The arrival of electronic marketplaces and bookings platforms

Report Overview

The arrival of electronic marketplaces and bookings platforms

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The arrival of electronic marketplaces and bookings platforms
Many overseas entrants are arriving virtually uncontested, winning customers with superior services and price. Though it is not too late, local incumbents need to move quickly…
Disruptive entrants have established near unassailable positions in a number of Australian and New Zealand markets (Uber, Airbnb, menulog, Netflix, realestate.com.au, TradeMe).
These brands have become household names providing services that are superior in terms of price and service, and in doing so have had customers to champion their cause.However, a number of verticals are being actively contested, with challengers gaining momentum as penetration increases, but still no clear leader.
However, a number of verticals are being actively contested, with challengers gaining momentum as penetration increases, but still no clear leader.
There are a number of other players that are building their brand and marketplace (e.g. Health Engine and First Available in Medical Bookings, and hipages and Airtasker in Home Services) but the game has not yet played out.
There are a number of other players that are building their brand and marketplace (e.g. Health Engine and First Available in Medical Bookings, and hipages and Airtasker in Home Services) but the game has not yet played out.
Local players need to build scale quickly or risk being overwhelmed as overseas entrants arrive well funded, with strong branding, deep pockets, and a low cost base.
In many cases, US operators have arrived almost uncontested by the Australasian incumbents that have the advantage of existing customers and audience reach. Incumbents have often failed to act on tough strategy decisions to undergo controlled cannibalisation of old revenue streams, resulting in new entrants taking easy market share.
Consumers ultimately act as judge and jury, discerning everyday how to spend their money.
The average Australian household spend is around $65,000 per year, of which over 50% is spent on housing, transport, groceries, household goods, and health. Incumbent product and service providers who fail to listen to the consumer, or provide inferior quality products or services at inflated prices, will be the most vulnerable to online disruption. In February 2016, Deloitte Access Economics (commissioned by Uber) estimated that the net benefit to consumers created by Uber ride sharing in Sydney, Melbourne and Perth is worth around $80 million at current levels.
Overall online penetration of all household expenditure remains low — lots of white space remains.
The largest pockets of household expenditure remain largely ‘old school’ (e.g. financing of housing and cars is still dominated by banks and finance companies). A successful strategy for new challengers can be to pursue 'best in class' in narrow sub-segments (e.g. focusing on smaller parts of the employment market such as white collar). Healthy profits in smaller addressable markets can be very rewarding for entrepreneurs and early- stage investorsTherefore, we expect further heavy dislocation over the next five years in ‘old models’ burdened with fixed costs, antiquated
Therefore, we expect further heavy dislocation over the next five years in ‘old models’ burdened with fixed costs, antiquated systems and processes, and declining customer bases.
Economies of scale have been a key barrier to entry for traditional market participants (e.g. bricks and mortar travel and retail). However, as customers move online the advantages of these economies of scale reverse, and can cripple such incumbents as they fail to drop their fixed costs quickly enough. Compounding this effect, lower prices (competed down by new entrants) further worsen profitability. Ultimately, such incumbents — generally with large balance sheets and large yet declining cash flow as they’re forced to buy up new challengers — are creating tidy profits on exit for entrepreneurs and investors.