How can an intermediary service protect itself from “bypassing it” transactions

Original author: Rafi Syed and Jeremy Levine
  • Transfer

Internet “markets” (from Craigslist to eBay and Airbnb, among many others) make money by letting buyers and sellers find each other. Many of these early services like Craigslist were simple bulletin boards, but more attractive transactional and end-to-end models are growing, and we assume that they will dominate in the end.

But such models have a key risk: disintermediation, in which the buyer decides to work directly with the seller instead of using the platform (for example, he finds the owner of the apartment on Airbnb, and then negotiates with him directly outside the site, avoiding commission). With sites like Craigslist, this wasn’t a big deal, because they charge money for posting ads and get their income as soon as it appears. And with the transaction market, placement is usually free, so Airbnb does not receive money until payment is completed. And if it happens “somewhere outside”, then it does not receive them at all.

Transactional markets should prevent (or better yet, prevent) disintermediation in order to protect their income. Thanks to our investment experiencein several pioneers of the trend, we got acquainted with some smart ways of fighting:

1. To establish the right level: to determine the right commission size for your market is more an art based on experimentation and competition than an exact science. The general theory is that there are markets with a higher commission where the buyer does not know the identity of the seller (for example, Crown and Caliber ), and with a low one where he knows (for example, Tradesy ). When the seller and the buyer know each other, the risk of using “workarounds” increases, so the commission should be lower. A well-chosen level of commission allows you to avoid not only disintermediation, but also overpriced goods that frighten customers.

2. Own a communication channel:if a traveler wants to book a room on Airbnb, he has no choice but to use Airbnb's communications facilities. Any attempt to do otherwise is cleverly blocked: the phone numbers in messages are calculated and deleted, as well as email addresses. Even attempts to communicate your last name (so that a person can find you on LinkedIn or Facebook) are often thwarted. And Uber, using the Twilio service, provides drivers and passengers with a temporary phone number, which later stops working, preventing them from contacting directly again. Closed communication can be an additional advantage for customers, if this is done conveniently, allowing you to find all the details of the transaction in one place. It also allows the service to detect fraud, abuse and signs of disintermediation.

3. Giving "not only communication":The main value of the market is that it allows supply and demand to find each other and establish a connection. But when the service grows and begins to offer additional features to any of the parties separately, it becomes even more valuable. For example, on a site for selling unused gift cards, sellers get a panel that displays all their sales, top-selling options, average time spent selling for cards of different brands. These free features are only available for transactions passing through the service. If the seller contacts customers bypassing, it loses the ability to track this data.

4. Inventive approach to control: Aristotle Circle servicefor teaching services does not want teachers to work with clients in addition to classes officially registered in Aristotle Circle. To achieve this, the company uses regional field coordinators to help recruit faculty. Usually these are active parents involved in relevant organizations that keep their ears open. If they hear that a parent has hired one of the company's teachers to bypass her, they say so loudly - so the service uses social pressure to combat potential disintermediation.

5. Use a rating / experience system:never underestimate the importance of a good reputation. If there is a rating system, buyers and sellers will go out of their way to get the good ones. Transactions that take place outside the service are usually not taken into account in terms of experience and do not give the buyer and seller the opportunity to recommend each other. If the service is designed so that the best ratings lead to greater visibility in the search results, this will effectively encourage sellers to fully rely on the service for all transactions.

The most “bulletproof” markets are end-to-end models. They play such a critical role in the service delivery process that customers often do not perceive the company as a market, and, no less important, do not have access to a network of suppliers, so disintermedation has nowhere to come from. But not all services can be built in this way, so for many others the need for control tools remains high.

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