At some point, most early-stage online marketplaces reach a point where it makes sense to look for investments to continue accelerating their growth. Only 6% of new companies manage to secure the investment needed every year. If you want to succeed in getting funding it’s important that your business is properly prepared and ready for investment.
In our webinar ‘what VC’s actually look at before investing in an online marketplace‘, investors Mathias Ockenfels and Daniel Hoffer share exclusive insights and thoughts on how marketplaces best prepare to get funded.
Expert Q&A on how to secure funding for online marketplaces.
Following the webinar, the audience had an opportunity to ask questions of the investors. Now we are sharing all the answers to help other marketplaces prepare for investment.
Q: How do speakers validate the valuation of pre-seed or seed level startups?
A: The actual “validation” of a company’s valuation that we have used when investing happens in the following round when new, external investors come in and set a price that is – hopefully – higher than the price we’ve previously set. If the question was geared towards the way how we “set the price”: It happens based on fundamentals of the business, such as e.g. revenue & user growth and absolute (monthly) revenue number and other relevant KPIs as well as simple “market dynamics” – demand drives the price so several investors competing for a deal can drive the price (= valuation) of the company.
Q: What’s the future for online marketplaces? Is there still space for new players?
A: The answer to this question would probably require and merit its own “webinar” so I am just trying to keep it short and crisp here: New technologies such as blockchain or also AR/VR devices enable new opportunities to build marketplaces in areas that do not even exist today. It also allows new entrants to disrupt incumbents in already existing fields by applying new solutions to better solve an existing problem.
Q: From an investor’s point of view, is it better to have good traction in a single smaller area or to have a broader global presence?
A: These are not mutually exclusive. You can start from a smaller niche, e.g. in order to test and prove your approach and model, and then branch out into a bigger geographic area, once you have found product-market-fit and the right go-to-market strategy. The question is whether your model is scalable and still has the potential to grow into bigger (geographic) markets that are not yet covered. On the same topic, you may also enjoy this blog post: www.startupsventurecapital.com/building-hyper-local-multi-country-platforms
Q: Should I implement monetization before I look for funding?
A: Without knowing the details of the particular business, it is hard to generalize. As mentioned during the webinar, we, at Speedinvest x, are also investing pre-revenue and even pre-launch. Generally speaking, the more “proof points” the better and being able to “make money” (= monetization) is definitely a strong proof point. That said, often trying too hard to optimize monetization too early can harm your growth and overall potential of the business.
Q: Is there a difference between go-to-market strategies for Europe and the US?
A: Again, it’s very hard to generalize as it very much depends on the particular business. Overall, there are, for example, different regulations and mentalities between countries and regions which may require adjustments in the product and/or go-to-market that might differ significantly from each other. For example, Uber faced strong headwinds from regulators when they tried to expand their US-American model to Europe and tried to “copy it 1-to-1”. In many cases (i.e. countries) this did not work, and Uber failed to expand to these countries (e.g. Germany) and eventually lost those to local champions that adjusted – or better – “localized” the model to local “standards”.
Q: Will I have to give up control of my company if I accept funding?
A: Venture Capitalist typically only take a minority stake in the company and do not aim “to run the show”. If I believed that I would be better at doing something, I would found the company myself and not invest in another entrepreneur or team. We look for founders that are specialists in their field and understand their business better than we, as investors, do.
Q: How do I calculate market size?
A: The answer to this question would require and merit its own “webinar” or workshop. If there is general interest in doing a webinar on market sizing, I am happy to do so. Meanwhile, I can recommend these articles to learn more:
Q: What’s the best way to prove product/market fit to an investor?
A: See more on this below in my answer to the last question. In general, the usage and hence engagement of the users of our product should be “in line” with the use case the product is targeting and hence the problem it is solving. This might differ significantly based on what market you are in, whether it’s a B2B or B2C product etc. Strong, supporting references from first users/customers are an important indicator, too. Besides, people paying for your product is always a strong signal as it shows general willingness to pay and that the product is actually solving a real problem worth paying for.
Q: How do I prove the network effect of my platform if it hasn’t taken off yet?
A: Network Effects typically only unfold and become more “tangible” after a certain, critical mass of users or data is reached. Then they become traceable through cohorts (retention of users by activity & revenue). Until this is not the case, you may use indirect indicators such as (a high) buyer-seller-ratio, active users from organic traffic growing quicker than those coming from paid, (a high) virality coefficient, high NPs (as indicator for word-of-mouth) or engagement of your community (if applicable) through ratios of MAUs vs. WAUs vs. DAUs (more on that below).
Q: You mentioned engagement numbers earlier as one of the KPIs you look at before investing. Could you give some more details on which numbers are important and perhaps how marketplaces you have invested in achieve great numbers there?
A: Pls see my answers to above and below questions. The “benchmark” very much depends on the problem your product is trying to solve. What usage pattern would you expect based on the e.g. buying behavior of customers on both sides of the marketplace? That`s your benchmark!
Q: Do investors look at how prepared my company is for scaling?
A: The easy answer to that question is “Yes”. The crux is what does “scaling” or “scalability” actually mean? As a general thought, it basically means that the business is ready to grow x-fold in size (in terms of revenue, customers, users) in a given period without having to add the proportional amount of manpower/headcount and, at the same time, maintaining healthy unit economics (CAC to CLTV-ratio etc). Usually, this can only be achieved through product automation, a scalable technology platform and efficient marketing/sales.
Q: What does an early-stage startup need to achieve before they begin looking for investments? What would be the first signal?
A: It very much depends case by case. If you want to learn more about how to prepare for your Series A financing, you can read more from me on this topic here. For more early-stage seed-funding, I would recommend this transcript of my interview with Besedo. Generally speaking, it’s always helpful to show early signs of product-market-fit with a minimum-viable-product that customers/users actually use along the usage patterns you would expect from the particular use case the product is addressing – or better – the problem it is solving. For that we look at Monthly, Weekly and Daily Users (MAUs, WAUs, DAUs) and their ratio to each other as well as related cohort analysis.
Prepare your marketplace for funding.
To help you prepare your site for funding we encourage you to download the checklist on how to optimize your marketplace for funding.
Success comes from user engagement, and engagement increases with the quality of your content. Get started with your moderation at an early stage to ensure high quality user-generated content on your site. Our all-in-one content moderation tool, Implio, is available for free and will help free up your time to do what you do best – growing your marketplace.
Few people know online marketplaces better than Mathias Ockenfels, partner at Speedinvest x, a Berlin-based early stage focus fund investing in network effects. We spoke with him to better understand why online marketplaces hold their value, how founders can get investment ready, and exactly what investors are looking for before investing in a marketplace.
Int: Thanks for taking the time to speak with us Mathias! Could you give us a little insight into your career so far?
MO: For sure – I’m Mathias and I live and breathe online marketplaces! I’ve been involved with them for the past ten years — since my student days. Before launching Speedinvest x, I was the German general manager for Uniplaces, a marketplace for student accommodation. I started out as an investment manager at Zurich-based Mountain Partners Group, before landing roles at Point Nine Capital, another early stage fund focused on SaaS and marketplaces; and heading the mergers and acquisitions arm at Ricardo Group, then a subsidiary of South African Naspers.
Int: So… why online marketplaces? What is it about them that drives your interest?
MO: I’ve been building online stores since I was a teenager but came across the idea of ‘network effects’ when researching my degree thesis. It’s underpinned by a very simple but powerful concept: the value of the network increases with every new participant who joins the network.
This idea predates the internet – it stems from telephone networks. The more people used a phone, the more it made sense for others to have a phone. From an online marketplace perspective, once you’ve built a critical mass of users, it’s hard for a competitor to penetrate or disrupt your market – even if your product is inferior (just look at craigslist!).
From a business perspective, one of the first investments I helped broker was for a company called ‘Yourdelivery’, a Just Eat competitor, which later rebranded to Lieferando and was eventually acquired by the Takeaway Group that IPO’ed for around €1bn. Shpock’s sale to Schibsted was another deal we saw come to fruition here at Speedinvest.
Basically, it’s clear that online marketplaces, given the right team, environment, and backing have huge potential.
Int: What kinds of marketplaces do you invest in now at Speedinvest x?
MO: Speedinvest x sits underneath our parent company Speedinvest and focuses solely on early-stage online marketplaces and network effects-driven startups in Europe and North America.
Even more specifically, rather than ‘type’ of marketplace, we’re more interested in the stage or phase a company’s at, as we aim to be the first institutional investor a marketplace encounters: at both Seed and Pre-Seed stage.
That’s the phase we feel most comfortable getting involved in; and it’s where we can add the most value, too. We often invest in a company several times within the same phase.
Int: Aside from investment (!) what else do you offer the companies you work with?
MO: As VCs it’s not our job to come up with the idea, it’s to find the entrepreneurs who are creating them. When we do, we get very operationally involved. Most of our team come from an entrepreneurial background, so they know what founders are going through! We often place a dedicated team member within each company we invest in.
Also, because we can tap into Speedinvest’s experts in Europe (Austria, Germany, and the UK) and the US, we can help marketplaces grow their teams, presence and go-to-market strategy – thanks to Speedinvest’s dedicated HR (known as the Speedinvest Heroes) and growth hacking (known as the Speedinvest Pirates) teams.
Int: What do you look at when deciding whether to invest in a marketplace or not?
MO: The overall market must be big enough, in order for it to offer the kind of return we’re looking for. It doesn’t make financial sense for us to invest in something that is very niche.
We’re looking for teams that tackle billion-dollar markets; companies that are on track to achieve product-market fit; the kind that are solving real pain points for their users. We also look into the team and overall growth, but we take both a qualitative and quantitative approach to ensure we get a range of KPIs and statistics.
We talk to their customers and users, to get a good feel for what their real pain points are, and to determine the extent to which they perceive the business is solving these problems.
From a quantitative aspect, we look at a range of factors: how the numbers stack up, growth dynamics; as well as non-financial KPIs: such as engagement numbers and how people are using the product. This can include everything from weekly and daily active users to booking or transaction numbers. Basically, we are looking at anything that shows us how people are using the product and how engaged they are; and whether these are in line with the kind of engagement we would expect based on what the problem the marketplace or platform is solving.
For example, with a platform like Shpock, you’d expect to see more frequent, long-term usage, as a typical use case. However, with a real estate platform, user activity would typically be high over a few weeks; as those buying a home tend to conduct their search on a short-term basis, but actually move home rarely.
Retention is important, too. We therefore often look at cohort analysis of users. Once a startup is starting to generate revenue we look at how fast it is growing. But, making money isn’t the primary concern at the Seed- or Pre-Seed phase. The really important thing is to achieve that critical mass of users – which is why we take engagement figures into account and consider it as more important than actual, financial traction.
Int: So you’re not necessarily concerned if a marketplace isn’t making money from the outset?
MO: One of the biggest mistakes founders make is monetizing too early. A small profitable business is not a bad thing, but it won’t be a game changer – or a good VC case. It might seem counterintuitive, but building a marketplace is about hitting critical mass as fast as possible so the network effects can kick in.
If you start monetizing too soon you risk people shying away, which impedes the network effect. That’s why we pay such close attention to engagement numbers. The ratio between daily and monthly users indicates the ‘stickiness’ of the platform. The higher that is, the better the market fit; and the more compelling a case it becomes for investment.
Int: What’s the most effective way for marketplaces to reach that critical mass?
MO: It all depends whether you’re building a vertical or horizontal marketplace.
With horizontal marketplaces, you should try to build liquidity early and focus on quality afterward. Get as many listings as possible and once you introduce listing fees, you’ll soon put an end to fake or prank listings. That said, it’s important to monitor and remove scammer from the outset – to protect users and to ensure the best experience for all.
If you’re building a vertical platform; quality comes first. You’re essentially creating a marketplace giving people access to a supply that no-one else has; a niche where you can make a difference and deliver a unique experience.
Being niche gives you the opportunity to truly cater to your target audience and provide a very targeted service and platform, however, there is such a thing as being too niche.
To be successful, the chosen niche needs to have broad enough appeal to build ‘quantity’.
Or If you can capture a large enough percentage of transactions (say, 20-30%) then that may be good enough even if it’s very niche – but that hinges on you providing enough value to ensure customers are willing to pay that kind of money.
Int: Some great info here… what would be your best piece of advice for online marketplaces looking for investment?
MO: Try to have your numbers in place from the very beginning so you can come across as professional and on top of your numbers. Follow engagement numbers daily and show how changes to the marketplace alter user behavior.
And – show us you care! Because we invest at an early stage, first and foremost we invest in the founders. We want to be sure of them, their drive, and passion. If you’re not passionate about the industry you’re in, or the idea you’re working on, others won’t feel that excitement either. Authenticity accounts for a lot. Usually, the best ideas come from those with experience of the pain points; those who genuinely want to solve a particular problem. Rarely do those who start a business that ‘seems like a good opportunity’ have that same passion.
Int: And finally, do you think the online marketplace sector could exhaust itself?
MO: A lot of people do – but I don’t. There’s lots of competition out there, and many categories are already covered. But, consider the B2B space. It’s still largely untapped.
In B2B there are lots of asset-heavy categories – such as construction materials, machinery or storage – assets that don’t get used to their fullest extents. Companies like Stowga (one of ours…) who uses the sharing economy approach to warehouse space, is growing in popularity.
There are some great ideas out there, and we want to back the entrepreneurs that have those ideas and help make them a reality.
Thanks Mathias! A lot of great information and a huge help to a lot of early-stage marketplaces. For more information on how to get investment for your online marketplace, contact Speedinvest x.
To learn how content moderation can help you get better engagement numbers talk to one of our solutions designers.
Mathias Ockenfels is a Berlin-based Partner at Speedinvest x, an early stage focus fund under the Speedinvest umbrella investing into network effects. Mathias eats and breathes marketplaces: Prior to launching Speedinvest x, he was a General Manager for the German market at Uniplaces, a marketplace for student accommodation.
Before that, Mathias was a Principal at Point Nine Capital, a Berlin-based early stage fund focused on SaaS and marketplaces. Earlier in his career, Mathias worked at Naspers, previously the parent company of online auction and classifieds platform ricardo.ch, where he was heading the M&A department of the group. He started his career as an Investment Manager at Zurich-based Mountain Partners Group. Mathias holds a german-french double-diploma from European School of Business Reutlingen and Neoma Business School Reims.
In 2017 alone, victims lost US$ 19,061,703 to romance and dating scammers. New tech helps you protect your users, but it also gives scammers new opportunities to deceive them.
We sat down with Steve Baker, former director at FTC, and Patrik Frisk, Besedo CEO, to discuss the future of romance scams and how artificial intelligence can help you prepare.
Steve Baker: I will start by sharing some rather terrifying stats:
- At any one time, there may be 25,000 romance scammers online; most of them located in Lagos.
- More than 14% of all profiles created are fraudulent.
- US/Canadian victims reporting have lost nearly a billion US$ over the last three years.
What can dating sites do to help prevent romance scams?
Steve Baker: With so many potential victims it’s important that companies take responsibility for the safety of their users, and learn how to spot scammers and how to prevent them from reaching end users.
Companies need to:
- Provide better warnings, especially to people contacted by fake profiles.
- Screen profiles thoroughly.
- Moderate 1-to-1 messages.
Patrik Frisk: This is exactly what our clients are doing. They realize that it’s not only bad for the bottom line when users get scammed, they also feel responsible for keeping their users safe. We help them understand what dating scams look like, how to deal with new trends and we are vigilant in updating our clients when scammers change tactics.
The framework for the dating scams we encounter daily is actually quite basic:
- Grab attention.
- Build a relationship with the victim.
- Move the communication off-site as quickly as possible.
- Continue building the relationship until the victim is deemed ready for monetary requests.
When we talk about scams and how to detect it we often refer to what we call scam markers. Scam markers are specific elements within a text, picture or the surrounding data that indicates that there’s a chance this could be a scam.
When it comes to romance scams these are some of the most common scam markers we encounter:
- Specific phrases and words, such as “I am a God fearing man/woman”.
- Number of submissions.
- Broad age range interest (18-99 y/o).
- Picture selection (stock photo, stolen).
- Occupation (businessman in Africa, military out-stationed in Africa, missionary in Africa).
To prevent scams we help our clients through a number of different solutions:
- Custom AI models that are trained on labeled data and learns which content is unwanted. This is, for instance, a service we are providing Meetic, where we are achieving 99% accuracy and 90% automation and have saved them 67% in moderation costs.
- Automatic filters which can check for IP addresses, specific phrases etc. In our tool Implio, we are capable of setting up complex rules that can catch the majority of scam markers.
- Human moderation by agents trained specifically to detect romance scammers.
How are users affected by romance scams?
Steve Baker: The emotional damage is often at least as bad as the money loss. In fact, Australian law enforcement believes that Australia has more deaths from suicides over romance fraud than they do from murders.
Patrik Frisk: We have handled customer support for big dating sites and we have seen the heart-wrenching complaints from the few people who report getting scammed. There’s no denying that these people have been severely hurt and that their trust in the site they were scammed on has been severely shaken if not completely broken.
Steve Baker: Yes, it can be quite a traumatic experience, and it’s not only women that are touched by this as many believe. The number of male victims matches that of females, they are just far less likely to complain. Romance fraud also targets the LGBT community and it’s a global issue with scammers operating out of centers in, for example, Africa, Russia or the Ukraine.
What does the future of romance scams look like? Are we about to get them under control?
Steve Baker: I am afraid not.
Unfortunately, while we have companies like Besedo working hard on creating solutions and technology to help prevent fraud, scammers are also working overtime to develop new ways to con victims. In the future, we will see crooks using new technology to target users and circumvent out of date moderation processes.
We will also see scammers picking up video as a channel to communicate with and use as a method for sextortion. This will most likely lead to an increase of organized sextortion gangs.
Sextortion is when scammers lure victims to either get naked or perform sexual acts on a video call and record the act to later threaten to distribute it unless paid.
Patrik Frisk: I can only agree with this prediction, unfortunately.
We are seeing a lot of sites starting to add video chat to their site, which is a great way to make “first dates” safer for the users and also a great way for higher user engagement and revenue. Unfortunately, it also gives scammers another channel to utilize for sextortion, that Steve Baker mentioned. According to cyberbullying.org, 40% of sextortion victims met the perpetrator online. If we don’t put great processes in place for video moderation, we expect that number to grow as video becomes more common on dating sites.
Steve Baker: I also foresee that crooks increasingly will watch what law enforcement does and learn from that to better avoid capture.
Patrik Frisk: That prediction holds true for content moderation processes as well. We know that scammers are learning from getting their fake profiles rejected and continuously invent new ways to slip through the moderation net. It’s one of our internal research teams most challenging and important jobs to keep up with new scam trends so we can ensure that scammers are caught as quickly as possible.
Steve Baker: One of those new methods is to use social media, both as a platform to scam, but also to support the credibility of fake profiles the scammers create on online dating sites. Many people will do a quick cursory check of the social media profile of a potential love interest, both to learn more about them, but also to verify that the person is real. Scammers have learned this and will increasingly create a fake online personality that stretches over multiple platforms rather than just a fake profile on a singular site.
Finally, I predict dating companies are going to get more scrutiny for their practices. Cases against Western Union and MoneyGram show that companies that don’t take basic precautions to protect their customers are at risk.
Patrik Frisk: Government legislation and increased responsibility being put on marketplaces is definitely something we are likely to see in the future. One new trend scam, that may get harder to combat because of this is a shift in where the scam takes place. Scammers have gotten a lot better at creating genuine looking profiles, which moves the scam detection to 1-to-1 messages.
One of the main challenges with moderating 1-to-1 messages is, of course, user privacy. How much will people approve of us looking into their private conversations?
In Europe, we’re seeing a lot of initiatives towards protecting user data, GDPR that goes live in May for instance. This, unfortunately as mentioned, may make it harder to keep users safe from scammers in the digital world. GDPR is most likely only a first step as we step into an age where user privacy will be a huge discussion point.
The solution is to let AI handle the sensitive task of keeping users safe while also respecting their privacy and government legislation. AI moderation is moving from a tool to cut costs into a necessity for legal compliance. This is one of the reasons to why we are working hard on implementing free AI modules in our moderation tool. To make it available for smaller sites who, due to volumes required for tailored models, otherwise would not have access to AI moderation.
As far as long term trends go, we will probably see VR becoming a stable element on dating sites, similar to what we’re experiencing with video right now. When that time arrives, scammers will most likely latch on to this new communication channel and abuse it for fraud, but when this happens we will be ready with a solution to keep them at bay and keep your users safe.
Sexual harassment has featured heavily in the media of late, as scores of women who’ve remained quiet about their experiences have bravely spoken out with a simple yet meaningful hashtag: #MeToo.
While the highly inexcusable exploits of men in positions of power, like Harvey Weinstein (among many others) may now be well documented, undesirable activity doesn’t have to be anywhere near as precarious to qualify as sexual harassment; particularly in digital environments like dating websites and messaging apps.
According to one study in Australia, the harassment of women online has become a ‘digital norm’ with nearly half of all women experiencing abuse or harassment online – including 76% of those under 30. These worrying statistics are just the tip of the iceberg. While much is being done to raise awareness of online harassment, for many it’s both unclear what exactly constitutes it and many dating sites still struggle with how to deal with it.
Defining online sexual harassment
According to Childnet International, an organisation that promotes internet safety for young people, there are four types of online sexual harassment
- Non consensual sharing of intimate images and videos — for example, revenge porn.
- Exploitation, coercion and threats — such as blackmailing someone with compromising images of themselves.
- Sexualised bullying — includes so called ‘slut-shaming’: demonising women for dressing provocatively.
- Unwanted sexualisation — this covers a wide range of behaviours from unwanted and even unprompted messages to making inappropriate comments about someone’s appearance.
It appears that while some instances of sexual harassment criteria are obvious, others could be seen as arbitrary – particularly in the ‘Unwanted’ category. Why? Because what one person may find appropriate may in fact cause harm to another. Since the Weinstein allegations much has been made of ways to tackle individual behaviour from both a female and male perspective, but what are dating sites doing to tackle sexual harassment?
Education and empowerment
Organisations such as the Online Dating Association in the UK place a strong focus on educating consumers and online dating businesses about best practices, including ways to keep users safe from sexual predators.
However, while more needs to be done to prevent extreme cases, there also needs to be greater focus on prevention, which means taking a stance on inappropriate messaging. You only have to look at Bye Felipe on Instagram to see some prime examples of just how casual obscenity has become.
And then there’s Bumble: the first dating app to be specifically designed for women. It’s core value is advancing, empowering, and helping women. Like other dating services, it only initiates contact when there’s a mutual match, but unlike other services women make the first move. And it’s now the fastest growing dating site in the world
Making a stand
As more women take a stand on harassment, inappropriate comments are going to be called out more frequently. That’s why it’s vital that women in the public eye continue to speak out against sexual harassment – as Oprah Winfrey did at this year’s Golden Globes– in order to give others hope, encouragement, and courage.
But the issue cannot be solved by individuals alone. Companies have a huge social responsibility and need to weigh in too. Popular platforms and companies must play their part. Speaking out is one thing. But more can be done. Dating and classified sites can help protect their users via content moderation; an effective way of monitoring, flagging and removing inappropriate images and messages. Not only does it counter sexual harassment, it’ll reduce user churn too.
There’s a clear difference between malicious behaviour and accidental offence. And while it’s relatively straightforward to create content moderation filters that flag specific words and phrases, what’s less easy to achieve is an understanding of context. But it is possible: through a combination of machine-learning and manual moderation.
No-one should have to endure fear or humiliation of any kind, at any time, in any place: on-or offline. As an increasing number of online marketplaces, classifieds, and dating sites put more stringent measures in place to prevent harassment, perhaps those who’ve been guilty of sexual harassment in the past will think twice before sending an inappropriate message.
In the meantime, the tide is turning against offenders and the issues affecting so many is firmly in the public spotlight. Change is coming, but we can’t rest until then. Here at Besedo, we’re trying to raise awareness through our #WeToo social media campaign. Why not join us?
Ready for 2018? Here are some of the online marketplace trends we think will have the biggest impact on our industry over the next 12 months.
2017 was a landmark year for online marketplaces and classified sites, but what can we expect for the year ahead? Here are a few trends we think will gain traction.
1) Virtually There
When many of us think of ‘Virtual Reality’ we are transported back in time nearly 30 years – to when clunky, blocky visuals and impossibly heavy wearables were heralded as ‘the future’. Yup, VR took a while to catch on (and improve), and while it’s by no means a fixture in our homes, more and more businesses – from travel brands to interior designers – are using it to show customers what’s possible.
The real estate sector, in particular, continues to benefit from VR. With more traditionally ‘physical’ sectors made remotely accessible, there’s ample opportunity for all kinds of online marketplaces to help customers experience different environments – like ‘trying on’ clothes or even VR dating – without the cost and inconvenience of travel; opening up even more ways to create value.
2) Marketplaces Go Truly Global
Whether the US Federal Communication Commission’s decision to dismantle Net Neutrality laws – which effectively gives ISPs carte blanche to direct internet traffic however they choose – will have global ramifications remains to be seen. But in the immediate future, classified sites are almost certain to continue adapting to the needs of an international audience; using local, on-the-ground knowledge to attract a broader customer base.
For example, ‘Housing As A Service’ sites – like Homealike and Wunderflats – that allows customers to rent fully-furnished flats for a short period of time, are catering to an increasingly mobile city- and country-agnostic workforce.
In a similar way, as more classified sites that rely on user-generated content expand to different nations and draw a bigger customer base, they open themselves up to increased targeting by scammers. Scamming is a global phenomenon, and one of the easiest ways for scammers to slip under the radar is to ‘pretend’ they’re in one country when they’re actually based in another. This means that online marketplaces may need to exercise greater awareness of where their customers are actually based, and use geolocation detection as part of their moderation and fraud prevention strategy.
3) Bring On The Blockchain
2017 is already being heralded as ‘the year blockchain went mainstream’ by many tech pundits and futurists. But that doesn’t just refer to bitcoin and its meteoric rise. For many, the blockchain itself – the technology that bitcoin’s built on – is infinitely more interesting and important than cryptocurrency. Why? Because it could completely revolutionize how our personal data is controlled – which could have a huge impact on online marketplaces.
It sounds complex, and it is, but the basic principles are straightforward. Essentially, a blockchain is an unforgeable digital data record: decentralized ledgers that are run and owned by no-one and everyone: not a third party. When data is anonymized and secure, its value is controlled by our willingness to share it: a 360 degree shift from how it’s been handled historically. For example, say we allow our shopping data to be accessed by an online retailer who wants to analyse local appetite for a new product line. Blockchain technology would both maintain our data’s anonymity and allow us to assign a value to our data. Yup, we could even earn money by granting access to it.
The first blockchain real estate transaction was made last year. And yes, it was by a high profile advisor to a niche startup. But this wasn’t just a show of what’s possible; it was a wake up call. Not just to real estate agents, but to online marketplace owners too. Businesses, governments, and even financial institutions are beginning to experiment with blockchains too; and for online marketplaces we’ll definitely see continued innovation as data usage and online security practices get increasingly sophisticated.
4) Impact On The Internet Of Things
For online marketplaces, the sharing economy presents new opportunities too. There are some 8 billion devices connected to the internet – from laptops to washing machines. And as automation becomes more commonplace, the ability to create value through sharing digital assets is becoming increasingly widespread.
While it’s been possible to share access to physical goods via online marketplaces (think Uber and Airbnb) for some time, thanks to securely managed blockchain technologies, more and more people are leveraging their digital assets and goods as a source of income: such as renting out their hard drive storage space, or selling their unused text message allowances. Automation allows us to simply ‘set and forget’ these transactions and activities; which is great… as long as security is brought into the mix as well.
5) Trust & Safety: Crucial Components
While the opportunities for online marketplaces to expand are ample, this places renewed focus on a particularly important area: trust. Any online marketplace navigating new digital territory needs to prioritise safety and security, but we’re willing to bet that the role of dedicated ‘Trust and Safety’ specialists will become integral parts of any online marketplace’s business operations: particularly as the EU’s GDPR legislation comes into effect at the end of May 2018, giving individuals greater control over how their personal data is used. Such increased scrutiny around data privacy might make human content moderation a lot trickier, and may also mean that some things – like one-to-one messages – can only be reviewed by AI.
As scammers find new ways to exploit burgeoning technologies, the emphasis on trust mechanisms, like content moderation, will continue to gain ground. While we will see an increased need for specialists who can predict and crack down on fraudulent user activity. Simultaneously we will see a rapid rise in the requirement to automate moderation activity, with bespoke machine learning filters custom made for particular site needs.
To find out more about content moderation and how our Implio tool works, contact the Besedo team.
Have a great 2018!
All things considered, 2017 wasn’t as bad it could have been. Innovation seemed to be everywhere, and both large online marketplaces and smaller classified sites made some fantastic strides. However, issues around security and scams persisted, in spite of heightened awareness and the active stances taken by many to combat them. Here’s a look at the year in review – the things we found most interesting for the online marketplace industry.
Renewed faith in online marketplaces
The year began well for online used goods marketplace letgo, which raised $175 million back in January. While its automatic tagging and listing software may have got investors excited about the site’s (and the app’s) possibilities, it followed a trend seen in the tail end of 2016 – big online players investing in smaller marketplaces – and renewed overall interest in classified sites. Amazon too dipped a toe into the secondhand goods market, offering a trial ‘Sell as Individual’ service in the Indian city of Bangalore, putting the retail giant in possible conflict with the likes of eBay.
However that same month, under mounting pressure from the US Senate and anti-sex trafficking groups, classifieds site Backpage removed the ‘Adult’ section of its site. While victims and support groups were pleased with the outcome, others (including Backpage’s founders) felt it an act of ‘unconstitutional government censorship’ – a backwards step for freedom of speech.
Tougher stance on hate
In addition, Facebook also came under fire in January for leaving a torture video up for 30 minutes. Not the first time the social network has received criticism for its moderation processes and almost certainly not the last. However, as its leaked moderation guidelines suggest (skipping ahead to May briefly…) rules surrounding violence and hate speech are increasingly complex.
Just weeks later in March, Germany introduced (and later passed) legislation to impose fines of up to €50 million on social media companies that fail to remove hate speech quickly. Similarly, in the same month it was reported that many high profile advertisers were boycotting YouTube for fear of being featured alongside hate speech videos – evidence that both governments and brands were taking user generated content, and its impact, very seriously.
Spring into innovation
However, Spring was also a time when several classified sites upped the innovation ante. During Google’s annual Cloud Next conference, eBay’s chief product officer, RJ Pittman, stunned the audience by conversing with his employer’s ShopBot – a voice-based AI assistant accessed via Google’s Home device. Though the potential could well be enormous for a tech like this (imagine being able to ask eBay what your unwanted Christmas gifts might fetch…) as yet, the feature hasn’t been launched.
In April, the UK version of Match.com launched its first chatbot. Called ‘Lara’, this Facebook Messenger tool was billed as the ‘first dating bot’ and can be used by new members to create a Match profile using their Facebook information. From a technical standpoint, perhaps the most impressive feature is Lara’s natural language processing techniques, which ensures she (?) interacts with users seamlessly.
The dating game picks up its pace
Lara wasn’t the only digital dating innovation to debut. DatePlay burst onto the lonely hearts scene in early 2017. The app, which gamifies the whole process of dating, is the brainchild of entrepreneur, Vana Koutsomitis, who originally pitched the idea to Lord Alan Sugar during her time on British TV show The Apprentice back in 2015.
The month of May began with news that two of the biggest online dating services, Affinitas and Spark Networks, were merging to form Spark Networks SE; meaning that the EliteSingles brand and several major dating services – including JDate, JSwipe, and ChristianMingle – would now be part of the same company; and now have an overall subscriber base of 500,000 people.
Facebook faces the music
Facebook was another company actively growing its numbers in May. The social giant announced it would add another 3,000 content moderators to its staff count – seemingly a response to wider discussions about the need to quickly remove potentially harmful and offensive content.
A few weeks later The Guardian newspaper published a report revealing all Facebook’s moderation rules. Effectively, the report was a detailed account of exactly how the platform tackles everything from hate speech and terrorism, to revenge pornography and self-harm. More than anything else, the report illustrated how Facebook currently balances obscenity and freedom. It also included training manuals, spreadsheets, and numerous guidelines on escalation; proving just how difficult the task is and how discerning moderators need to be.
The Global Online Classifieds Summit was held for the first time in Miami in June; three days of masterclasses, insights, and networking opportunities in, just a short hop from South Beach. The Besedo team were there, and and we’ll be there in 2018 as a speaker.
In innovation terms, the summer was a time for testing things out. Google introduced an AI-powered job search engine; Amazon (very briefly) dipped a toe into real estate services; eBay announced it was launching two new picture-based tools: ‘Find It On eBay’ and Image search; and Facebook Marketplace officially launched in Europe.
On a different note, following the eclipse that covered much of North America in August, Amazon was hit with a lawsuit after a couple experience blurred vision and increased eye sensitivity after watching the eclipse through defective sunglasses they’d purchased through the site. Over in Britain, the popular classifieds site, Gumtree published a common scams report: part of its ongoing consumer-focused awareness advice.
September saw South African media giant, Naspers invest another $775 million in Berlin-based takeaway food service, Delivery Hero; upping their stake to more than 26% and giving the service a possible introduction into the US market.
October was a busy month for classified sites and online marketplaces. eBay-owned Marktplaats, the Netherland’s dominant general classifieds site, announced it was in the process of adding image recognition and chatbot support, to help users compile and post their listings. US-based ‘yard sale’ app 5miles had an innovation to share too; a blockchain protocol called Cybermiles, designed to ‘empower the decentralization of online marketplaces’.
eBay also launched Authenticate; a service in which industry professionals authenticate luxury handbags – assuring buyers that their purchases are valid, and helping sellers get a decent price for these popular high ticket items. Facebook launched a car marketplace in October; bolstering its presence in the peer-to-peer classifieds space, and also announced it would soon take on 1,000 new members of staff to tackle suspicious ads, and that it was investing more in machine learning to help with automated flagging for ads. And Germany officially put it’s online hate speech law in motion.
A different take on hate
A dating app brought ‘hate’ to light once again as the year came to a close, but in a very unconventional way. The app, called ‘Hater’, matches people based on their dislikes, and when founder Brendan Alper pitched the idea on TV show Shark Tank, he raised $200,000 from entrepreneur Mark Cuban: proof that hate can sometimes unite people in a positive way,
Down under in Australia, to boost its effort to combat revenge porn, Facebook asked users to submit nude photos. The initiative, a partnership with the Australian government, is designed to give control to potential victims in anticipation that their ex-partners would upload compromising content; meaning Facebook would be able to scramble images in the event that they were posted.
And finally, to round off 2017, Google announced that it’ll employ 10,000 new YouTube moderators in 2018 to address ‘content that might violate our policies’ – proof that the World’s biggest tech company continues to prioritize the fight against hate online.
Consumer caution still required
Despite the great leaps forward in AI and authentication across 2017, online scams and e-commerce fraud remain ever-present threats as we move into 2018, there’s still very much a need for both manual and automated content moderation moving forward.
Secondhand sites aren’t going away anytime soon (see eBay’s Cyber Monday stats). They may even help save the planet according to one report. Online retail’s generally thriving too (Amazon had its day on Black Friday). And while the growth of niche sites, combined with as the expansion of big tech players, might put medium-sized marketplaces to up their game to survive, those that proactively build trust online will undoubtedly continue to prosper. And as long as social networks continue to follow suit, hopefully 2018 will see more sites strike the right balance between censorship, security, and safety.
Over the past year Facebook has been in the news multiple times regarding their moderation processes.
Due to the social media company’s size and penetration in society, there have been some very public reactions to their content moderation approach whenever it has been revealed. For those of us who rely heavily on professional content moderation processes to ensure as smooth a user experience as possible, these incidents have been great case studies.
So what can we learn from Facebook’s moderation approach and the public backlash we have seen on several occasions during the past year?
Let’s have a look at a couple of noteworthy moderation incidents that caught the public attention.
Managing fake news or letting them manage you?
Last year in late August, Facebook made headlines for firing the team that was curating stories for their trending news module.
They replaced the human team with an AI that was supposed to have learned from the decisions taken by the curators. The change came after accusations that the curating team was not objective in their choices.
But once the human team was replaced Facebook faced an even worse problem. The algorithm was distributing fake news. The Fake news issue grew over the month to come and escalated during the US presidential election. Some even blame Facebook’s fake news issue for Donald Trump being elected president.
What we can learn:
AI and machine learning are powerful tools in managing and moderating content, but the algorithms and models need to be very well made for them to be efficient and most importantly they have to be accurate. Often the best solution for content moderation is a combination of an expert human team continuously feeding new data to the AI ensuring ongoing tweaks, adjustments and that the algorithms evolve in a good way.
Censoring the public or protecting users?
In the autumn Facebook faced a very public debate because of their moderation processes, when they removed the award winning Vietnam War picture “Napalm Girl” posted on the platform by Norwegian writer Tom Egeland. This led to a back and forth debacle with Norway’s largest newspaper Aftenposten and to a load of critical news coverage globally.
In the end Facebook had to issue an apology, allow the picture on their platform and amend their guidelines.
What we can learn:
Facebook argued throughout the ordeal that they removed the picture based on their moderation guidelines which do not allow nudity, especially not nude children. While this is of course a great baseline moderation rule to have in place, the incident showed that when it comes to grey area cases they often need to be discussed and decided upon on a case by case basis.
When you set up moderation guidelines, make sure you also provide your team with direction on what to do with grey area cases. It is also incredibly important that you have good internal communication established so moderators can easily escalate cases that are outside the norm. While you might not be able to completely eliminate objectionable decisions, you can at least limit them and if you follow the above you can prove that decisions for grey area content are taken with great care and reflection.
Viral or violent videos?
In April 2016 Facebook launched their live feature allowing people to more easily share and create videos directly through the social media platform. While the feature was quickly adopted by Facebook’s userbase and the interest in Live continues to rise, it has also caused a number of issues for Facebook. Most damaging to their brand has been the amount of violent videos that suddenly flooded the platform spreading virally. In the end Facebook has been forced to acknowledge the issue and has hired a team of moderators to deal with the issue, but it took almost a year before the tech giant bent to the public demand and a lot of bad PR has happened in that time that could have been avoided with a quicker response.
Graph showing the spike in Google searches for Facebook live after the Cleveland shooting April 16th 2017
What we can learn:
It has been argued that the Facebook live feature was rushed as the social media giant was falling behind other social networks in the video field. Whether this is true or not we can’t say, but it is clear that Facebook was not prepared to handle the amount and type of user generated content that suddenly flooded the platform.
The takeaway for us should be to ensure that we have the workforce and tech in place and ready to scale when launching new features or a new site. This is an important lesson, for startups in particular, as growth can happen rapidly. It is important to put clear processes in place for UGC moderation when volumes can no longer be managed by the founders. Otherwise a unicorn dream can quickly turn into a PR nightmare.
Leaked moderation guidelines.
You’ll have probably seen a few weeks back that Facebook’s content moderation guidelines were ‘leaked’. What quickly became apparent was that unless users decide to show their private parts or threaten to kill Donald Trump, a lot of other material will in fact be ok’d by its in-house moderation team.
Alright… it’s not that simplistic, but as the contradictory nature of some of the moderation rules illustrate, even a platform of Facebook’s magnitude is stumbling around in the dark when it comes to handling user-generated content.
The public reaction to seeing the guidelines were in stark contrast to the Napalm Girl incident, with many calling the rules too lax and condemning Facebook for allowing violent content to go live. Facebook on the other hand has claimed that in some cases violent content is relevant when it is part of a discussion around current events. Everything is about the context of the post as well. They allow pictures of non-sexual child abuse as long as the context shows that the post is against child abuse and not glorifying it.
What we can learn:
In the public eye the path between censorship and an approach that is too lax is narrow and it changes on a case by case basis depending on how it is presented in the media. The best way to protect yourself and your business against public outrage is to make sure you have clear, non-biased rules and policies in place for your content moderation.
Make sure that your moderation actions are as consistent as possible.
Also keep an eye on new trends. Previously innocent terms can take on nefarious meanings in the blink of an eye when the Internet culture grabs hold of it and twists it to its own purpose.
Putting Facebook moderation learnings to good use.
The main take away looking at the many Facebook moderation incidents over the past year is that moderation expertise, consistency, better internal communication and ensuring that processes and resources were in place could have gone a long way to minimize the public backlash and the recurring negative media coverage.
Those are valuable lessons to consider when running an online marketplace relying on user generated content.
When we think ‘content’ we think ‘words’ first of all, right? But, as the adage goes, a picture speaks a thousand words — which is particularly relevant where content moderation’s concerned.
Online marketplaces (like classifieds sites and dating sites) pretty much rely exclusively on user-generated content. Although moderating text using machine learning algorithms is pretty common these days, images — which present a composite mix of criteria — have been harder to vet using AI. Until now.
Computer vision – amongst other things used for image moderation — is starting to become powerful enough to change that. The ways it’s evolving across tech are numerous, but in terms of content moderation, it serves a very specific purpose: it can automatically review, approve, or reject digital images and video.
Algorithm-powered image moderation can distinguish between any number of image features — from obvious no-no’s like pornography, to more under-the-radar naughtiness like contact details embedded into a photo. And of course, it can weed out accidental flaws and faults like low quality images and duplicates.
Let’s take a closer look at what you can moderate with computer vision…
All Aboard the Computer Vision Train
Creating and running a successful online marketplace comes with a lot of challenges. Your main focus needs to be on continuously expanding and improving your core product to stay competitive; meaning most companies don’t have the time or resources to manually moderate all content that’s submitted. Even if they did, with a 100% manual setup they’d struggle to meet user expectations; as content wouldn’t instantly go live. This is where automated moderation can make a big difference. It’s cost-effective and allows for quick content upload. Another benefit is that it enables data privacy in a way human moderation can’t, something that becomes ever more relevant in the digital world.
As you can see there are plenty of reasons to jump aboard the computer vision train, but it takes dedication to get AI-powered image moderation right: unless you have the right help.
2016 was a year of big changes and challenges in our industry, some of which you can revisit in our wrap-up post of the year. That was however last year. Now it is time to look forward.
Here are some predictions for the online marketplace industry in 2017 that you should not ignore.
It’s no news that relevancy is king. The mobile revolution has made users increasingly more impatient. If what we’re looking for isn’t manifesting itself within seconds, we will look to another site to fulfill our needs.
During the last couple of years site owners have tried multiple strategies in order to up the relevancy of their sites and retain users. In 2017 we expect these attempts to continue.
Jayson DeMeyers writes in Forbes that “”Dense” Content Will Become Essential to Cut Through the Content Noise.” Meaning that content needs to be distilled until it contains the exact information relevant to users; because we skim read articles, quickly moving on to the next and we share content after just reading the headline.
DeMeyers is mainly talking 2017 marketing trends, but this is relevant in the marketplace industry as well, since the user generated content on your site also needs to attract and retain interest. Users need to be encouraged to create precise, relevant content and you need to prune your site of duplicates, irrelevant content and other elements that can dissuade users from thinking “this site is suitable for my needs!”
Niche market targeting is another hyper relevancy trend we will see more in 2017.
Apps like Wallapop or Letgo where shopping is localized based on your position has seen a lot of success in 2016 as have marketplaces focusing on very narrow offerings. We will see a lot more of this in the coming year, but additionally we predict that marketplaces will look to create an even more unique customer experience. For instance by making use of Real-Time customization. This is already used in ecommerce and in their report 10 ecommerce trends for 2017, Absolunet assumes this will increase in frequency. What dynamic content will look like on marketplaces in 2017 will be interesting to follow, but we will be very surprised if the industry doesn’t dive into this area.
Delivery as Part of Service Offering.
Online marketplaces are no longer just a convenient facilitator of content between buyers and sellers. With the increased competition in the field and with users becoming ever more aware of their options, more services are anticipated, with sites are increasingly looking for ways to make the buyer (and seller) journey smoother.
One service we expect to see offered more by marketplaces is delivery. Japanese-based classifieds app Mercari has already shown that offering delivery as part of the purchase process can be done successfully and the added service is undoubtedly one of the reasons for its quick rise to third biggest player in the market in the US.
Within the e-commerce industry Walmart is getting creative; customers who make an in-store purchase can drop off other customer’s orders on-line orders, on their way home.
Then there is Volvo, who together with Swedish startup Urb-It, are proposing to deliver orders to the trunk of your car within 2 hours of ordering.
Can these examples be carbon-copied to our industry? Perhaps not, but 2017 will certainly bring innovative ideas on how to improve the after purchase flow for online marketplace users.
AI Infused User Journey – from Moderation to Fashion Cam
AI! For anyone interested in tech news, AI will have popped up constantly during 2016. But the AI buzz is far from over and 2017 will see a lot of interesting new applications. At Besedo we’re working at innovative ways to apply AI to the content moderation process and we’re looking forward to sharing a lot of exciting AI reliant features for Implio throughout 2017. Get a grasp on AI moderation by reading this post.
On a broader scale AI is going to change the way customers interact with brands and their general interaction with and expectations of your site.
Innovative uses of AI on classifieds sites have already started. Willhaben.at for example, has just launched a “fashion cam” allowing users to upload pictures of their favorite clothes and subsequently the AI of “fashion cam” will look for available garments on the site that match the shape, color and pattern of that item.
Fighting Back against Facebook
If 2016 was a wrestling match between traditional classifieds sites and Facebook, the latter would probably have won on points. By launching sales groups, Facebook marketplaces and a lot of other initiatives the social media mastodon showed their intentions of becoming a serious player in the field. However, 2017 allows for a rematch and we expect to see the traditional players introduce a lot of new moves to secure their dominance.
The entire online marketplace industry is a little volatile at the moment with Facebook moving in as a new serious player and with Microsoft’s acquisition of LinkedIn. In 2017 we’ll see how much these two giants will focus on our industry and we expect a lot of initiatives from the traditional players to stay competitive.
Obviously we’re just making educated guesses here, but one thing we can promise for certain; 2017 is going to be an incredibly interesting year for all of us working in or following the online marketplace industry!
Take a quick trip through the year with some of the biggest headlines for online marketplaces in 2016.
2016 was both a scary and exciting year for the online marketplace industry. As we enter 2017 there are a lot of unknown questions. Will Facebook continue their push into the classifieds territory? What will Microsoft’s acquisition of LinkedIn actually mean?
Can fake news and fake reviews be combatted and will Amazon and Facebook win with their current approach?
We will continue researching, reporting and commenting on industry trends and news here at Implio in 2017 so make sure you sign up for our blog!
Thank you for an exciting 2016. See you in the new year.