Founders are avoiding marketplaces not because the model is broken, but because the economics have quietly turned hostile. For years, marketplaces were pitched as the cleanest way to scale. They promised network effects, defensibility, and capital efficiency. However, in practice, many founders now see a different reality. Growth is slower, margins are thinner, and control is harder to maintain. As a result, the marketplace dream has lost its shine for a growing number of early-stage teams.
The first crack appears with supply acquisition. Marketplaces need balanced growth, yet supply almost always comes first. That means founders must convince sellers, creators, or service providers to join before demand exists. Early incentives help, but they cost money and time. Worse, suppliers today are more skeptical. Many have been burned by platforms that changed rules later. Because of that history, onboarding supply now requires higher payouts, guarantees, or marketing support. Each concession delays breakeven and increases burn.
Demand growth creates its own pressure. Paid acquisition used to fill early gaps, yet ad costs have risen sharply. Channels that once worked cheaply are crowded. At the same time, buyers expect instant liquidity. If they do not see enough options, they churn fast. This creates a fragile loop where founders must spend heavily on both sides at once. Unlike SaaS, where one sale can fund the next, marketplaces often subsidize every transaction early on. That reality scares cautious founders.
Unit economics are another quiet killer. On paper, a ten or fifteen percent take rate looks healthy. In reality, that percentage must cover fraud, support, dispute resolution, and trust systems. When you add payment fees and incentives, margins compress quickly. Many founders discover too late that scale does not fix this. Instead, scale often amplifies losses until pricing power improves. Investors now scrutinize this far more closely than they did a decade ago.
Operational complexity also plays a role. Marketplaces are not just software businesses. They are part logistics company, part compliance team, and part customer support engine. Every new geography adds tax rules, labor issues, and cultural nuance. For founders who value speed and focus, this feels like running several companies at once. As a result, many teams choose simpler models that let them iterate faster.
Trust and safety demands have increased as well. Users expect platforms to moderate content, verify participants, and resolve conflicts fairly. Failure damages the brand instantly. Building these systems early is expensive, yet postponing them is risky. Large players like Uber and Airbnb survived this phase by raising enormous amounts of capital. New founders know they may not have that luxury. Therefore, many avoid models where trust failures can become existential overnight.
Competition has intensified too. Successful marketplaces attract fast followers. Because switching costs for users are often low, new entrants can undercut on price or specialize narrowly. This forces incumbents to respond with incentives, again hurting margins. In contrast, vertical SaaS or workflow tools can lock in customers through deep integration. Founders increasingly prefer that predictability over a constant battle for liquidity.
Another overlooked factor is power imbalance. As marketplaces grow, the platform naturally gains leverage over suppliers. Fees rise. Algorithms change. Visibility becomes pay-to-play. Savvy suppliers see this coming. Many now diversify early or resist deep dependence on one platform. This limits how much value a marketplace can extract long term. Founders, aware of this dynamic, question the durability of their future revenue.
Regulatory pressure adds more uncertainty. Marketplaces that touch labor, housing, finance, or health face shifting rules. Compliance costs grow as scrutiny increases. What starts as a lean startup can become a heavily regulated operation faster than expected. For founders seeking optionality, this risk feels asymmetric. A small policy change can undo years of progress.
Capital markets have also changed. Investors once rewarded top-line growth and user counts. Today, they demand proof of sustainable economics. Marketplaces often take longer to show this proof. Liquidity curves are messy. Cohort behavior varies widely. Storytelling alone no longer works. Founders know that raising the next round may be harder if the model looks complex or subsidy-driven.
Psychologically, control matters. In a marketplace, founders cannot fully control the user experience. Sellers may behave badly. Buyers may misuse the system. Reputation depends on thousands of independent actors. For many builders, this lack of control is frustrating. They prefer products where quality is directly owned by the company.
That said, avoidance does not mean abandonment. Some founders still choose marketplaces, but they approach them differently. They start with services to seed supply. They focus on narrow verticals with high trust and repeat usage. They delay broad expansion until economics work locally. Others build tools for marketplace participants instead of the marketplace itself. This shift reflects learning, not fear.
Well-known platforms like Amazon prove that marketplaces can become empires. However, founders also see how rare those outcomes are. Survivorship bias once hid the failures. Now data and experience make them visible. For every giant, there are countless stalled platforms that never reached equilibrium.
In today’s environment, founders optimize for speed, clarity, and capital efficiency. Marketplaces score poorly on all three early on. They demand patience, deep pockets, and operational stamina. As a result, many founders choose alternative paths first. They may return to a marketplace later, once leverage and learning are on their side.
The avoidance trend is not about pessimism. It is about realism. Founders are smarter about trade-offs. They understand that network effects are not magic. They must be earned through painful execution. Until conditions change, many will continue to build around marketplaces rather than inside them.
Over time, this could reshape the startup landscape. Fewer general marketplaces will emerge. More niche, high-trust networks may thrive quietly. Meanwhile, infrastructure and tooling for existing platforms will grow. In that sense, marketplaces are not dying. They are simply losing their default status as the go-to startup model.
What we are seeing is a correction. Founders are no longer chasing what worked before. Instead, they are choosing models that match today’s costs, expectations, and capital reality. That shift explains why marketplaces, once the darling of startup lore, now sit on the sidelines of many founding conversations.
