Dan Hockenmaier: prediction

Transcript context

…You made that point to me once when we were talking about marketplaces years ago, and that's so stuck with me that when evaluating marketplaces in B2B especially, usually the reason it's not going to work is just it's not fragmented enough. And just to double click there, can you explain what that means? What does fragmentation mean in a marketplace context? And then are there any examples of really low fragmentation of this will never work as a marketplace? And then here it's really high and this is why it's working? Fragmentation is basically just a measure of how many total businesses are there in the space relative to the transaction volume in that space. And if you took the top 5% of suppliers in the space, what percentage of the total volume are they doing? And the higher that percentage is, the less fragmented you are. The challenge that creates for a marketplace is if there's 10 companies in a space that are doing 80% of the volume, it's very important for me to have a relationship with those 10 companies. But those 10 companies are also big enough to have their own sales teams, have their own internal operations. They just need less from a marketplace and, as a result, they're going to be willing to pay less. And you're also probably going to see many more problems with disintermediation, which is when the supplier and the customer go around the marketplace because they can just transact themselves. One principle to use here is how many total dollars are attached to each transaction in the marketplace. When it goes above a certain amount, it becomes much more attractive to figure out how to go around the marketplace. With ride sharing, for example, the absolute dollars of commission on a ride is $2 or $3. Is it worth it for the driver to figure out how to call the passenger two minutes in advance, go around Uber and pick them up? Maybe. You probably see some of that happening, but usually not. But now take there's a bunch of people in the kind of material space within B2B marketplaces, you have manufacturers of say beauty products who need to source aerosol cans and all the inputs into making beauty products. There's not that many of these big suppliers and each of their transactions may be tens of thousands of dollars, hundreds of thousands of dollars, millions of dollars. The commission you would charge on that order is too high because a supplier would rather just pick up the phone and call this person and save those tens of thousands of dollars. And so you just run into these kind of fundamental problems where a marketplace doesn't work anymore. That makes sense. Basically, how much value are you bringing to this market? And if it's not enough where you can charge anything meaningful to run a business is just not going to work. And so that's a really good way of framing it. Final question around marketplaces and, broadly, and I'll let you go. You've spent a lot of time on marketplaces. You've seen their evolution. You've worked on this maybe for the past decade. Where do you see the future of marketplaces going?…

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