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Creating Value for Tech through the Digital Marketplace

RBC Capital Markets’ Internet Research Analyst Brad Erickson sat down with Fortune Magazine to discuss the ever-expanding reach of digital marketplaces, and how tech firms must innovate their business models to pursue avenues for growth.

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By Brad Erickson, RBC Capital Markets, LLC
Published December 14, 2021 | 2 min watch
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Key Points

  • Small startups with substantial access to capital and large ad budgets will create an “existential crisis” for offline businesses. (0:55)
  • As online adoption increases, most startups and new companies in the tech space are pursuing some type of consumer end-market (1:08)
  • Large internet players are adapting their business models to increase opportunities for cross- or up-selling. (1:40)
  • Supply chain challenges may hinder the growth of large tech firms and boost opportunities for small- to mid-cap (SMID) businesses. (2:40)

Disclosures and Disclaimers


As online adoption accelerates and internet marketplaces expand their reach, tech firms can no longer rely on just a single app or expanded smartphone base to grow their businesses. The “Internet of Things” continues to connect the consumer to online platforms, and the companies who can most quickly adapt and create synergies will emerge as the winners.

“When you think of value-add opportunities in the internet marketplace, we believe you have to consider very deep domains across verticals.”

Brad Erickson, Internet Research Analyst, RBC Capital Markets, LLC

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Cross-vertical opportunities spark synergies and collaboration

The internet has moved from its own space to “every space,” meaning it attracts marketplace builders into nearly all verticals.

After establishing a strong presence in one marketplace, these market-builders jump across verticals to complementary businesses. Ride sharing companies, for example, create market share in the transportation niche and then incorporate the complementary restaurant delivery business.

These cross-vertical opportunities create avenues for one or more companies to collaborate and compress buyer characteristics to leverage customer acquisition costs and sell across multiple end markets. When you think of value-add opportunities in the internet marketplace, it’s critical to consider deep domains across verticals.

"Startups that pursue any type of consumer end-market not only have virtually unlimited access to capital, but can also outspend offline businesses on advertising, which will only exacerbate their challenges."

Brad Erickson, Internet Research Analyst, RBC Capital Markets, LLC

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Unlimited capital gives start-ups a competitive edge

Capturing innovative opportunities across verticals will be necessary to compete with startups with a seemingly endless supply of capital, strong value propositions, and the ability to develop specialized marketplaces. Since the beginning of the pandemic, startups have dominated customer engagement, leading to an “existential crisis” for many offline businesses struggling to survive in the e-commerce world.

Tech startups that pursue a consumer end-market not only have strong access to capital, but can also outspend offline businesses on targeted advertising, which will only exacerbate the challenges faced by many incumbents.

Large tech firms chase value by adapting their business models

Tech firms that historically relied on the “smartphone market” alone are reaching a dead-end when it comes to their total addressable market.

For years, these firms counted primarily on an expanded smartphone user base for growth and didn’t pursue other avenues, such as bundling services into apps. Now that the smartphone market has reached maturity, companies are trying to create incremental value by building their own “platform argument,” or adapting their business model to increase opportunities for cross- or up-selling.

Supply chain bottlenecks may boost growth for SMID caps

Supply chain uncertainties will create even more growth challenges for large-cap companies. Many large firms entrenched in specific verticals, such as car retail, are struggling to meet future demand. These challenges will likely create ample opportunities for SMID caps.

Tech companies can deliver a competitive advantage by seizing the upside of online adoption and supercharging supply chains, whether by transforming operations through internet connectivity, driving automation, or delivering insights that promote efficiencies.

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