MARKETPLACE INSIGHTS
Combatting disintermediation
By Lacey Riddick, Marketplace Support Specialist
August 16, 2022
By Lacey Riddick, Marketplace Support Specialist
August 16, 2022
Disintermediation is the act of a user cutting out an intermediary and making a transaction with their respective merchant/customer directly. It’s also known as 'platform circumvention', 'platform leakage', or 'deplatforming'. Disintermediation has been manifesting in different forms for decades. It is one of the biggest issues that anyone offering a product or service as an intermediary might encounter. Restaurants could suffer from people realizing that they can make the food at home. People could start keeping their money under mattresses if they stop trusting banks. If there’s an intermediary in place, there’s always the chance that it can be cut out.
However, some of the most profitable ventures are intermediaries because they offer tremendous value that makes the person want to stay on the platform. In most people’s eyes, they have bank accounts because they give them access to an entirely new way to control their funds, and they trust that banks will keep their money safe. People realize that they can make their food at home and skip the restaurant, but they still go because eating out is culturally and socially significant.
Online marketplaces are especially vulnerable to disintermediation because they don’t own their supply or demand. Instead, their profitability comes entirely from the platform’s ability to connect merchants and customers. If people stop using the marketplace to transact, it risks becoming obsolete.
So, you’ve put all of this work into optimizing a platform that connects customers and merchants, yet you’re still losing revenue. Why? A few opportunistic users thought to use your platform to find potential sales, but then they took the transaction off of the marketplace. For marketplaces that use a commission model (i.e., they take a cut of the final transaction), disintermediation can be the line between a successful and failed platform. The good news? Marketplaces that facilitate trust, provide irreplaceable value, and take a few precautionary measures can diminish the threat of disintermediation before it even crosses the user’s mind.
Disintermediation can happen when a customer or merchant feels that the value offered by the marketplace doesn’t outweigh the consequence of paying the platform’s fee. It can also happen when the user feels like they won’t get caught, which is why we’ll talk about precautionary measures later on. In any case, the user will take matters into their own hands, cut out the middleman, and make a transaction with their respective user directly.
The frequency and likelihood of disintermediating is dependent on the user and the nature of the marketplace itself. Some users can break away from the platform altogether once they establish their own critical mass. Consider a seller on Etsy making a particular necklace that is trending. If the seller has a high enough demand attached to their product, they could make their own website and sell the necklaces there instead.
Others might only step off the platform for certain cases. This behavior is usually for convenience’s sake. Let’s say a buyer messages a seller that they are more comfortable paying over PayPal instead of the platform’s payment processing service. The seller, who wants to make the sale and isn’t necessarily at a loss for using PayPal, might be tempted to break away from the platform for this case.
Then there are the users who intend to use the platform to steal sales from the start. These users are not the majority and require special attention. More on this later.
Certain services and products that are offered on your marketplace also contribute to the likelihood of your users disintermediating.
For example, Uber isn’t likely to experience high levels of disintermediation. It would be difficult and/or dangerous for a person to find a stranger to give them a ride without the trust and security that Uber’s platform offers.
Conversely, Rover, a pet walking/boarding platform, encourages pet owners to rebook with the same sitter. However, once the sitter and pet owner develop a relationship, it’s more tempting for the pet owner to pay the sitter directly, effectively cutting Rover out of the sale. For this reason, Rover is predisposed to higher rates of disintermediation.
The level at which your marketplace will be prone to disintermediation depends on a few factors. For most decisions, users weigh the benefits against the consequences. We can ask a few questions to frame our perspective.
*When in doubt, consider what you would do in the given situation.
By considering a user’s motivation for taking the sale off of the platform, we can better target our solutions to minimize this behavior.
The easiest way to keep users on your platform is to create value that delights the user. Prioritize user delight every step of the way.
If your marketplace is in an earlier stage, ensure that your ‘minimum viable product’ has every feature necessary to complete the task at hand without anything extra. It’s much easier to handle bugs with a simple product, and bugs can significantly deter users when frequent. Third-party services like Stripe for payment processing and Shippo for shipping can help marketplace operators simplify their workload. With these tools at hand, you can focus more on your product and the solutions it can offer.
Your customer support team should be prepared to offer solutions without any headache when issues occur. This is where managing expectations becomes critical. Nobody likes being put on hold or waiting days for a time-sensitive response. When a user has an inquiry that is answered quickly and thoughtfully, they might end up more satisfied than if they hadn’t asked at all.
Especially in the early days, users who leave feedback are showing that they care. If a user took the time to reach out to a support team, they deserve a response (even if it’s a general saved reply). These are the users that will be vouching for you in the comment section of social media pages.
It’s equally important to track feedback and bug reports in one place to see what issues and requests are coming up most often. Third-party services like Help Scout greatly help organize and delegate support tickets.
Blogs, social media platforms, podcasts, FAQ pages, knowledge bases, etc., can also add value to your marketplace. Consider the support tickets you are receiving and ask yourself if a simple article could minimize confusion. These are also places to showcase your mission and values. Showcase your team and humanize the platform itself. Be sure to categorize your content meaningfully and to keep it updated.
I talk more about creating and maintaining value in online marketplaces in a previous article. Final point? Make sure your platform is too good to leave behind. When the user needs external support, ensure it’s a pleasurable and convenient user experience. Use social media sites, blogs, and podcasts to show who your company is outside of the platform itself.
Once the user takes a transaction off of the platform, they are taking a risk. They are losing any reassurances your marketplace offers if something goes wrong with their order. The key here is to make your platform feel more secure compared to selling to an individual directly. For example, marketplaces can protect people from scams, inauthentic items, damaged items, and related situations. If a user takes the sale off the platform, they also lose their privileges to these protections. Marketplaces can reinforce user trust by offering satisfaction guarantees, insurance, review systems, and identification verification (which I talk more about here).
Having a strong customer support team is also vital to minimize perceived risk. If you’re in the early stages, third-party verification and insurance services might be costly upfront. A rock-solid customer support system can ease a customer’s doubts in the absence of these services. Aim to respond to order-related inquiries within 24 hours.
This is where the prevention I mentioned earlier comes in. Certain workflows can be created to automatically flag listing descriptions and messages that may suggest a breach of the platform’s terms of service. The trigger words will vary for your marketplace. For example, if you use a particular payment processing software (such as Stripe), a trigger word would be “PayPal” or “Venmo” since your marketplace wouldn’t support these payment options. Once a listing is triggered, it can be reviewed on an individual basis by your support team.
For marketplaces that allow merchants and customers to communicate via a direct messaging feature, they may mask the user’s personal email/phone number to keep messaging on the platform itself. If a user does suggest contacting each other outside of the platform, trigger words like “email”, “phone”, or “call” could bring this interaction to the marketplace moderator’s attention. Users should also be given the option to report merchants and customers who are outwardly breaking the platform’s rules.
When confronting a user attempting to evade the platform fees, it’s best to approach with empathy. They may not even realize the implications of their actions, and they might still find it worthwhile to stay on the platform and follow the rules. If a user continues to disintermediate after a warning is issued, then it’s fair game to pause or ban their account.
Since a marketplace can’t offer customer/merchant protections once the transaction is made off the platform, users should also be aware of the risks involved in disintermediation. The message should ensure that the risk transacting on the marketplace is minimal, but these protections only exist for orders placed within the platform.
If your team is looking for a surprisingly easy way to proactively monitor conversations within your marketplace, consider using Marketbase. Marketbase provides tools that help operators at fast growing marketplaces identify these bad actors.
There isn’t one cure-all for handling disintermediation in marketplaces, and it’ll probably happen to some degree no matter what. However, by offering irreplaceable value, facilitating trust, and taking precautionary measures on a case-by-case basis, you can minimize the rate it occurs. If time and manpower are limited, use third-party SaaS services to help fill in the gaps. If money is limited, reinforce trust by optimizing your customer support team and relay value through blogs and other media outlets. Oftentimes, time, money, and manpower are all scarce resources. In this case, focus on optimizing your ‘minimum viable product’ with the smallest network possible that is still self-sustaining before expanding. If a user is habitually taking sales off the platform, have an internal review system with consequences proportional to the offense. Overall, user feedback is your guiding star as you optimize your marketplace. The closer you align your marketplace’s solution to your customer’s problems, the more transactional fees will feel like a worthy investment to your users.
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