services. They emerged to piggy back on the newly minted IT industries in India in the 90s.

That rate arbitrage is narrowing today as the economies of India & China and other emerging markets are growing faster than the West inflating prices (including that of labor) and hence closing the gap.

Secondly, as these economies mature they start developing a middle class and an SMB (Small & Medium Sized Businesses) sector – the backbone in any economy that’s the essential channel for distribution of wealth downward from the gorillas at the top of the food chain – the big corporations and national institutions.

Much like those gorillas, these SMBs turn to the west to adopt some of the best practices that have matured over decades. The ‘freelance consultant’ is to those SMBs what the McKinseys of this world and the Harvard MBA franchise has been to the gorrilas at the top. They hire them to help with the things they are weakest in, from basics  like writing sales and marketing collateral, design & UI, to business management advice social media marketing and so on.

PeoplePerHour.com was founded largely on this premise. From the start we focused on nurturing a freelance workforce in the West which is still over 70% of our total. Most of hiring happens ‘semi-locally’ (i.e. not onsite , the work sill gets done remotely, but in same geographic region) or from companies in the emerging economies  hiring talent in Europe or the US.

As I argued in a previous post I also believe that this may well be the rebirth or the once might export economy of Western nations.  With manufacturing on the decline and unable to compete with lower cost economies in the East, the next wave of exports may well be skills and services that are more in abundance in the West and scarcer in emerging markets, the gap being bridged by the emergence and growth of online labor marketplaces.

2. Marketplaces 3.0: the rise of End-to-End (e2e) solutions

We are entering what I believe is the third generation of marketplaces. The ‘1.0’ era was all about liquidity (Craiglist). ‘2.0’ was about building trust via reputation systems, social validation (eBay, Airbnb, Etsy) to help in the discovery process as inventory exploded making discovery more challenging. Now, ‘3.0’ is making discovery redundant or unnecessary altogether (you don’t interview your taxi driver on Uber or Lyft and equally you don’t select your tasker on SuperTasker). These are what have been termed e2e solutions, going deeper at both ends – supply & demand – to remove friction in the experience.

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Marketplaces are some of the hardest businesses to build (as our own testimony at PeoplePerHour shows). They are complex beasts with lots of moving parts, the parts need constant tweaking and polishing, and the sum of the parts – when they are put together properly – is greater than the whole (the ‘network effect’). It takes a lot of hard work, analysis, creativity and most of all persistence to get to what’s commonly called ‘critical mass’. But once you do marketplaces are some of the most defensible and beautiful businesses.continue reading »

Businesses exist to solve problems. This weekend I was at SWSXi where I had luck to meet and watch some of the top entrepreneurs in the world talk about the problems they solved, those that they didn’t get round to solving and are fixated on next. And all the while I kept thinking: how does this apply to our business at PeoplePerHour? And more importantly how does that form a coherent step by step strategy to win? And how are we executing towards it?

Below I summarize my thoughts drawing on some of the insight I gathered at SWSXi and applying our experience at PPH to date.

I believe this applies to any marketplace business. The problems we exist to solve are these 3 and in this sequence.

1. Distribution

Marketplaces exist first and foremost to aggregate and distribute content that’s ready for collaborative consumption (whether that’s a display of your spare room on Airbnb, your grandmas hand knitted sweater on Etsy, your unused car on Zipcar, your spare cash on Zopa or your skills and spare time on PeoplePerHour)continue reading »

Marketplaces are remarkable entities. As they growth they develop a mind of their own. Like an ant colony. They develop their own behavior and set of rules. And as they grow the entrepreneur has less and less power to giver it.

But fundamentally what drives marketplaces is their failure to do what is their exact purpose: to create a ‘match’ between the two parties, supply and demand. It’s their imbalance that drives them and creates the rules of engagement.

Am architects of a marketplace has 3 main levers to  pull; and these main levers are all aimed at constantly trying to rebalance and imbalanced marketplace. That’s the name of the game.

•  Economics
•  Emotion
•  Reputation

 By skillfully maneuvering these three, and the many moving parts within each of them, a successful marketplace emerges and grows. And as it grows the network effects get stronger until at some point it overtakes the architect’s power to do very much.

 Here I analyse these three levers and I draw on one very interesting analogy which – though seemingly wacky – has a lot of truth in it and has always fascinated me. The behaviour of marketplaces has stark similarities to dating. Why dating as an analogy? There’s probably more analogies to be made to surface the power of these 3 levers, economic policy making is another. But far more people relate to dating than policy making. Plus its far more interesting Jcontinue reading »