Future of NFT Marketplaces: Verticalization
The verticalization of platforms, also called unbundling, is a well-observed phenomenon in web2.
Let’s look at how it works and what it means for web3!
Horizontal versus Vertical Marketplaces
While horizontal marketplaces allow customers to buy products from a broad range of categories (e.g. Amazon), vertical marketplaces focus on a specific niche (e.g. Zillow).
Horizontal marketplaces are generally speaking higher risk/reward than vertical marketplaces. They have it harder to bootstrap supply and demand sides and compete against other horizontal marketplaces offering similar value, while also being attacked by vertical marketplaces catering to specific niches. On the other hand, successful horizontal marketplaces, such as Amazon or Alibaba, have a huge TAM (total addressable market) and economies of scale increase their profitability.
Horizontal marketplaces are closer to a moonshot, but crypto is already a risky industry. Few horizontal NFT marketplaces had long-term success going directly head-to-head with competitors. Maybe it’s time to take a different, verticalized approach.
But both types of marketplaces are not mutually exclusive. A marketplace can start in one niche and later expand either by vertically integrating along the supply chain (managed marketplace), or horizontally integrating other categories.
Horizontal marketplaces not only have a big target market but also upside on multiple verticals (e.g. home improvement during the pandemic), thereby diversifying risk. Additionally, having consumers come back to your platform for all kinds of purchases increases customer engagement (higher frequency of purchase and/or AOV), which drives revenues.
On the flip side, a horizontal approach requires companies to cater to the masses, aka the lowest common denominator. That opens up the opportunity for verticalized marketplaces, which can cater to a niche to provide a better, unique user experience.
Pros of vertical marketplaces
Closer interaction with users. This helps build long-term relationships (defensibility). Information about and from users also supports the product development process, allowing businesses to better serve their users’ needs in the future. Furthermore, more touch points with users are potential revenue streams.
Build an expert image, which may allow for premium pricing.
Lower user acquisition costs as marketing can focus on one vertical and has a stronger value proposition for the target group, which requires less convincing.
Easier to overcome the cold start problem because the supply and demand side only have to be bootstrapped in one vertical instead of multiple.
Vertical marketplaces usually offer users tools for a better collaboration workflow, which drives interactions and therefore creates stronger network effects.
So while horizontal marketplaces have a higher TAM, vertical marketplaces may be able to better monetize the market (higher margins).
Thesis: Verticalization of NFT Marketplaces
From the discussion above, we can infer key factors that benefit a verticalization trend:
Distinct user needs across different verticals warrant a specialized approach
Big enough niches that provide reasonable TAM
Adequate frequency of purchase within the vertical (or high AOV) for unit economics to make sense
NFT marketplaces for gaming assets check all the boxes:
✅ NFTs are a broad concept (in the end they are just a data blob) that can be applied to many different use cases. For example, gamers have divergent needs from art collectors. Most notably right now, we believe players want to trade in-game (keep your eyes open for our upcoming article about these so-called community marketplaces). Convenience for games studios and players will be a driving force, as exemplified by the addition of the Metamask SDK in the Unity Asset Store.
✅ 3.2 billion gamers spending around $200B per year, providing an attractive target market.
✅ Purchase frequency & AOV are reasonably high (also given the stat above).
Therefore, we see it warranted to have vertical marketplaces specifically for gaming NFT. Hiroba is fully committed to that vision. Hiroba is purpose-built for gaming and aims to aggregate all gaming NFTs across in-game and third-party marketplaces.
While we see trading taking place primarily in-game, aggregators need to provide players with discovery (cross-game, cross-blockchain), which requires specialization. Vertical marketplaces can offer consumers a deeper discovery workflow encompassing games, NFT collections, and other players.
The last point, players, especially stands out. The goal of vertical marketplaces is to connect users on a deeper level, enabling stronger network effects. For users to connect, they need to have things in common concerning their motivations, interests, needs, or goals. Vertical marketplaces are at an advantage here over horizontal competitors. Plus, they can cater features to this specific audience.
About Hiroba
The NFT aggregator purpose-built for gaming. Discover games & level-up your NFT trading.
Hiroba aggregates in-game and 3rd-party marketplaces to provide players with the best discovery experience for gaming NFTs.
Our white-label solution makes deploying a custom marketplace easy for game studios, who benefit from being in control (e.g. royalties, UX). And thanks to our aggregator, in-game marketplaces are no longer isolated from the rest of the market.
👉 Looking to build your own marketplace? DM us on Twitter