Pod Insights a16z Podcast The Next Wave of Marketplace Startups About this episode with @conniechan @DCoolican @jeff_jordan @laurenmurrow and @sriramk
Marketplaces encompass a huge swath of services we use every day, from grocery delivery to online shopping to remote learning. Which marketplace companies are on a tear and which are locked in close competition? Which categories are poised for growth, and which may make a comeback? In this episode, we discuss the post-pandemic outlook for marketplaces—based on data from the Marketplace 100—and the most promising companies and categories on the rise.
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 Hi and welcome to the A16Z Podcast. I'm Lauren Murrow. In the tech world, marketplaces are a hot topic. That term, marketplace, encompasses a huge swath of services we use every day, whether ordering groceries or restaurant delivery, shopping online for fashion and streetwear, taking online classes, or even getting weed delivered. But how have marketplace dynamics changed since pre-pandemic? And what COVID-propelled consumer behaviors will persist into 2021 and beyond? We at A16Z have long been obsessed with marketplaces. Company building, analytics, and listlessly seeking out network effects. So this week, we launched our now annual Marketplace 100, a ranking of the largest and fastest-growing consumer-facing marketplace startups and private companies.
0:46 Speaker 00 The report, which you can find at a16z.com/marketplace100, is a data-packed breakdown of an unprecedented year. It also provides rich fodder for looking ahead at the future of marketplaces. Which companies are on a tear and which are locked in close competition? Which marketplace categories are poised for growth and which may make a comeback? We discuss all these questions in this podcast with A16Z consumer team partners Connie Chan, Darcy Kulikun, Jeff Jordan, and Sriram Krishnan. As always, none of the findings should be taken as investment advice. See a16z.com/disclosures for more information. The first voice you'll hear after mine is Sriram, followed by Connie, then Darcy.
1:30 Speaker 00 Off the bat, what jumps out at you looking at the data this year?
1:34 Speaker 01 For me, I think there are a couple of things which now look obvious in retrospect, given everybody's been stuck at home for the last year. One is people have a lot more free time. And second is when you're not able to spend money the same way you've been able to before, you try and find alternate ways to spend and invest it. So I think if you look at the rise of companies like MasterClass, it makes sense that when you are spending a lot more time at home, you want to invest in yourself. So I think that's one interesting trend you see with several companies here. And I think the second one is tied to the idea of you're not able to spend money in the categories that you were able to in the past. So you can invest or spend money in new categories. So I think the rise of things like Cameo speak to that, too.
2:14 Speaker 00 That was the fastest-growing marketplace category overall, celebrity engagement. What do you attribute that to? And does that affect your thinking on other? Experience-based marketplaces.
2:25 Speaker 02 For marketplaces, it's about growing supply and demand in lockstep, right? And so for a lot of the things that happened in marketplace, there was a growth in the demand side for those things. But Cameo is a really interesting one where the supply of the artists, the actors, the famous influencers, they were the one who all of a sudden had a bunch of free time. And so Cameo is a great way to still make money. And when you all of a sudden got so much more new supply and then more time from each source of supply, you just now have a much stronger value proposition.
2:56 Speaker 01 My take on this is if you look at the last decade of social media companies, the historical contract between the large consumer social platforms and these influencers has been you give us content and we'll give you distribution. That's been the deal. But in the last few years, there's been a new behavior of, okay, but is there a monetary transaction where you can engage directly with your fans? And I think Patreon is one example with tipping and everything that Twitch does. It's been another example. And with Cameo, I think what you're seeing is celebrities are at home too. So a lot of your typical revenue streams don't exist. And on the other hand, there's this kind of new pattern where people are like, hey, I'm willing to spend a few dollars to support my favorite celebrity
3:37 Speaker 01 or spend a few dollars to give Connie a shout out from her favorite movie star. Connie, who's your favorite movie star?
3:44 Speaker 02 It's a Chinese singer.
3:46 Speaker 01 Well, okay, I'm going to spend a hundred dollars and give Connie a shout out. So you're seeing this across multiple spaces now where a shift from advertising-based monetization to having creators directly have a monetary relationship with their fan base.
4:01 Speaker 02 I also feel like during COVID, being a part of this new direct monetization from your fans with microtransactions or small transactions also became more socially acceptable.
4:12 Speaker 03 I think one part of it was it became less taboo on the supply side, but it also became much more desirable on the demand side. And that people wanted to support these creators who are potentially not performing or potentially not generating any revenue. So there was a change in the mindset of it on the demand side as well. You don't just see that in Cameo, but you also see that in Bandcamp and some of the other people that grew really quickly.
4:33 Speaker 00 So 25 companies were brand new to the Marketplace 100 this year, meaning they didn't make the list last year, but they achieved a certain level of scale this year. Many of them are startups, so maybe some of them are companies that are not yet household names. What are some of the most interesting, in your opinion, whether that's the business model or what it says about consumer behavior and what we're spending money on?
4:54 Jeff Jordan? I love the resurgence of outdoor sites. Makes perfect sense during COVID. We're in hip camp, but also you see Tenter and Glamping Hub. It is fascinating that things can take off during COVID.
5:06 Speaker 02 I'm going to say whatnot, which is indicative of the rise of collectibles. Collectibles now include all kinds of things like CryptoPunks, right? But also just things like Pokemon cards, Funko Pop, sports cards. Part of that might be a function of people having more time, but also innovating on new formats for shopping. So rather than like a flat one photo listing, you have this interactive live video experience, which I think takes the experience to a completely different level than, say, an eBay listing marketplace.
5:36 Speaker 03 It kind of reminds me of the sneaker marketplaces back a few years ago in that it's these really passionate niche communities where the activity is split amongst different platforms. Some of it's happening on social networks, some of it's happening on different marketplaces, but it's a very strong community and a very passionate community. And then they're taking this new marketplace experience, which in whatnot's case is live streaming, a new format that works well with their inventory. And for GOAT and StockX, that was verified sales. And so it was a different layer of marketplace and a new structure to the marketplace. But it then unlocked this new community on the singular platform, which is a really cool trend that you're seeing with collectibles as well. And I think another what is well timed during COVID is Good Dog,
6:18 Speaker 03 which is a marketplace for people to find animals from trusted breeders. And that one grew pretty tremendously through COVID. But they take what was historically a local, maybe regional market of breeders, and then they expand that nationally. And then they also build trust, which is another huge thing that can accelerate a marketplace very, very quickly.
6:37 Speaker 00 Yeah, Darcy, weren't you in the market for a pandemic puppy at one point?
6:41 Speaker 03 They're hard to find. There is like year-long waitlists for them. I don't know if puppies or collectibles are harder to find right now.
6:48 Speaker 01 I think the other trend which stands out to me in terms of new companies is Vestiaire Collective, which is a vintage shopping company based out of Europe. So I grew up in India and growing up, the idea of used clothes, secondhand, was always seen as something you would do when you can't actually afford new clothing. But I think that has really changed the zeitgeist the last few years, where the themes of sustainability, the themes of doing what is right for the environment, that is driving this new momentum towards thrift shopping, finding used clothing. It's always been affordable, but now there's a social cause motivation behind it too, which seems new in the zeitgeist in a way which maybe wasn't a decade ago, which I think is notable.
7:30 Speaker 02 And I think what's interesting with those marketplaces, you're not shopping necessarily from like the local goodwill. You're shopping secondhand clothing from another individual. And so in some way, it's a function of yes, there's more acceptance of secondhand clothes, but there's also a desire for everyone to have their own small businesses. Everyone to be able to generate revenue with all these new internet tool marketplaces.
7:52 Speaker 00 So one thing that's interesting is that by looking at the companies, we're also able to notice these broader trends, right? So let's talk about some of the emerging categories that stand out. We just talked about secondhand fashion. So that's companies like Curtsy, Depop and Vestiaire Collective. Another one I want to talk about is the rise of niche or specialty food and beverage companies. So companies like Chowbus, which specializes in authentic Asian food, Mercado, which is independent grocers and specialty food shops. What does this say about our eating behaviors or changing consumer preferences?
8:27 Speaker 03 Obviously, demand got supercharged during COVID for food and restaurant. And then that let us get deeper into the supply pool, into more specialty restaurants or long day restaurants. But then what has become clear is now there's enough demand and enough supply to build a more vertical oriented or niche solution. And you don't just need to rely on the horizontal platforms as well. So you can have something like Uber Eats and DoorDash, which are like massive horizontal platforms. Then you can also have something like Chowbus, which is much more vertical. And then when you're vertical, you just have a better experience. It's more designed for that specific vertical. So you're going to order plates from multiple restaurants in the same delivery because you've got enough density on the platform to actually do that. Or you can have a UX that's like specifically designed for that platform. And so as the top line number of food delivery kind of kept growing and growing,
9:11 Speaker 03 then the niche ones became big enough to sustain their own platforms and their own marketplaces.
9:16 Speaker 02 Yeah, like better search filters that are specific to that type of food, for example. So it's a lot of this is not just an increase on the demand side, but it made supply much more willing to get on board too. Like restaurants with their revenue from in-restaurant dining wiped out, were much more willing to consider these online delivery platforms. And so I just can speak for the Chinese local restaurants around me, a lot of them were not on DoorDash prior to COVID. But because in-restaurant dining was taken away as an option, they're all much more open to any of these third-party marketplaces.
9:51 Jeff Jordan? Something like half of food pre-COVID was consumed in restaurants and half was consumed at home, that changed. And so the digital alternatives for home food consumption, be they the BMS like Instacart and DoorDash and Uber Eats or new entrants. I know I was looking very much for assortment and new things to consume.
10:12 Speaker 02 You even ordered ramen from the East Coast, didn't you?
10:15 Jeff Jordan? I did. I'm Goldbelly.
10:19 Speaker 01 How much of this behavior do you think snaps back to the way the world was in February of last year? Or how much of it do you think is a permanent change? You're like, hey, you know, I kind of like ordering from places that I haven't heard of before.
10:30 Jeff Jordan? I mean, it'll be a fascinating question and it's super hard to answer. Did people discover a wonderfully new way to free up a bunch of time? Or was it primarily safety-driven? One real challenge to the immediate bounce back will be the number of small businesses that got destroyed by COVID. I saw some morbid stat along the way from Yelp saying over 100,000 small businesses had permanently closed their doors, and that's just the ones who reported it to Yelp. And so the chain restaurants did pretty well throughout COVID, primarily on takeout. The small business owner got destroyed. So I think there'll be a large vacuum for a while and hopefully small businesses come back. But there is definitely going to be a supply-side imbalance for a while.
11:13 Speaker 00 One thing that was striking this year was the extreme concentration of GMV at the very top of the list. So we saw some of that last year where Airbnb, DoorDash, Postmates, and Instacart accounted for 76% of the Marketplace 100's total GMV. And then, of course, over this past year, three of those went public or were acquired. So they're no longer on our list. This year, that concentration in GMV was even more pronounced. So one company accounted for just over 70% of the list's GMV. So to what do you attribute that? And do you think that concentration at the top will persist in 2021? Or will it get spread around a bit?
11:51 Jeff Jordan? I think you're seeing a little bit of a historic graduation of the smartphone first-generation company. Airbnb, DoorDash, and Poshmark let go, all disappearing off the list, just created a bit of a vacuum that Instacart was the last early winner standing. I do think that the online marketplace model is extremely robust, and there will be others' companies growing in to take their place.
12:18 Speaker 00 And that's an interesting question, because if you look at the data, so beyond the top three marketplace companies in the ranking, no company accounts for more than 1.5% of consumer spend. And then no company, numbers four through 100, are separated from their immediate neighbors by more than half a percentage point. So that indicates that the competition is really intense below those top three. How does a marketplace company break out to become numbers one, two, and three?
12:45 Jeff Jordan? I mean, personally, there are a few things I look for. One is if it works, it can be big. And sometimes that can surprise you. Early on, I didn't think Airbnb, when I first heard of the concept, I didn't immediately imagine it being tens and tens of billions of dollars of GMV. Marketplaces thrive where there's fragmented participation, particularly in the supply side. You don't want a very concentrated supply side, because then the suppliers have power. But if you do the hard work of aggregating a very fragmented supply base, it can become extremely powerful. OpenTable would be an example of that, where the average restaurant owner who listed on OpenTable, when I managed it, a median was one restaurant. It took enormous amounts of effort to get all those restaurants onto OpenTable. But
13:29 Jeff Jordan? once they're on, it's pretty powerful.
13:31 Speaker 03 I think another thing to call out too is is it a category that has tailwinds? And is it a category that's kind of growing in the aggregate? And if you look at something like online food ordering, that's kind of lifting all the boats that are riding that wave. Things like streetwear and sneakers and stuff like that is another example of that.
13:47 Speaker 00 Let's say next year, we don't have these big giant companies at the top of our list. What do you think are contenders to move up into the top 10?
13:55 Speaker 01 I would pick MasterClass. I think the secret about them is they're an entertainment company, which feels like an education company. You're consuming content, but you don't feel bad about it. You don't feel guilty about it. It doesn't feel like carbs. It feels like protein at the end of it. And in terms of social prestige, it's one of the few places where I see everyone from a CEO to a sports celebrity go, which I think rivals being on Netflix in terms of social status and currency.
14:22 Speaker 00 Over the course of 2020, some of the companies were able to pull off both high levels of growth and high levels of GMV, which is rare and rare still in the midst of a pandemic. And it's kind of interesting because it's across various categories. Is there something that entrepreneurs can take away from those companies that did achieve some success over the past year?
14:43 Jeff Jordan? I mean, typically they are inversely correlated. Gets harder and harder to grow the bigger you get, just because the incremental growth you have to generate just gets so incredibly large. And so the companies who are at scale and can achieve strong growth, that's pretty special performance. And if they can persist for a while, they then become the next Airbnbs and DoorDash.
15:04 Speaker 00 The company that moved the most from last year to this year was Outschool. It jumped 59 spots from last year's ranking to this year's ranking. Some of that is obviously due to our kids all home, out of school during COVID. But how do you assess which online education companies are worth watching? What are you looking for here?
15:24 Speaker 02 When we look at online ed tech, we look for things that either make the quality of education dramatically better than what you could afford in real life, or things that make the type of education you can access dramatically cheaper. Than what you could get in real life. Because as you know, COVID has dramatically accelerated online ed tech. But we're looking for things that are going to persist in behavior post pandemic. And marketplaces work great in online ed tech because basically you are opening the supply of tutors beyond your small five, 10 mile radius. So maybe I can't get a great chess coach where I live, but I can probably find one online that can teach my kids when they grow up one day.
16:07 Speaker 02 Or maybe if I live outside of Silicon Valley, it's hard for me to find a computer science tutor. And so I can go to Junie Learning and find a CS tutor there versus having to rely on someone who lives close by.
16:18 Speaker 01 One company which fits this pattern in India is a company called BYJU, B Y J U. India has a huge focus culturally on education and a lot of teachers in smaller towns. And BYJU has been able to get them access to people who need coaching. And one of the things which really surprised me was a lot of the customers are actually here in the United States. So you basically have somebody in the US who wants like a math tutor and you're being taught by somebody in a small town in India, which just happens to have like a large focus on STEM education. And you have like a huge supply of trained teachers. So it's just like a really fascinating phenomenon.
16:55 Speaker 02 And in that example, it'd be so much cheaper too.
16:58 Speaker 00 So we noticed some interesting shifts in consumer spending over the course of 2020. And that meant some companies would see no demand in one quarter and then an explosion in the next quarter as the disease ebbed and flowed and restrictions changed. For example, Zola, the wedding marketplace, saw a big Q3. I think as people started to look ahead. Wholesale at the end of the year was huge after having a meager first quarter. Furniture saw a spike in growth in the second half of the year. Same with moving services.
17:32 Speaker 00 Whereas normally, we'd probably expect to see growth that was fairly steady. There was a lot of up and downs this year for various categories and companies. Where does that leave these companies going forward?
17:42 Jeff Jordan? The key thing from the marketplace's perspective is, one, can they insulate themselves from that changing consumer behavior? Or can they tailor their concept enough to be agnostic to whether people are locked down or not? I've looked at Airbnb, for example. Immediately early in the pandemic, their business just came to a stop because international travel came to a stop and cross-country travel came to a stop. And then consumers adjusted and the platform was flexible enough to adjust it. So instead of long-distance international trips, people were taking long-duration, near-term trips. So a lot of these companies are going to be sensitive to what's happening at the macro. And some companies made progress in doing that, responding to, okay, we got dealt a
18:27 Jeff Jordan? bad hand, what do we do with it?
18:30 Speaker 03 I think a lot of building a marketplace is hitting that tipping point where you have enough liquidity, you have enough supply, you have enough demand to actually make the marketplace work, to make the unit economics work. And oftentimes, it's about getting to enough scale in whatever market you exist in. And so I think to a certain extent, what 2020 did is it let a bunch of companies get to that tipping point and get to that level of marketplace liquidity that even if demand ebbs and flows going forward, and even if it's not at the place it is today, they've still crossed the threshold. And so I wouldn't say they're safe, but they're in a much more advantageous position than they were in 2019.
19:04 Speaker 00 What do you see as persistent trends when it comes to consumer behavior over the past year, in your opinion? Do you think the past year has been a catalyst for any long-term changes in consumer spending behavior? Or do you think we'll see a whole other reset?
19:19 Speaker 02 I think a lot of the new habits will actually persist. Maybe groceries and food delivery won't be at the same level, but I think a lot of people built that habit now up for multiple months. And as you know, if you can continue a habit for a few weeks consecutively, it's hard to completely revert back. I do think also a lot of online ed tech was accelerated and pulled forward. Same thing with secondhand clothing.
19:41 Speaker 01 I think one thing that we've seen over the last year is people investing in things because it seems fun. And there is an entertainment factor. It could be a game detailer because it seems fun to do so. Or it could be, you know, fractional shares of an old trading card. Or it could be a piece of digital art that you know you're like one of fifty to own. But I think the aperture of things that you want to invest in has just expanded dramatically in the last year. From just say stocks and bonds and real estate than what it used to be before. I think we have to kind of start off people having fun in investing in some of these new categories again. And I think that trend is probably going to persist a while.
20:20 Speaker 00 That's something you've talked a lot about Connie, especially in the shopping category. Has that been underestimated and do you think you'll see more growth?
20:28 Speaker 02 I think we'll see more of growth in terms of fun shopping experience, whether it's social, live, short video. You know, maybe audio. I laugh because I haven't seen that yet.
20:38 Speaker 00 Pets too has been on the rise.
20:40 Speaker 03 Pets are one of those secular trends. Pets are the new kids for a lot of people, so I would expect to see pets continuing to rise.
20:47 Jeff Jordan? Pets had a ton of wind at their back before COVID. I mean, as youngins wait longer to get married and have kids, they have turned to pets. So pet ownership was already on a binge. And so throw in COVID on top of that. And then the willingness to spend on experiences for your pets is also very high end growing. I remember when we were early investors in Dog Vacay and it was a pretty hotly contested investment conversation. Cause the people with pets kind of understood the, okay, you want to spoil your pet and do all this. And that people had pets growing up, but didn't have them now were like, no. We used to go on vacation and just leave the dog in the garage for two weeks with a whole bunch of water and a whole bunch of food. And you're like, oh, what did you come back to? Oh my God.
21:32 Jeff Jordan? And so I think the pet category is definitely one poised for continued strength.
21:38 Speaker 03 The other one I'd make a plug for is health and wellness, whether it's therapy, whether it's coaching, whether it's fitness, whatever it is, everything in that category just seems to be moving really quickly. That's something that people are pulling for.
21:48 Jeff Jordan? And then on the mental health standpoint, we have seen so much innovation coming in mental health, I think definitely accelerated by the pandemic and the challenges of dealing with it. But I think a lot of the stigma on talking about mental health has gone away pretty darn quickly. And I think that's a permanent change.
22:06 Speaker 00 Do you think the camping and the RV trend will continue?
22:09 Speaker 03 I think outdoor travel and marketplaces for outdoor experiences feels like one of those things that hit its moment during COVID and a big part of that will persist, whether it's RVs, whether it's campgrounds, whatever it ends up being. I think there's some version of this that will keep going and probably see the network effects on one or two of the platforms really take hold.
22:26 Jeff Jordan? I'd bet pro on outdoors and a con on RV. I think a bunch of RV was out of necessity, whereas I like to camp. And the reality in the United States is it's really hard to find a good campground on the public sector and the good ones sell out immediately, they're rationed, things like that. So I think there's going to be a lot of opportunity for companies like that.
22:49 Speaker 00 So we talked about behaviors we think will persist that were accelerated through the pandemic. But the pandemic also upended a lot of categories like ticketing, for example, or childcare, or office space, or traditional travel. Do we think that those categories will make a comeback?
23:09 Speaker 02 Certainly. I mean, the demand for childcare has only gone up.
23:12 Speaker 03 And maybe categories that as a whole decline, but where the marketplace version actually becomes more attractive and maybe office space is one of those examples. There will probably be a decline in the amount of office space in the United States that's actually going to rented over the next 2021 versus 2019 kind of thing. But for the marketplaces that are offering more flexible office space or something like that, even though the top line number might come down, the marketplace might actually bounce back to heights that are much higher than they were pre-pandemic.
23:39 Speaker 00 What do you think about the travel category, Jeff?
23:42 Jeff Jordan? The. Tourist segment, I would imagine, should come back pretty fast. I am not as optimistic about business travel coming back. I think a lot of people just discovered that instead of going to a board meeting in New York, I can attend at 90%, 110% efficacy and only spend three hours doing it instead of the two days it would have taken before. So I think it's going to be a tale of two worlds on that. I've read surveys saying business travel may not come back. If it comes back ever, it may not come back for years at the levels it was before.
24:13 Speaker 01 I think there are two schools of thought on business travel in the future. One is we all learned that you don't need to get on a flight to do one three hour meeting, which is much more efficient to do from your bedroom over Zoom. The other school of thought is all it takes is one aggressive salesperson to go fly in person and close a hot deal, which then very quickly everybody else will wind up doing that. And of course, it's not one or the other, lots of kinds of business travel. But I'm just curious about the psychology of business travel and what you expect to see in the next year.
24:45 Jeff Jordan? I think you're right. I think different parts of business travel will come back quicker. That said, a lot of our enterprise companies in the portfolio were able to continue to close business, some at accelerating rates during COVID, which early in COVID, we were very skeptical of their ability to do that. There are a lot of good online convention software out there right now that partially replaced those use cases. So it'll be interesting disaggregating it into specific use cases, but a whole lot proceeded way better than we all thought it would when shutdowns first happened.
25:18 Speaker 02 And it's also conditional on the company you're visiting. If you're the sales agent going back to the office, right? If they've gone remote and if they don't have a headquarter anymore, then you have no place to visit.
25:28 Jeff Jordan? But they're all in Miami, so you just have to.
25:33 Speaker 00 What are some marketplace categories you think will be big in 2021? Are there sleeper categories?
25:39 Jeff Jordan? Collectibles broadly expressed. The non-fungible token thing is taking off faster than like anything I've ever seen. Different artists are selling artwork, we had billions of dollars in minutes. And so there already was the trading card craze that was leading to a lot of analog businesses kind of blowing up in a good way. And if you throw digital on top of that, I think that'll be a very interesting category to watch.
26:04 Speaker 03 I think you'll see stuff like tickets. I mean, obviously that's been decimated with COVID and you'll see that come back pretty aggressively next year as well.
26:10 Speaker 01 See, if you look at historical patterns, right after the Spanish flu, you had the roaring twenties, which had, to put it mildly, a lot of consumer spend and activity out in the real world. So I suspect this is probably going to be the spent up energy, which is going to explode out into people wanting to go to a concert again or go experience a football game again. I would do anything to experience a Marvel movie on opening night and just be swept up in the moment. I would pay a lot of money to be able to go experience that. So I think you're just going to see an explosion in consumer behavior. So be it in a club and the DJ drops a beat or be it cheering a touchdown or a dunk. I think people will want to feel that connection again.
26:52 Speaker 00 All right. Well, thanks, y'all. Thank you for joining us on the E16Z podcast. Thank you.
26:57 Speaker 01 Thank you for having us. Thank you. Thanks, y'all.
26:59 Speaker 00 Thanks, guys.
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