How to Build a Market-Network Platform
[Note: a shorter version of this article appeared on Techcrunch.]
Table of Contents:
Why Many B2B Service Marketplaces Failed
- Horizontal marketplaces are stuck at the discovery process
- Complex B2B services require workflow and collaboration tools
- Horizontal marketplaces suffer high attrition
What Makes A Successful Service Marketplace?
- STEP 1: SaaS Workflow Platform Unlocks High-Value Collaboration
- STEP 2: Integrated Network and Payments Automation Strengthens Connections
- STEP 3: Embedding Into Content Solutions and Matching Automation
Summary: Figure Out How to Unlock Value for All
Why Many B2B Service Marketplaces Failed
The last few decades have produced many successful marketplaces. We went from goods marketplace pioneers such as eBay and Amazon to simple service marketplaces such as Uber, Lyft, Doordash, Upwork, Thumbtack, TaskRabbit, and Fiverr. But why haven’t we seen many successful B2B service marketplaces?
Some would argue that companies such as Upwork, Thumbtack, Fiverr, or TaskRabbit are horizontal B2B marketplaces in the sense that they provide access to suppliers of different services. But while businesses do indeed transact with freelancers on such “horizontal” marketplaces, for most service verticals these are limited-value, one-off transactions. They fail to enable long-term business collaborations.
So, such marketplaces haven’t delivered more valuable services nor introduced a new paradigm for how businesses buy specific services at scale and on an on-going basis. Why is that?
Horizontal marketplaces are stuck at the discovery process
Horizontal services marketplaces don’t provide much value beyond matching clients with quality service providers. In other words, they don’t facilitate collaboration between buyers and suppliers, never mind provide ways for the two parties to collaborate more efficiently over time as they engage in follow-on projects.
In essence, the model these marketplaces were built around is not much different from the likes of Craigslist, which put a convenient UX on traditional classified advertisements.
Complex B2B services require workflow and collaboration tools
In their article “What’s Next for Marketplace Startups?,” Andrew Chen and Li Jin found that there aren’t many successful service marketplaces because those offerings are complex, diverse, and difficult to evaluate. It’s challenging to define a successful transaction in a service marketplace because it’s harder to quantify success.
One reason is that several service providers must often work together to complete a single job for a buyer, requiring a complex workflow from end to end. As a result, it’s difficult for marketplaces to not only mediate service delivery but also make it significantly more efficient for buyers and suppliers. If both the buyer and suppliers don’t see a significant efficiency gain other than being initially matched, why would they continue using the marketplace?
The $50 billion translation industry is a prime example of complex B2B services marketplaces. On the supply side are roughly 50,000 small agencies around the globe responsible for more than 85% of this $50 billion industry. (Note we are referring to agencies here as suppliers, though they play on both sides.) On the demand side are businesses that need to translate text from one language into another. Plus about 1,500,000 freelance linguists work in this industry, many of whom are more specialized than professionals in other industries.
Anyone can find and hire a translator on Fiverr or Upwork. Both provide a vast selection of language translators. However, the quality and cost of the translation depends on the translation tools available to the translator as well as their subject expertise. Neither Fiverr nor Upwork provide computer-aided translation (CAT) and collaborative workflow solutions for users of their platforms. Additionally, neither provides an effective way for all parties to collaborate and continuously improve the efficiency and quality.
But the problem with traditional marketplaces goes even further: Multiple translators and reviewers are usually needed to complete a single job for a customer. Multi-language translation projects are even more complicated. Such projects require multiple service providers and cost estimates, in addition to project management tools.
This is why building a B2B service marketplace is difficult. Service marketplaces must not only connect buyers and suppliers, but also provide tools to enable an efficient and collaborative workflow that reduces wasted time and effort.
Horizontal marketplaces suffer high attrition
In addition to the problems already outlined, traditional marketplaces experience another issue that prevents them from growing and retaining market participants: Buyer and supplier attrition.
Many business services are based on regularly recurring engagements. In some cases, a buyer and a service provider interact daily, requiring a different workflow than gig-marketplaces are built around. Buyers and suppliers have little motivation to continue interacting on a platform with no workflow automation solutions. They lack a way to improve service efficiency and quality, automate collaboration, payment, paperwork, and other basic processes required for a business.
This is why many traditional marketplaces suffer from slow network effects and high attrition. (A network effect is what happens when a platform, product, or service delivers more value the more it is used. Think Facebook, eBay, WhatsApp.) Why wouldn’t companies work directly with service providers outside of a marketplace after they were introduced? What incentives keep the service transaction on the marketplace? These are critical questions to answer when building a marketplace.
Traditional marketplaces target broad services, making it nearly impossible to provide workflow solutions for buyers and suppliers. Going forward, successful service marketplaces will be developed relying on an industry-specific SaaS workflow. This will focus buyers and suppliers on longer-term projects and interactions that serve the unique needs of collaborations and transactions in a specific vertical.
What Makes A Successful Service Marketplace?
A market network is a platform that combines elements of an n-sided marketplace, a network, and workflow solutions. An n-sided marketplace is one that requires coordination of multiple supply-side parties to provide a complex service for a single buyer.
Market networks enable multiple buyers and suppliers to interact, collaborate, and transact on the same platform. They provide users with industry-specific workflow solutions that enable efficient, ongoing collaboration on long-term projects. This reduces costs and leads to a higher quality of services and increased overall value for all users.
But how do you actually build a successful market-network platform? While the answer to that varies from company to company, here is our approach. We were able to build a market network for the translation industry that combines the components: network, marketplace, and workflow solution.
STEP 1: SaaS Workflow Platform Unlocks High-Value Collaboration
The first step to building an effective complex market network is to develop a workflow that is easy for users to embrace. It might not seem like much, but this increases productivity by enabling teams to perform tasks that were previously impossible.
Before founding Smartcat, I started and ran a successful translation agency. While many industries embraced cloud technologies, the majority of translation companies stuck with on-premise solutions. The slow adoption of new technologies like these has limited translation agencies in two ways.
1. Did not enable shift to continuous content delivery
Companies used to release batches of content to accompany yearly product releases. Since the shift to continuous delivery and the uptake of content marketing, we’ve seen a shift to continuous content delivery.
This created new requirements for the translation process as translation delivery had to become continuous. It requires processes that can be embedded into content management systems and enable online collaboration for linguists working together on each new job.
Moreover, to ensure projects are handled efficiently, translators need to access a centralized translation memory (a database that contains previously translated content that can be reused). Neither is possible with a desktop CAT product.
2. Limited growth due to higher costs
If a translation agency signs a large client, they often have to bring in additional translators. The average agency uses hundreds of freelancers, and never knows how many freelancers they need moving forward. Desktop CAT software is billed on a per-seat basis, meaning, each additional translator increases the cost of translation projects.
Notwithstanding the translation industry’s slow uptake of new technology, we realized that eventually all CAT solutions would migrate from on-premise to cloud. But just building a cloud CAT solution was not enough to quickly capture a large market share and establish connections for all market participants. We had to introduce a new go-to-market and monetization model that would unlock the network effect quickly.
Jump-starting the network effect
Our cloud-based CAT solution not only helps to translate much faster and better, it also enables collaboration between clients (i.e., agencies and end buyers) and translators. We knew our biggest value would be providing a network to connect and match all market participants and the collaborative workflow to enable the actual translation projects. So we decided to offer the software for free, hence removing all limitations for parties to invite each other onto the platform. This approach allowed us to:
1.Position agencies and freelancers for growth in the content economy:
Agencies and freelancers using Smartcat engaged more clients without increasing their software costs since they didn’t have to purchase seats for each freelance translator. Plus they gained the ability to address the rising tide of new content, scaling fast and delivering large volumes continuously.
2. Increase viral acquisition and the network effect: Since Smartcat is a free solution, agencies could bring on their translators without incurring additional costs. This brought even more users to the platform and made it more valuable for everyone.
3. Collect product feedback faster: By handling projects at scale, we’re able to quickly come up with ideas for new features that enhance the user experience.
So, once we uncovered the way to hack the go-to-market problem and kick-start the network effect, we moved to the second phase.
STEP 2: Integrated Network and Payments Automation Strengthens Connections
To build a successful market network, you need to help marketplace participants to discover each other, collaborate, and complete the transaction on the platform. In vertical marketplaces, financial services also accelerate the network effect.
Smartcat allows translation agencies and end customers to manage every project and every supplier in a centralized location. Doing so creates a natural demand for two important things that define our major monetization streams.
- Finding and hiring new suppliers: This process is one of the keys — and most challenging — tasks in the highly fragmented translation industry. It’s highly appealing and feels natural to do this without leaving the platform where you already manage your contractors.
In fact, freelance translators were the primary early adopters of our free-to-use CAT solution as most of them were tired of using overpriced desktop applications. Since releasing our CAT solution, we have seen several thousand freelance registrations every month. Now we list more than 300,000 freelance linguists, which is more than 20% of all freelance translators globally. We also have a variety of non-translation professionals on the platform.
Our free software allowed freelancers to boost productivity when working with their own customers, which they win independently of Smartcat. We have asked each freelancer for permission to list their profile on our network, and the majority gladly agree even though we didn’t promise to bring them jobs immediately. (If an agency adds its freelancers onto Smartcat, the agency decides if the freelancers will be listed in the public marketplace.)
As more agencies moved their operations to Smartcat, our network helped them find and hire new suppliers. This reduced the need for agencies to leave our platform. Meanwhile more and more freelancers were also getting new projects from agencies and end customers. In other words, the demand for translation services on our marketplace grew organically.
But what if you are a company that has a large amount of translation projects? Or what if you are a larger agency that wants to subcontract with a smaller local agency? No platform helped you with this before we offered it on Smartcat.
This is why we created agency profiles. These pages allow every agency to showcase their work, be found via search, and generate new leads and business. Now anyone can search for and hire an agency based on services provided, language pairs, and subject expertise.
Our network effect multiplied. Smartcat helps companies hire individual translators for smaller projects, while agencies often handle larger projects more efficiently. Agencies can turn around and hire other agencies for some languages or projects and individual translators for others, and combine it all into one collaborative workflow.
Two elements were key to making Smartcat work for three distinct market participants (end customers, agencies, and individual translators). The first was providing the necessary collaboration and translation solutions on the platform. The second is that this collaboration and translation is 10x more efficient with Smartcat than outside the platform.
The marketplace’s value also increased many fold because it became a contained, working ecosystem where better collaboration reduced inefficiencies and wasted costs.
The figure below shows how the network effect multiplies when many parties collaborate with one another and some, like translation agencies, both buy and sell services (becoming both buyers and suppliers).
2. Payments and paperwork (and the whole Accounts Payable — AP — process): It’s a tedious process with high-volume marketplaces. We knew early on that we wanted to automate payment to all agencies and freelancers, even those hired outside our marketplace.
Why is this process so painful in the translation industry?
Problem #1: Determining Payment Amount
In the translation industry, payments are calculated on a per-word basis. Tracking the number of translated words isn’t a straightforward process because it requires accounting for all repetitive sentences that are translated with the help of technology, and hence shouldn’t be fully counted toward the final payment amount.
Problem #2: Sending Payments
Determining payment amounts are only the first part of the problem. The other challenge is global payment processing since there’s no cost effective payment solution that works across the globe. PayPal is used by many, but fees can total up to 10% of the payment. Bank transfers, although common, also are expensive.
Agencies were happy to pay us a nominal fee to handle all supplier management duties. When customers use Smartcat to manage their translation process, find new business, and manage suppliers, we deliver more value. In turn, that boosts our revenue.
In “How Fintech Will Unlock Enormous Value,” Peter Flint, Managing Partner at NFX Ventures, explains that marketplaces (especially, n-sided marketplaces) revolve around complicated service offerings and higher transaction volumes which require more sophisticated finance services. This shift to finance-enabled marketplaces will revolutionize and digitize many services within laggard industries. And we believe there is much more value to unlock with our industry-specific AP and Accounts Receivable solutions.
In fact, our payment automation and supplier management process was successful to the point that agencies used us for those functions alone. They eventually chose to use our CAT solution.
STEP 3: Embedding Into Content Solutions and Matching Automation
The final phase of developing a successful market network is finding a way to integrate service delivery into the buyer’s existing technologies. Doing so allows market network to improve the overall customer experience by making the service delivery continuous, more efficient, and transparent.
In the translation industry we found a way to enable continuous service delivery (we call it “Connected Translation” in our case) by integrating with the buyer’s tech stack. But continuous delivery won’t work if the marketplace doesn’t automate a buyer-supplier matching process.
The translation industry is incredibly fragmented on both the demand and supply sides. Each language pair and topic defines a unique skill set for a particular content translation. So when you need to translate from Korean into Chinese for the topic of, say, crypto, it can take some time to find the best translation team for the project. But to automate matching you need exponentially more data covering over 80% of all suppliers globally, when you are building a market network like ours.
We see the same type of fragmentation on the buyer side. Millions of companies around the world pay for translations, most of them by working with small local agencies for years. Addressing this fragmentation was the third essential step.
To enable all this and create a scalable infrastructure and operating system for the industry, we needed the following components:
- Integrations into content management systems that are used by the majority of buyers within the content economy. It’s a far cry from setting up continuous content delivery in multiple channels in a single language (e.g. using HubSpot and WordPress for source content management). Agencies struggle with legacy tools that don’t allow for an easy integration and connected translation process. As a result, they end up manually managing almost every content translation. This leads to as much as 58% of time going to waste in the translation supply chain (according to CSA Research), which significantly reduces margins.
- Automated matching to help agencies and end customers identify the best suppliers (both individual freelancers and other agencies) and workflows for different content types, language pairs, domains, etc. In our industry, matching buyers with suppliers is complicated since thousands of skill set combinations define the suitability of a supplier for a job. The complexity multiplies as many suppliers usually work on a single job. It’s a challenge we’re working to address.
The key to build a market network is to capture the entire supply chain in a single platform. Meaning everything from integration with an end customer’s content repository; Accounts Receivable and customer relationship management; to workflow and supplier management, including Accounts Payable automation. It even includes on-demand scalability of the supply chain. When all of these are available in a single platform, a continuous delivery process for multilingual content becomes a reality.
The second piece, automated matching, has puzzled the industry for years. It became a reality when cloud tools started helping buyers collect and analyze data about their supplier performance in real time. That said, this major technology shift hasn’t seen significant uptake yet. As a result, matching suppliers with buyers in a collaborative way continues to be one of the major sources of waste for all market participants: end customers, agencies, and freelancers.
Overall, matching is a very complex problem in verticals where:
- Supply is highly fragmented, and a particular supplier is only successful if their unique skill set is matched with buyer demand. This matching opportunity is untapped in most service verticals, as matching primarily happens manually, leading to waste in the supply chain.
- Completing a single job for one buyer often requires many suppliers (aka n-sided marketplace). These suppliers should be identified based on their unique skill sets and work together in a workflow that is specific to the vertical and can adapt from buyer to buyer, or from task to task.
Summary: Figure Out How to Unlock Value for All
The key to building a successful market network is to figure out what combination of workflow solutions and processes will unlock the most value for everyone in the ecosystem. The translation marketplace is inherently complex with many participants who are both buyers and suppliers. Bringing all the parties into one ecosystem enabled us to unlock major network effect forces.
Force #1: Free industry-specific workflow solution
Our free CAT solution drove many translators and agencies to adopt our platform. It is now the foundation for efficient collaboration of all market participants, which facilitates long-term interactions and creates more value over time.
Force #2: Get more business
By building a network of buyers and suppliers, we were able to attract more demand, which provides a high incentive for other agencies and translators to join. This in turn gives buyers (i.e., agencies as well as end customers) more confidence that they will benefit from being in the network.
Force #3: Payments and Administrative Routines
Our payment solution solves a difficult industry problem. In fact, it became a standalone force compelling buyers and suppliers to join our platform, and hence multiplies the network effect.
Force #4: Embedding into Content Management Solutions and Processes
This turned out to be a driving force in our industry as it is going through a major transformation. Legacy translation processes are disconnected from where content is being created and distributed, hence creating inefficiencies and waste when dealing with continuous delivery demand.
Force #5: Find Suppliers
In our industry, matching buyers with suppliers is complicated since thousands of skill combinations define the suitability of a translator for a job.
Developing a B2B market network that goes beyond basic matchmaking isn’t something that’s easily done. That being said, if you’re considering launching your own market network, keep these core lessons in mind:
- Build a workflow that makes the collaboration process between buyers and suppliers significantly more efficient, focuses on long-term interactions, and increases the network’s value over time.
- Consider pricing model innovations. Don’t charge for every new user. Like Bill Gurley said six years ago: “The most dangerous strategy for any platform company is to price too high.”
- Find a way to engage all players in the supply chain on the network. And figure out a way to enable a complete supply-demand experience for them. Sometimes it requires building several more products in addition to your core ones, and hence may be hard to finance and manage. Increase the number of forces that pull market players into the marketplace so you can further amplify your network effect.
- Remember that matching and other quality-related processes are probably the hardest to solve at scale in service verticals. Hence they may unleash the biggest value for users once resolved.
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Further reading: Connected Translation: The new paradigm for the language industry