We’ve been speaking with investors over the past several weeks.  Most will contextualize BuildZoom as an online marketplace, which makes sense.

What gets tricky is that “online marketplace” comes with certain associations and assumptions, based on existing online marketplaces.  Online marketplaces are differentiated by several variables:

Commodity type

  1. Some online marketplaces deal in physical products (e.g. Amazon, eBay)
  2. Virtual commodities like information or currency (e.g. Angie’s List; PayPal)
  3. Services (e.g. oDesk).

Marketplace participants 

  1. Buyers & sellers (e.g. Amazon) – People tend to be either buyers or sellers.
  2. Peer-to-peer (e.g. PayPal) – People tend to be both buyers & sellers.

Based on these two variables, different online marketplaces will exhibit different characteristics:

  1. Distribution – How the commodity is delivered.
  2. Scarcity – Whether or not the commodity is limited.
  3. Financial – How revenue is generated.
  4. Time – How long it takes to deliver the commodity.

The aforementioned variables will also determine:

  1. How a network effect is created
  2. Whether a monopoly is possible
  3. The role the online marketplace will play in the actual market.

To test the framework, let’s consider PayPal:

  1. Commodity type = currency.
  2. Marketplace participants = peer-to-peer.
  3. Distribution – since the marketplace deals in a virtual commodity, distribution happens entirely online.
  4. Scarcity – commodity in the marketplace is not limited; the limit is based on the currency owned by peers in the network.
  5. Financial – revenue is generated by taking a percentage of the currency being traded.
  6. Time – close to immediate.
  7. Network effect – created when enough peers are in the marketplace to make the action more convenient than alternatives.
  8. How a monopoly is achieved – probably through brand & network effect.
  9. Role – to broker the transaction.

PayPal is a relatively simple marketplace to map.  In the future, I’ll try to apply the framework to other types of marketplaces.