Section 3: Leveraging Disruption for Society:
Simon Rothman, Greylock Partners: Marketplaces and the Transformation of the Workforce
Simon Rothman, Greylock Partners7
Can you give us an idea of how marketplaces work and why they are so disruptive?
Marketplaces leverage the power of people; that is the fundamental source of power for all marketplaces. They aggregate large groups of people who are buyers, as well as large groups of people who sell products or offer a service. The reason this system is disruptive is because most businesses, most industries and most supply chains have a lot of things between people who buy and people who originally create products or provide the service. The disruption occurs by putting the power in people’s hands to provide the products and services directly. Technology platforms enable this process, but, ultimately, marketplaces are people-powered, and that is what is so beautiful about them and what makes them powerful and disruptive.
You mentioned that you think more billion-dollar marketplaces will be created in the next five years than in the previous 20. What makes you think that?
As the internet evolved, when it first started roughly 20 years ago, it digitized the business model of the “real world”, but didn’t really take advantage of the power of technology. It was pretty thin and very basic. The next generation of the internet was mainly socializing the internet, and that gave us the ability to have an identity. Facebook is social identity, LinkedIn is professional identity, and so on. Today, a combination of factors enable marketplaces: ubiquity, i.e. that there are so many people connected online; the power of the mobile device, which puts the power of the entire internet in your pocket; and the fact that we now have identity – social and professional identity. Marketplaces are essentially brokered trust. They facilitate trust between people so that people can provide a product or service. Today, so many of these things could not have been built without the mobile device to provide local services, identity to enable trust in a very systematic way, and the ubiquity of the internet. In the past couple of years, you’re starting to see that it’s tipping – a rise in billion-dollar-plus marketplaces being built. Airbnb, Uber, Kickstarter: they’re just a few in a long list of companies that are prospering and becoming meaningful. I believe you will see a whole generation of such companies, and those are just the beginning of dozens of large impactful marketplaces that will be built all over the world that could not have existed 5 or 10 years ago.
You also argue that marketplaces are “devouring industries”, and that education and healthcare are susceptible to the disruption of marketplaces.
Almost every industry is susceptible to the power of people and the ripping out of physical infrastructure. Assets and brokers; all that stuff in the supply chain that we used to look at one or two generations ago as driving efficiency, that was to drive physical efficiency, to move goods around the world; warehousing and the many steps in that whole chain – that was a world where physical efficiency was defined by physical assets: lots of people, lots of money, lots of infrastructure. The world today is very different. As a matter of fact, those things that were viewed as assets and strengths are now viewed as liabilities. In this new world, all the major industries that have all this built-up infrastructure are susceptible to being disrupted by people. Ultimately, this is all about people. Even the most entrenched industries, such as education and healthcare, are now for the first time susceptible. But nearly all industries are going to have that same dynamic. The smartphone unlocks local markets; almost no industry will be unaffected by this. For many years, healthcare and education have been the industries where technology has had a hard time disrupting, but we’re slowly starting to see an impact. Most things in technology, most things that involve marketplaces and networks, are very slow until they become very fast. They hit liquidity very quickly and tend to grow exponentially, so my guess is that in the next handful of years, you will find those big industries seeing meaningful, if not profound, changes. There is nothing special about those industries that cannot be impacted by technology.
Regulatory frameworks are still holding back disruption. It’s no longer attitudes, cultural norms or economics. All those things that have been inhibitors to the establishment of successful marketplaces are no longer barriers. The last remaining barriers are rules to prevent what feels like very positive change.
How do you think these changes are affecting society?
The most profound impact on society will be seen in the labour force. What you’re seeing is that those marketplaces are fundamentally structured differently, resulting in a change in the complexion of the workforce. One of the key factors for this is decentralization. Marketplaces connect thousands, sometimes millions of providers of products and services with millions of people who buy them. Historically, they were centralized to a corporation, a singular entity that actually has control of the product or services and manages the workforce. As you decentralize the workforce, you empower the workforce. Workers no longer work for an entity that tells them when to work or what to do. They essentially have the ability to provide the product or service on as many platforms as they want, control their schedule and control their lives. An average service worker today has very little control, gets paid very little, and I think you will start seeing marketplaces shift that.
The second thing is that these marketplaces decentralize the asset. When you look at companies like Uber, Lyft or Airbnb, the assets are not centralized by the business. The companies themselves don’t own the assets, which means they can process more transactions and share those economies with customers through lower prices, with workers through higher wages and with shareholders. It unlocks efficiency and a lot of economics that can be shared.
The third thing that is unique about the structure of marketplaces is transparency, which leads to something much closer to meritocracy. Customers will rate and evaluate the quality of the service or products they consume, and the platforms themselves are very good at objectively measuring every aspect of a transaction. By collecting subjective feedback from customers and objective feedback from the technology, companies achieve information transparency, which means the best workers will be in the highest demand and will make the most money. The entire system is set up for quality and efficiency.
The last thing that is unique about marketplaces is that they are platforms, not employers. Providing services in a marketplace is not a job in any traditional sense. This means the entrepreneurial spirit will thrive in those settings. People will build companies on top of those platforms. Someone can start out renting out a car on Getaround, but will maybe end up buying multiple cars and, in essence, building out a rental car company on top of a shared platform. I think we are going to see a lot of microentrepreneurs building on top of those platforms, which is a second-order benefit aside from being able to provide products or services on the platform itself.
Those structural differences that platforms provide enable a new type of workforce, and that essentially creates a new class of worker.
Governments are seeing those changes as well and often don’t know what to make of them, and you can see that in the various responses to Airbnb or Uber at the municipal level. How do you think governments can best leverage the positive side of marketplaces, while mitigating the inevitable risks that exist with them as well?
Historically, innovation has moved faster than regulation, and that’s expected. There is a push and pull on governments from various actors which, when balanced, is a good thing. Governments need to make sure there is security and safety, for example. Having this tension is good. Right now, we are at the stage in the shared economy where actors in this field need more partnership with local, state and federal governments. Governments would be smart to move at a fast pace to enable those businesses. The challenge has been moving through the multiple conversations at different regulatory levels. When you look at the internet initially, a lot of the regulations were national, so there were fewer conversations to be had. Because a lot of the shared-economy services are very local in nature, companies building platforms need to have multiple conversations, city by city, state by state, country by country, which is difficult and time consuming. Customers and providers of services or products on those platforms are ready for fundamental changes, and governments need to be a partner in this process. Governments understand those changes, but the pace of change is very fast, and governments must play a role in shaping rules around safety, for example. But my guess is that they should be moving faster because it looks like those platforms will be growing fast, one way or the other.