Güimar

Most of the successful peer-to-peer marketplaces are purchase-oriented. The graph below categorizes some of the most successful peer-to-peer marketplaces and divides them by transaction type: rental versus purchase.

There are two fundamental problems with rental marketplaces:

The average order value for most of them is too low

Frequency from demand-side renters is too low

Incentivizing supply in any marketplace is really important to get liquidity. In most of the examples in the purchase category, the supplier of the products or services can make a living out of his or her activities in the marketplace.

Consequently, suppliers care about the existence of the marketplace and become dependent on it. The only companies where people are not making a living on them are Beepi or Opendoor, but in those cases, sellers are selling goods that represent a high percentage of their net worth: cars and houses.

The ratio between supply and demand for rental marketplaces is typically one-to-many. The owner of a house can rent it to multiple consumers. The relationship between demand and supply is also not monogamous. Renting is cheaper than buying, and consumers have the ability to use a good even if their own frequency of usage is very low.

However, the very fact that renting is cheaper than buying generates a problem for supply-side renters. There are very few categories where the average order value for renting something is high enough to warrant renting it out.

Airbnb and HomeAway work because people actually make a living using them. Renting your home for $100 per night is more than the annual income of a lot of people. If you rented it every night, it would put you in the top 0.75 percent of income earners worldwide. When suppliers can make a living using your platform, it makes a huge difference in their engagement, and increases fill rates.

Suppliers in a rental marketplace typically do double the work as suppliers in purchase-based models. Suppliers in rental marketplaces need to coordinate delivery and logistics both ways, which typically leads to more friction. The combination of more work and low average order values are not great incentives for suppliers.

Rental marketplaces are typically demand-pick, which means they have a big variance in fill rates (the number of requests from users that are actually fulfilled by the marketplace). People on Airbnb who do the best take great pictures, write nice descriptions, put the right price, keep their calendars up to date and respond quickly. All of these things are so important that there are even services like Pillow that help people do this. It’s already common for people to spend a lot more time creating their online profile on Airbnb. Airbnb renters know that even though demand is very strong, there will always be unmet capacity. The occupancy rate in the hotel industry is typically 65-70 percent of rooms every day. Assuming Airbnb has a similar utilization rate, suppliers know they need to “fight” against other renters and appear in the top results to be able to rent out their place.

People who really care reply within a few minutes and try to be nice to potential guests. This behavior increases the fill rate of a marketplace and, thus, the liquidity. On other rental marketplaces, where there are lower average order values, suppliers are less engaged and the outcomes are worse overall.

Going horizontal is also not a great choice for rental marketplace with low average order values. We’ve seen many try to do that before, like Zilok. They always struggle to build liquidity. Horizontal rental marketplaces have too many specific SKUs, and it is also very unlikely to make the supply work so much to upload all their available inventory before providing value first. The sooner any marketplace proves to their suppliers that they can make a living out of it, the sooner it will hit an inflection point.

The second big problem rental-based marketplaces have is low-frequency of usage from demand-side renters. Somebody renting a DSLR camera for a wedding doesn’t shoot a wedding every month. This doesn’t affect the supply-side renters, because the relationship between supply and demand is one-to-many.

Such behavior, however, creates a big problem for the marketplace itself. If the marketplace has low average order values, it will only net small dollar amounts for each demand-side renter.

A growth strategy in such cases is not sustainable because the marketplace needs to acquire new demand-side renters via paid channels, and the economics may prove challenging if there is no recurrence on the demand side.

Rental marketplaces are probably best suited for goods for which the suppliers don’t care at all and for which there’s little to no friction. A good example is a new startup called Yeloha where people rent their roofs for solar panel installation. Such an approach makes sense, because the cost for the supplier is zero, and it doesn’t need interactions with the renter. Another example is Breather where people rent a room for a few hours. Breather is a verticalized model that tries to avoid any human interactions. If you rent have a place and want to rent it via Breather, you never need to interact with customers. They install a smart lock so the experience is as smooth as possible. In this case, again, suppliers can make a living out of renting their place.

It’s already common knowledge that the latest wave of marketplaces are vertical plays attacking horizontal behemoths like eBay or Craigslist. Disruptive online marketplaces not only connect demand and supply but enhance the experience in a way others can’t. Vertical marketplaces provide such enhancing dynamics that give them a comparative advantage versus horizontal ones. The problem is that not all vertical marketplaces are equally disruptive or defensible.

It’s important not to confuse the attack of a vertical which refers to a specific segment of the economy (e.g. cars, books, food,etc) versus a verticalized business model which refers to the vertical integration of production of a service.

Vertical marketplaces have 3 fundamental types of innovation: (i) verticalization (ii) aggregation (iii) automation.

A true vertical marketplace, as mentioned, are those who typically internalize processes in order to make transactions happen. These marketplaces not only aggregate demand and supply but make the matching experience fundamentally better. A good example is Beepi, the end-to-end car marketplace. Beepi not only skips the used dealers to help sellers find buyers but actively participates in the process from inspecting the cars to doing the title transfer and shipping. Food delivery company, Sprig, is another great example of true verticalization as they plan their food menu and manage their logistics network through their dispatching app. The more work these companies do the lower the gross margin from their take rate will be. Nonetheless, such action are typically needed to be able to fundamentally change the way supply and demand interacted before their existence. On the bright side, the aforementioned examples have one of the two key characteristics a vertical marketplace needs to have: either high order tickets or high frequency. Verticalized business models typically work best in segments where the current players have abussive profits like car dealers Beepi or real estate brokers (Compass, Redfin).

The second way marketplaces innovate is through aggregation. As the name suggests, these marketplace provide additional value by aggregating supply and (sometimes) demand. Classpass provides a lot more value to their users by aggregating supply under their unique pricing model. No single gym or chain can provide the same value by itself. Other examples of aggregation such as Cargomatic and Uber have very strong network effects as supply scales. The higher the fill rate and the lower the average pick up time, the more dominant they become. The best type of aggregation marketplace are those whose supply was inaccessible or non-existant to consumers like Airbnb.

There are also aggregation marketplaces with some verticalized components like Doordash or FlyCleaners. Both of them aggregate suppliers, restaurants and dry cleaners, but internalize part of the service by providing the logistics and delivery. In both cases, pure aggregation wouldn’t work because Doordash’s restaurants typically don’t deliver and FlyCleaners’ service providers don’t have the right infrastructure.

The last form of innovation is through automation. These marketplaces typically tackle inefficient markets by professionalizing them and building a trusted brand. Nonetheless, such marketplaces have lower network effects and a feeble customer loyalty. Concrete examples are those of Shyp, Handy and, the now defunct, Homejoy. Before these marketplaces, the customer experience was fundamentally broken with low service quality. This type of innovation heavily relies on stellar execution. A home cleaning marketplace becomes increasingly hard as it scales because it’s harder to keep high quality supply. Unfortunately, Homejoy expanded too fast and couldn’t control supply quality and thus had to cope with churn. Managed by Q is a company that operates in the same segment but a model which is fundamentally better given their cleaners are W2s to ensure quality of service. Managed by Q also understood the benefits of economies of scope in B2B clients that represents less churn and higher average order values.

Building a successful ‘vertical’ marketplace needs:

To fundamentally improve the experience for all of the parties involved to be sustainable.

Strong network effects as a consequence of user behavior and business model architecture.

Have sustainable unit economics for supply and demand at scale

Understand market dynamics to choose the appropriate type of innovation

Provide on-demand service only when there’s a real need and don’t sacrifice profitability.

Infrastructure for Marketplaces: The Shovels and Picks of the End-to-End Marketplace Gold Rush!

Building marketplaces is really hard. The hardest nut to crack is building liquidity: having a critical mass of buyers and sellers. One of the main reasons marketplaces fail is that they don’t live up to the expectations of their buyers, and consequently, of their sellers. Buyers typically not only expect the type of quality of service to be comparable to that of an Amazonor Zappos, but also, they are unaware that the service in a marketplace is provided by a third party rather than by the company itself.

Given these high expectations, marketplaces work hard to improve the quality of their suppliers. Many marketplaces have regular training seasons to do so. Airbnb teaches its hosts how to treat their guests upon arrival, how to promote their home on their website, and how to optimize prices depending on the season, etc. Skillshare trains their teachers how to manage student expectations, how to choose the right venue and select the right schedule for the class, etc. Marketplaces make their suppliers do a lot of work!

People tend to mimic each other. If there are a few sub-par sellers who write lousy descriptions and take low quality photos, then often the supply quality of the marketplace as a whole starts declining as other suppliers think it’s ok to do the same (which is less work than doing a good job). Airbnb realized hosts were really bad at taking high quality photographs of their homes, so they hired professional photographers to raise the bar. Although any user can request to use the photography service for free, even hosts who take pictures by themselves improved their quality significantly by mimicking the work of the pros. It’s crucial to provide guidance to sellers in a marketplace. Airbnb competes against Booking.com and hotel experiences; as such they need to provide a superb experience for renters pre-booking and during their stay.

Building an infrastructure around marketplaces is crucial since it enables new markets to arise.OpenTable and Mindbody created the marketplace at the same time as they created its infrastructure. OpenTable could not operate their marketplace efficiently if restaurants did not have a proper reservation management system, so they created one alongside with the marketplace itself. These are concrete examples in which the infrastructure the marketplace needed was very specific, and hence, one company could take care of it. However, most of the marketplaces need infrastructure for several functions and cannot build everything themselves.

Sellers have multiple needs that are hard to fulfill at the beginning. A seller in a marketplace likeeBay or Etsy needs to get reviews, determine pricing, ship their products, take pictures, manage their inventory etc. What would happen if somebody else (and, by somebody else, I mean technology) replaces all those needs? There’s a new wave of companies trying to fulfill all these needs to help marketplaces reach a liquidity inflection point faster.Shippo helps sellers handle shipping labels automatically and get the best shipping prices. Boostable helps sellers handle online marketing to boost their sales. Stitch Labs helps sellers deal with inventory management across platforms. Real Trends helps marketplaces communicate with buyers through their CRM.FotoFuze helps sellers take white-background photos with their phones. All these companies provide the right infrastructure for open transactional marketplaces and strengthen their position as the quality of the supply-side improves dramatically. They sometimes make them look like next generation end-to-end marketplaces. For instance, AirEnvy andSuperhost take 100% of the hassle away from hosts on Airbnb.

There is a huge gold rush towards end-to-end service augmentedmarketplaces like Uber,Handybook, UrbanCompass and Beepi. These marketplaces do most of the work for buyers and sellers. They make up for the lack of training and inefficiencies suppliers have. These new marketplaces have raised billions of dollars over the past few years and already served hundreds of thousands of users. The rise of end-to-end marketplaces calls for a completely different type of infrastructure, which is targeted separately to the marketplace itself and to the service providers. The needs Uber, HomeJoy, Flycleaners or Sprig have are completely different than the ones needed by open marketplaces.

Many of the new end-to-end marketplaces are built around the on-demand economy and work with contractors on the supply side. Marketplaces needs now include a completely different spectrum of services. They need things such as background checks for their drivers (Checkr.io) or an optimized routing system (Trak by Addy) among many others. The new relationship between contractors and marketplaces also creates a myriad of opportunities and the need of proper infrastructure. Companies like Zen99 are already selling insurance to contractors and helping them with their 1099 forms. Others like Breeze help potential contractors to rent a car and get started in Uber or Lyft automatically. How do drivers optimize which marketplaces to use based on timing and demand? Is there a better way to provide insurance to cars that work on multiple marketplaces? What type of logistic services will self-driving cars bring? We will see more infrastructure companies targeted both to the marketplaces themselves as well as to the service providers. There’s a new economy surging and there’s a clear need for proper infrastructure.

“Motivation is what gets you started. Habit is what keeps you going.” - Jim Rohn

Every January 1st we get a new blank book. We celebrate saying goodbye to a year that is now part of our past and welcome with hope a new coming year. New Years Eve is a special moment we all remember that gives us closure for our recent experiences. January 1st is the biggest "Monday" of the year in which we promise ourselves, "Starting tomorrow, things will be different".

When I look back at my life, I like to divide it into small chapters. The start of a new year marks the difference between the old you and the new, hopefully, better you. Such dichotomy often comes with a handful of resolutions we want to accomplish to achieve that better version of ourselves we all yearn.

Setting a list of resolutions is certainly a great thing to do. Nonetheless, resolutions as we know them have a major problem, they simply don't work. There's a reason why gyms are full in January but are under-capacity in September. Resolutions in my perspective have two main problems. To begin with, people rarely set up rewards for achieving their objectives and thus lose motivation soon. Secondly, and most importantly, many resolutions are one time goals that are usually not sustainable over time.

Creating habits is better than setting one time goals as habits increase our chances of success as we perform them repeatedly. Moreover, creating healthy and sustainable habits is the only path to building a better you in the long term. Setting goals makes you feel unfulfilled until you fully achieve such goal, whereas creating habits gives you fulfillment as long as you are doing them.

2014 is the first time I'm writing down my resolutions, which I've decided to make public to put an extra pressure on myself. 

My 2014 resolutions:

-Learn to Code

I want to become a decent full-stack developer able to build simple apps whenever I want to and also be proficient enough to read code and fully understand the architecture of an app. I will start using Codeacademy for the basics and then pass to other platforms. I will initially start with two one-hour weekly sessions of Javascript.

-Get a six pack for the first time

I'm usually not perceived as the epitome of sportsmanship by my friends and family. However it is high time I finally get really fit and satisfied with my fitness. I'm not a big fan of going to the gym or running. I get bored really easily. The solution is doing things fast! I will do the Scientific 7-Minute Workout at least 5 times per week in additional to recreational tennis and football.

-Read a new book every 2 weeks

I have a tendency to read 5 books at the same time and realized it just doesn't work. I am unable to fully grasp all the insights of every book at the same time, and I rarely finish all books. In order to sustainably read a new book every two weeks I will have to make a bunch of adjustments. I will only read only read one book at a time and don't stop until I finish it. If I don't like the book, I will stop reading it and don't pick it up ever again. I also just bought a Kindle Paperwhite. I've been reading from my iPad or iPhone, and it just doesn't work. I can't read under the sun and my eyes hurt after a few hours. No more excuses. I will also try to read faster.

-Be fully spontaneous once a month

As much as I love my work and what I do, I don't like being dragged into a repeating routine. Once a month, I will set an alarm to remind me to do something spontaneously crazy and unconventional. I will set a minimum budget of $100

-Explore the world

I've been lucky enough to visit 121 cities and 35 countries by age 24. I think that exploring the world is one of the most precious treasures someone can have. I want to keep my pace of visiting new cities and countries. Although it is harder (and expensive) to have traveling as a habit, I want to set a minimum of 3 cities per year. 

-Keep in touch with loved ones

I have lived in 6 countries and have many friends spread all over the world as well as my family. It is really hard to keep in touch with many of them and do it as often as I would like. I am setting 1 hour every two weeks to write emails and send messages to people I value enough to keep in touch.  -Truly helping others achieve a better life

Although I can't make a full time commitment to strive for somebody else's life, I realized that I can dedicate  time to others and make a big impact even if my help was not the main reason of their success. I also realized that the most effective way of doing so is by helping one person at a time. I can proudly say I think I've had a big impact in the lives of two individuals during 2013 and feel great about it. Whether it is helping them to get their dream job, fix their current relationships or get into college, a constant marginal effort from you can make a big difference. I've found myself helping others by chance and still didn't figure out how to get myself into these situations in a systematic way. Nonetheless, I want to radically impact the lives of 4 people in 2014. An in the meantime, I can keep lending money via Kiva

-Becoming a better investor and entrepreneur

"Every man’s life ends the same way. It is only the details of how he lived and how he died that distinguish one man from another." - Ernest Hemingway 

A few months ago, I started working with Fabrice Grinda and Jose Marin, seasoned investors and remarkable serial entrepreneurs. I moved to a small town called Cabarete located on the north side of Dominican Republic to be able to work hand-in-hand with Fabrice.  Only a few days after I had arrived, I got an email from Fabrice saying “Details, details”. I had made a silly mistake scheduling a call with an entrepreneur. Although it wasn’t something of great importance I really got frustrated with myself. I wanted my performance to be flawless and off the charts. I went to bed still thinking about the email, “Details, details”. It was such a succinct but incisive message.  

After probably over-thinking about the concept of details for the past few weeks, I can say they matter a lot and have a huge impact on your life. It’s not that I was never aware of details before, I just wasn’t constantly self-aware of the big impact they had not only in the long term, but also in real time.  Now, let’s get geeky and use an online marketing analogy. Google Adwords is most of the times the obvious channel through which a startup can acquire customers and drive traffic. If you sell socks online, you pay Google to show your ad every time someone types the keyword ‘socks’. The problem arises when multiple marketers want to advertise over the same keyword. How does Google determine your position? There are several variables including quality score, relevance and CTR, but let’s assume they are equal among bidders for the sake of simplicity. We are left with one variable which is the bidding per keyword itself. Humans innately like round numbers and will most likely choose $1.00 or $2.00 as our bid.   

Now, what happens if you bid $1.01 or $2.01? If everything else is "ceteris paribus", your ad places first. From the image below you can see your ad will have more than 100% more conversion than the second one. One cent, one small detail made all the difference.

Whether you have a startup or a small coffee shop, remember the devil is in the details. Be thoughtful about details and they will make a huge difference. Zappos and Warby Parker, two of the most lauded companies for customer service don’t do things that much different from the rest. Their obsession about details in customer service is what gives customers that “Wow!” experience and turns them into fans.    

Details make the difference between a lousy first impression and a lasting one. If you are doing business with a Chinese business person, use both hands to hand in your business card.

Details make the difference between a passionate intimate relationship and a mediocre one. Don’t wait for a ‘special’ occasion to give a gift. Buy her (or him) a rose today just because! 

“Happiness is when what you think, what you say, and what you do are in harmony.” ―Mahatma Gandhi

Many times we spend more time struggling to have a perfect life instead of a happy life. We are all born with something called ‘ego’ that pushes us to pursue a theoretical perfect life.  Our ego tries to convince us that we should live with no mistakes or failures. Nonetheless, what our ego fails to tell us is that imperfection is an essential part of life and that we should learn to embrace it.

Let’s start by pointing out the main differences between political figures and leaders. A leader inspires others by his or her sincere actions and not by the power he or she has. A political figure usually uses reverse engineering to plan ahead and make decisions that help individuals or lobbyists who support them directly. Politicians usually have short-term vision because their ‘power’ will only last a few years, whereas leaders have long-term convictions and values. Politicians care about their image and acceptance, while leaders feel comfortable with controversy and change.

My personal experience has taught me that a genuine leader has to be empathic. Every time we listen to someone we “buy” that person before “buying” what he or she preaches. If that person is successful at creating an empathic connection with us, he or she will most certainly inspire us and become a leader. A leader knows how to be close enough to create this bond but at the same time remain far enough to lead. All of us can be empathic by just being who we are, communicating our story effectively and understanding others’ feelings.

I believe that the beauty about the concept of leadership is its adaptability and flexibility. There can be many leaders within the same group as well as different types of leaderships at any given moment. As any other sociological phenomenon, people assume leadership roles depending on the characteristics of that particular group. In spite of these differences, all leaders embrace empowerment. A leader empowers others to inspire action and simultaneously nurture other emerging leaders.

Becoming a leader doesn’t imply to have political power or a fancy title. A leader doesn’t need to be old or young. A leader has to inspire action and be genuine. I believe John Quincy Adams couldn’t have said it better:

As an economist, I use the term opportunity cost often. This simple, yet powerful concept is probably what I appreciate the most from economics and find it useful dozens of times per day.

It doesn’t matter who you want to become or what is your objective in life, you will have to face many tough decisions and it is crucial to know how to handle these decisions. Making good decisions is probably one of the most important aspects in life. After all, you are the results of your past decisions.

"You only live once, but if you do it right, once is enough." - Mae West

This simple idea has really been groundbreaking for me when I realized how important it actually is. Most of the things we do on a daily basis are easily accesible and can be read, studied, analyzed and more by all our descendants and future generations. Every post on facebook, twitter, Instagram and other networks, tell the world ( and our future generations) a little bit of who we are. At the end of the day, the actions and choices we make are what ultimately make who we are and who we will become. 

Once I actually understood what this epiphany meant, I realized that we have a big responsibility in our hands. Our lives obviously have a deep personal meaning for each one of us. However, if you think beyond that, your life is the manifestation of your thoughts, ideals, values and moral codes. These abstract terms, are far greater than ourselves because they will last forever. Today, we have the opportunity but also the responsibility of leaving an important legacy behind us. I want my future descendants to be able to look back in time to be inspired and learn from our wisdom and values.

This is one of the reasons why I decided to start writing a blog. Although I've always thought of writing one, I think I needed that extra push and motivation to finally get started. I hope this blog will show a little bit more of me, my thoughts, ideas, values, dreams and goals. I get goosebumps whenever I think this very post is possibly being read by my future grandchildren. 

Today, I found this quote:

"Write something worth reading or do something worth writing." - Benjamin Franklin

I hope I can do both.