--:-- Host: If you deliver something new, then I think you have the right to win, the right to exist. If you pull up your phone, I guarantee you'll see a bunch of marketplace companies, whether it be Airbnb, Uber, DoorDash, or Amazon. Now, these marketplaces have become household names, and in a way, completely reshaped our expectations around commerce. But they're not the only marketplaces around. There are endless marketplaces that cover nearly every aspect of our lives, from wedding decor to RV rentals to that celebrity ad read you've always wanted, or even that key lime pie from across the country that you just need to try.
--:-- Over the last decade, we've seen the Marketplace model evolve and grow. And this year, A6NC is back with our fourth edition of the Marketplace 100, a ranking of the top private marketplaces by GMV, giving a unique window into what may be to come. This year's list features nearly three dozen newcomers, including marketplaces for refurbished electronics, precious metals, and sustainably raised meat. And in this episode, we break down the key trends from the report. What categories are at the top? What consumer behaviors remain post-pandemic? What infrastructure tools are needed? And what is going on with mental health?
--:-- But we also discuss, in a world where marketplaces are more competitive than ever, what does it take to build a thriving one? Covering themes including trust and safety, disintermediation, and where AI fits into the mix. We discuss all this and more with A6NZ's consumer partners, Connie Chan, Olivia Moore, and Zach Cohen. And look, we could only cover so much in this episode, so if you'd like to find the full ranking of the largest consumer-facing marketplace startups and private companies, you can find the full report at a16z.com slash marketplace dash 100.
--:-- As a reminder, the content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund. For more details, please see a16z.com slash disclosures.
--:-- There are so many different areas of technology that people are talking about today, whether it be AI or longevity science or rocketry. And those are all very exciting. But Marketplaces is something that A16Z keeps coming back to. So, Connie, I want to hear from you. Why are marketplaces still so important to study?
--:-- Connie Chan: We are obsessed with marketplaces, and we have been since our inception. A lot of that comes from actually our partner, Jeff Jordan, who himself has been an operator and a pioneer in marketplaces, holding leadership roles at eBay, at OpenTable. And because of his experience, we have all been trained to believe that marketplaces are truly phenomenal, phenomenal business models. And there's a couple of reasons for that.
--:-- We are in the venture capital business, so we are looking for outsized returns. Many of the biggest returns historically have all been marketplaces. And this is because marketplaces generally share two traits that are incredibly valuable and attractive to investors. First, they generally have a very strong theory of defensibility. A marketplace, the larger it gets, the harder it is to disrupt.
--:-- Let's think about the biggest marketplaces today. I mean, Craigslist is still a vibrant marketplace. And you look at this website and you're thinking like, these are links. This is just text. There's no photos. There's no videos. You don't need it, apparently, because that marketplace has liquidity. It has traffic of buyers and sellers. It has traffic of renter and landlords. And so you still get lots of matches that are happening. People try and pick it away, but it's still working, right? So theory of defensibility is very strong with marketplaces, which is something we absolutely love.
--:-- And that comes from network effects. Network effects are inherently built into marketplaces. And we'll define that as we go along in today's podcast. But basically, the gist of network effects means the larger you get, the more beneficial your platform is to everyone involved. Take Airbnb, for example, a fantastic marketplace. The more homes that are listed on Airbnb, the more likely all travelers or people who need to rent a place are going to go to Airbnb as that go-to place that has comprehensive supply. And likewise, the supply goes wherever the demand is. And so it's a self-fulfilling prophecy, which means that the larger it gets, the more options, the more supply it has, the better it is for people looking for a place to rent and vice versa. And so marketplaces are just beautiful for these two reasons, theory of defensibility and network effect.
--:-- Host: I love that you brought up Airbnb because I don't know if I'm the only one who needed a reminder that Airbnb, Uber, a lot of these super familiar companies are marketplaces and also huge companies. I could even say generation-defining companies that didn't exist a couple decades ago, right? And so when we're evaluating these marketplaces and developing the Marketplace 100, how do we think about what metrics really matter? Because today in 2023, there really are so many marketplaces to compare.
--:-- Olivia Moore: There's a lot of metrics that we track when we are analyzing marketplaces. And the good news is that a lot of these metrics hold true for whether you're building a marketplace for pets or for secondhand goods or for travel. There's the standard things that everyone's looking for when we're tracking how healthy is the supply and demand. We have a ton of amazing data this year. We expanded our sample size by three times. So there were more than 12,000 companies that we looked at when deciding what would go in the marketplace 100.
--:-- But the number one factor we look at is consistent across years. And that's arguably the most important top line metric for almost all marketplaces, which is gross merchandise value or GMV. So that's over the course of a year. For this report, it was the year 2022. How much did consumers transact aggregated across all of the purchases on the platform? So how much did people spend on your marketplace? And then we ranked from top to bottom the platforms that had the most consumer spend.
--:-- GMV, in some ways, is almost a lagging indicator of all of these other amazing things that marketplaces have built to make themselves ideally a sticky and highly retentive platform. So while GMV is the end result of all the work that they do, when we evaluate marketplaces to invest, we're often looking at things like growth in active supply and demand, conversion from listing to sale, and then retention. So both on the user side and on the revenue side, once a seller has sold an item, how likely is it that they come back to sell another one? And in the best case, they don't just come back to sell one more, but they sell one in the first month and then five in the second month and really start building a very powerful business on a marketplace.
--:-- Host: And Olivia, obviously we don't have data across 12,000 companies from the companies themselves. Do you want to share a little bit about what data we're utilizing to gauge the GMV?
--:-- Olivia Moore: Yes. So this is a new data provider for us that we're excited to use called Consumer Edge. Consumer Edge purchases and then aggregates actual credit card transactions from real consumers across the country. Anonymous, yes. We're not able to look at and see who's actually making what purchases where, which is a good thing, I think. But they use this sample set that they have of a couple million consumers to then estimate what that looks like for the broader U.S. and gives us a pretty good sense of what marketplaces are on top across the country.
--:-- Host: So this is our fourth year. And in 2023, we saw 34 newcomers. And I don't know about you, but 30% of the list being completely new marketplaces, that stands out to me. And so were there any surprising newcomers among that 34?
--:-- Olivia Moore: Yes, we had a ton of newcomers this year. We also had a lot last year. I think it was 37. And to Connie's point about why we love marketplaces, I think this just shows how much opportunity there still is left to build companies that break out with this business model. Because you might think like, oh, Uber is already public, Airbnb is public, Lyft's public. Like, how much more is there to build in marketplaces? And I think the answer is a lot. We had six newcomers in the top 20 this year, and we had one newcomer actually in the top 10, which is called Rock Auto. It's a bootstrapped family business around selling car parts, which was so exciting to see.
--:-- Connie Chan: Which also looks like Craigslist.
--:-- Olivia Moore: Yes, exactly. We saw a few auto marketplaces this year. And I think for those, one of the learnings has been just the volume of inventory matters most. And people don't care how cool the listing looks or if they can see a lot of fun videos.
--:-- Connie Chan: Well, it also depends, right? Because some marketplaces, you're going there to look for a specific item. For the car auto parts, like I have a car, something broke down. I need a spark plug, whatever it is. I just care about who has it. Can they get it to me? And is it a decent price? And then there's other marketplaces where you're in a browsing behavior. And then those marketplaces need to do a lot more to surface products you like, figure out your taste. Those companies need to have a better UX. Those companies need to invest in user experience because you're not going there to search for a specific SKU.
--:-- Host: So is there an example of a marketplace that you think has that really strong UX?
--:-- Connie Chan: Yeah, I think what's really interesting is happening in shopping, specifically whatnot, which is actually making shopping more of an entertainment product and less of a transaction product. So different than the car parts marketplaces, I need a muffler. I'm going to go on and click on a link. You go on whatnot, and there's a lot more of this kind of discovery, entertainment, shopping landscape. And I think that this is very different consumer behavior than we've seen in the past where you've seen, I go on a product page, I search for a product, I add it to cart. And that kind of static e-commerce transaction experience is getting a little boring and consumers want more shopping entertainment.
--:-- Zach Cohen: I completely agree. I think, again, for commerce, and all marketplaces are commerce at the end of the day. They all result in a transaction, right? And if you think about transactions, it's that search-based type of transaction. I know exactly what I'm looking for. I just need to go to the place that has the most supply. And then the other one is really discovery based. I need to be inspired. I need to find things that I might want to buy. Very big distinction. And so the user interface is really dramatically evolving on the latter where there's a lot more room to enhance product discovery.
--:-- Connie Chan: Right. And whatnot is a great example of that. We think video as a format is still really new when it comes to shopping. We grew up watching infomercials. We know that video is fantastic as a way to sell things, but they hadn't really made their way into lots of marketplaces yet. And so now video is starting to disrupt marketplaces in a really interesting way, whether it's short video, pre-recorded video, live video, they all bring nuances and flavors to marketplaces that ultimately give buyers more conviction in what they're buying and more joy and delight in that shopping experience.
--:-- Host: Another example of this is Temu, right? It's not on the list because it's not a private company, but that thing has grown massively. What can we learn from Temu as it's risen in the last year or so?
--:-- Olivia Moore: For sure. So Temu doesn't have video. They don't focus on video, but they also don't need it for the types of products that they're selling, right? Temu is a monster in terms of its growth. I mean, Olivia and I chat about the stats. We're tracking it all the time. It is insane how quickly this company has grown, largely catalyzed by paid ads, but it has continued to grow. And the repeat purchase based off the credit card data that we're seeing is strong.
--:-- Connie Chan: Now, what I think is really interesting and a major nugget to learn from Temu is product discovery, personalization, and also gamification of shopping. They have lots of coupons and games that you can even play. I remember Olivia was playing some fishing game inside of Temu to win some free slippers. And it's just something fun that we do, right? It makes shopping fun again.
--:-- But going back to that personalization, which I think is a very new thing for marketplaces and commerce in the U.S. in general to adopt. When we go on Amazon, we all go to the search bar. But that's not how we shop in real life. When I go to Costco, when I go to Target, I go in to buy one thing. I leave with like 10 things, right? Usually more. And the natural way that we shop in real life is we get inspiration as we go along.
--:-- And the reason why Temu is even more powerful than replicating a trip to Target is because the more I browse it, the more it learns about what I like. Just like those of you who have used TikTok, within a couple of swipes within that first day, they can figure out exactly what to show you that will make you happy. And what they show you is different than what they show me. It's different than what they show Olivia, it's different than what they show Zach. Same thing with Temu. What they're showing you is constantly changing and personalized to your shopping behavior. And that personalization of shopping, I think we're going to see more commerce players try and replicate that because that ultimately increases conversion.
--:-- Host: Yeah, it feels like there are a few key themes here. One of them is that consumers are looking for more entertaining shopping experiences, but also more personalized. But another key theme, if you look at the data, seems to be around curation. So how are we seeing that play out?
--:-- Zach Cohen: Yeah, there's Locale doing it in food, Sense doing it in clothing, Good Dog doing it in pets, where they're adding a layer of curation. If you look historically at marketplaces, you see that wave one, you're talking about the Amazon and Ebays, which were all about quantity and supply gathering. They thought, let's gather as much supply, have as many people list on our marketplace as possible, and then we can get as many customers as we possibly can because we're going to own as much supply as possible. That worked up until a point and continues to work, obviously.
--:-- But the second generation is these open-ended marketplaces that have these tiered curation levels. We saw with Uber Black and Airbnb Plus, which there's still an open-ended marketplace anyone can list, but to get that special layer of curation, the suppliers have to go through additional vetting process and consumers will pay a premium for that. And I think that kind of wave three, the Locales, the Senses of the world are providing that curation layer as just the marketplace itself.
--:-- Connie Chan: Well, I think actually what Zach is touching upon is a really important point because that curation in some ways is kind of tied to this concept that is the ultimate pillar for all marketplaces, which is trust and safety. And trust and safety is paramount if you want to build a successful marketplace because there's buyer fraud, there's seller fraud, there's just fraud all over the place if you don't build in the right mechanism into a marketplace. And you have to start thinking about those things from day one. And in some ways, this extra layer of vetting that the platform takes on is enhancing that trust and safety element on the platform, right? Buyers have more conviction buying their product or their service.
--:-- And even something like a Temu, you will see that has been a very important reason why they've been successful. We oftentimes read about a lot of people writing off Temu as another Wish, right? A lot of people say, oh, this is the same thing as Wish, really ridiculously cheap products. Huge difference is that Wish would allow people to shop on Wish and then the factory ships directly. So it's just like a listing marketplace, just like a Craigslist, right? Temu has warehouses. The factories have to ship their products to the warehouses. Someone is packing it all in a Temu bag and everything arrives in one package. That means there is a baseline of quality control. That means Temu has looked at every product that's being sold or has some oversight of that product to some extent because they are the ones shipping it out.
--:-- Host: How do they achieve those prices then?
--:-- Connie Chan: I mean, it depends on how much time you spend evaluating or checking every item. Obviously they're not going to open the package for everything, but they have some sense of control, right? They have more control than someone like a Wish over what's getting sent out. For example, if something shows up and the packages are in terrible shape, they see that before they decide to send that off to the customer. And so that extra layer enhances the sense of trust and safety on that platform. It hopefully can reduce things like returns and increase things like repeat purchase behavior. It all comes down to conviction that whatever I bought is something I actually want. That's what all shopping boils down to, right? And so this extra curation is just giving me more conviction that what I bought is exactly what I want. Ideally, because someone on the platform or whatever other mechanism built in trust and safety has ensured that.
--:-- Zach Cohen: I would say the other amazing thing we're seeing as a result of the new layers of trust and safety on these curated marketplaces is that they're bringing online suppliers who would never have listed on a marketplace before because they're worried about maybe the brand risk or the affiliation with, for example, in Amazon, there's lots of high-end brands who will say, we'll never put our products on Amazon, but they will put them on Sense or another marketplace that's a more curated list of high-end items.
--:-- Locale found this in food where there was a lot of merchants who make one or two incredible items and they won't put them on DoorDash because they don't trust that it's going to be a great experience for the consumer receiving that item. They want it to be a hundred out of a hundred every time given how much thought and care they put into making these items. And so this new wave of curated marketplaces not only makes the user happy that the "what I ordered versus what I actually get" meme that always pops up, but it makes suppliers happy and it allows many suppliers to participate in marketplaces for the first time when they haven't been able to or excited to do that before.
--:-- Host: I have a quick question about Temu and trust. Do you think it's really them instilling trust into the consumer? Or do you think the prices are just driven so low that consumers are kind of bypassing trust and saying, I'll get a portable laundry machine, which I actually bought from Temu. I know exactly what you bought. Not joking. I totally know exactly what you bought. I'm sure you do. You've gotten that ad. I still get tens of ads from it. Or is it just me saying, it's eight bucks. Hey, this looks kind of interesting. Maybe it'll help me in a jam once in a while. Or do you think it's an actual trust layer because it's all branded?
--:-- Connie Chan: I think the trust comes after the fact, actually, in this case. It's like you purchase the item, but most likely this thing that shows up at your door has a higher shot than if it was just a pure listing marketplace and they had no oversight. There's just a higher chance that it might be good enough or close enough to the listing, right? They're not going to get it 100% of the time. But if it's just this kind of free-for-all where the platform has no control, then your repeat purchase rate might reflect that.
--:-- Olivia Moore: I think there's a lot of suspicion maybe on behalf of consumers that Temu wouldn't deliver that trust and safety layer. If you go on YouTube, and usually it's young women in their 20s and 30s that do all these reviews of discount platforms, and the title will always be like, "Is Temu a scam?" And then if you actually watch the video, they're usually pretty impressed, especially compared to Wish and even AliExpress and other platforms that they've tried that kind of play on the same themes. But to Connie's point, what's coming out in the data, at least from what we can see, is Temu's repeat order rate is like five times higher if you get to month six and beyond. People are coming back and spending way more than they are on Wish and other platforms because it is actually delivering on that trust and safety layer to some extent.
--:-- Zach Cohen: Though I do maybe agree with your concern, Zach, that a portable laundry machine is hard to pull off. I would say that the prices obviously do matter. So prices are very important for driving behavior. But the thing is the prices are so low that if you buy 10 items and as long as three or four or five hit the mark, you kind of feel okay.
--:-- Connie Chan: I would also say trust is not just trust with the supplier giving you the thing you want, but that if that's not true, that the marketplace will do you right. It'll give you a refund or it'll give you a replacement or it'll have reviews for that seller that you can say, hey, I didn't get what I want.
--:-- Host: But let's take a step back and talk about, we have 34 newcomers. Were there any other trends that the three of you saw that really are indicative of what might be to come with upcoming marketplaces? I mean, maybe we can talk about mental health. That's been a huge trend in this year's results.
--:-- Olivia Moore: Yeah. So there were four companies on the list in mental health this year. Two were newcomers, which was fantastic. Two had been on the list in the past. But there was actually one trend that ran through all of them, which we don't often see uniting a category. So I think really points to a clear thing that's happening in consumer behavior, which is that all of them help consumers find and match with therapists. Yes, that has existed for a very long time. But beyond that, find and match with therapists that take their insurance and are going to allow them to access appointments at $10, $20, $30 per appointment versus in the past, 60% plus of therapy appointments were not covered by insurance. And those cost upwards of $100, $200 an hour.
--:-- And that's an example of going beyond a marketplace just being a place to list supply and demand. But these marketplaces are actually helping these therapists get credentialed to be able to accept insurance and to join this group practice, which is an enormous boost both for their businesses, but also for all of these consumers who are finally able to access therapy often for the first time because it's actually affordable now, which is amazing.
--:-- Zach Cohen: The ability to take offline supply, especially therapists who are already vetted, and bringing them online and allowing consumers to have choice even within a network and moving away from just going on a provider's list and looking at a non-actionable list of 50 to 100 mental health practitioners near you and be able to click and make an appointment within minutes removes a lot of the friction and provides a lot more access to people to a pretty inaccessible good before this kind of marketplace existed.
--:-- Connie Chan: Like Airbnb is the ultimate example of this, right? A lot of people are now hosts on Airbnb that never engaged in that kind of practice before the platform existed. It 100% generated a brand new batch of supply.
--:-- Host: Are there examples of industries where you feel like that's still untapped, where there is that supply waiting to be brought onto a marketplace?
--:-- Zach Cohen: It's a great question. We think about a lot as we map marketplaces, there's categories of consumer spend and there's some categories that still don't have a dominant marketplace. And so the question in those cases, especially if they're big categories of spend, is like, what is necessary to finally get a massive, hopefully 10, 20, $50 billion company up and running there? I would say one example where we've seen that not happen quite yet and where we're actively looking every week is home services. And the problem with that one so far has actually been that repeat rate on a day-by-day, week-by-week basis is still somewhat low. And so there's this question of how do you acquire customers in a way that you're still making enough margin on the first or second order that you're not way underwater on what you paid to acquire them. But ideally, even better than that, you develop a brand or a subscription or something else that does keep them coming back more often than they normally might for just a broad home services platform.
--:-- Connie Chan: Actually, with home services, one concern that marketplaces always have to deal with is disintermediation, right? What happens if you find this great match and then you're like, well, the next time I find that person, rather than transact on platform, why don't I transact off platform? Because I have their phone number now, right? And then they save money, I save money. It's a win-win. Maybe we can talk a little bit about disintermediation and why that is an issue with some marketplaces and how they address that.
--:-- Zach Cohen: Disintermediation, I feel like, is the elephant in the room when it comes to a lot of marketplaces and probably the easiest and most obvious question to ask when you're talking to someone building a marketplace. What we've seen is that there is a way to get around disintermediation, and that's you have to be providing enough value to both sides of the platform that they will stick with you no matter what.
--:-- So one example I'll give from my own life, my little brother, his whole life had a math tutor. She was this amazing woman named Therese, and my mom found her on a tutoring marketplace called Wyzant. And my mom, being the smart, organized person she was and not wanting to pay the fee to the marketplace every time, would always try to say like, hey, I can schedule with you directly. But Therese had built such a book of business on Wyzant and loved the coordination, the payments, the trust that they provided to her, that even for one client that she trusted, she wasn't willing to disintermediate because it put her status and her identity on the marketplace at risk. She would have gotten kicked off if they found her out for this one time.
--:-- And so this is different for a tutoring marketplace than for a collectibles marketplace or a home services marketplace. But in general, we find that if you're providing services to buyers, which are often around fast shipping, trust and safety, better discovery, and then services for sellers, which can be as complex as actually giving them financing to run their businesses on the platform, then they're much less likely to disintermediate over time.
--:-- Connie Chan: Yeah, I think Peek does an amazing job at this on the Marketplace 100 list. So this is a marketplace that allows you to book excursions, think with wineries, hot air balloons, anything that you would do while traveling. And for consumers, this is an aggregation of a bunch of different amazing experiences that you can have while traveling instead of searching online. And there's insurance and refunds and an easy purchase. And on the supply side, they're actually providing a vertical software that allows these businesses to run digitally because a lot of them are offline, whether that's bookings, financing, all of that supply side software. And that only keeps a supplier happy, it keeps them sticky and retained. And again, the network effect component that Connie spoke about, when you're at scale, that risk moves away as marketplaces become more and more mature.
--:-- Host: So we've talked about several trends already, whether it be home services, we've talked about entertainment based shopping. But there are six key trends from the report that I would really encourage people to go visit. Which of these trends feel transient and maybe are riding some sort of short term economic wave, let's say like supply chain woes versus consumer trends that we think are really foundational and will impact the next three, five, 10 years of consumer marketplaces to come?
--:-- Connie Chan: I think video is here to stay. And as someone who has shopped through video, as someone who has sold through video, it is really different than a static marketplace. And granted, there are places for someone like a Temu too, where you don't need to watch a video necessarily to discover a product. Although I would argue that some of the before and afters or the demos of the portable laundry thing that Zach bought probably would help him buy more. Seeing them in that stock probably would drive him to buy it more. But I just think video as a behavior is going to permeate marketplaces and shopping more. I mean, who knows? Like when you're looking at an Airbnb, maybe the video tours might get you to convert better than just the photo tours, right?
--:-- Connie Chan: And maybe video reviews, especially for Gen Z that really trusts authentic video reviews, might be more compelling than text. And so I think video is just gonna make its way into all marketplaces, whether it's the actual selling experience, like something like a Whatnot, or whether it's just a new type of ad discovery, a new type of media format that's used to help describe a product or service.
--:-- Olivia Moore: I agree. And I feel like a lot of sellers on marketplaces in the past maybe year, year and a half have probably tried posting a TikTok or an Instagram reel for the first time. And I've seen the crazy engagement and kind of the crazy demand generation that they can get from something like that. So I honestly wouldn't be surprised to see the supply side of many marketplaces start to kind of push the platform on like, when are we going to be able to add videos? When are we going to be able to do video shows, things like that? Because it can just be like such a game changer for a business.
--:-- Zach Cohen: I think for kind of a more transient short-term theme, I think ticketing is one that Olivia and I, as we looked through the data, were surprised that it was still above 2021 levels. I think we thought 2021 was kind of that revenge year that we saw, but it really, GMV continued to grow off 2021. So yeah, I think when you look at 2022 and you see all the ticket marketplaces growing, you kind of think of two things that happen. One is there's a lot of pent up demand, that revenge travel behavior. And the second thing is actually just shows were being pushed into 2022. You had Harry Styles Tour, which had 45 shows pushed into 2022. So this kind of combination of pent up demand and shows being delayed led to this kind of like first half of the year, really large GMV growth. But if you start to look at the data on a monthly level, you start to see the second half of 2022 really slow down from ticketing marketplaces. And I think that will continue. I would be surprised if ticketing marketplaces weren't prevalent on the list going forward, but I think that their growth will slow down in the years to come.
--:-- Olivia Moore: And 2021, though, to Zach's point, was already a massive jump from 2020. And even by the end of 2021, we were already kind of surpassing the pre-COVID 2019 levels. So the fact that we still saw quite a few ticketing marketplaces, arguably at scale, doubling year over year was really kind of a surprising and cool trend to see.
--:-- Connie Chan: Yeah, I think also the SeatGeeks of the world and kind of other like more legacy standard secondary ticket marketplaces still holding on the list. There are companies like Dice, which is really helping with discovery and you plug into Spotify and you're able to recommend your artists and see shows near you. And that has allowed it to grow on the list. I think it was in the 40s this year. But it's just interesting to see that the ticket marketplace is still very transaction focused. Consumers are not loyal. They're loyal to price.
--:-- Host: You know, another trend we've seen is that a bunch of non-marketplace companies are entering the marketplace category, perhaps most notably a few social companies like Facebook. Facebook Marketplace has become a core component of that business. And so curious to hear your thoughts on what other companies or industries you're seeing actually shift into this category.
--:-- Connie Chan: I mean, I think a lot of these large platforms are all going to figure out they want to dabble into commerce. And there's so many benefits if they do that. It actually drives their advertising engines. Because now that you have a commerce layer, the supply generally is willing to buy ads to get more business. Right. And so you're going to see a lot of these large incumbent social apps, whether it's a TikTok or a Facebook, do more, I think, in commerce in general. And I think this is largely because they have two main benefits. I mean, one, they know a lot about you as the user. And I went back to that personalization, right? Like if the area of marketplaces that still has a ton of room to grow is discovery, then actually knowing a lot about Olivia, about stuff about Zach, what you guys are more likely to buy gives me a huge edge in knowing what to show you. Right. So these platforms naturally already know a lot about your preferences in theory. And the second thing that they have is just mind share, time share. And the reason why this is important is because when you are in product discovery mode, it's about getting that user to open your app to see what's available. And they may or may not convert. Very different behavior again from buying that spark plug on Rock Auto. I will never browse that site unless I actually need a car part. But if I'm looking for just some random deal or just to see what's out there, again, going back to that element of entertainment, which is just intrinsic to offline shopping in the real world, that benefits from traffic and retention and just amount of times I'm looking at it. And so those types of marketplaces can naturally live on these social platforms because they already have that traffic, they have the repeat usage, they have the mind share, and they also know a lot about you as an end user.
--:-- Zach Cohen: I think that's a great example because I think about how many times I've bought something off of TikTok and it's hard to do now, right? You come across the video, you get the item name from the comments, you go look it up on wherever it is, then you complete the purchase. So it's a couple steps. And I've still done it probably 10 times because it's just such a great place to discover personalized products. And so when you think about TikTok, as they've been hinting at, layering in kind of an in-app marketplace where you could do that in one click, where your payment information is saved, your shipping information is saved, you can order it directly from the video. I feel like that kind of thing is just going to be incredibly, incredibly powerful.
--:-- Connie Chan: There are also questions, and I think these are still TBD. Would you welcome shopping intent? And that's still TBD for a lot of things. For some people, they might say like, well, I came to this platform to do this. I don't want to shop here. And I find that intrusive. But I think for a lot of users, they will find that they're okay shopping from anywhere. I see articles on CNN that are like, we tried this item and this is what we thought. And people are shopping on CNN. So I just think people are looking to shop, looking for that discovery, looking for that inspiration more often than not. So I actually don't buy that like, oh, I don't have the intent of shopping when I go there. I think that changes. I think consumer behavior changes as long as the recommendations and the personalizations are good enough.
--:-- Olivia Moore: I want to know how many listeners are going to end up buying this laundry machine from this podcast. I need a referral code.
--:-- Connie Chan: Yeah, I think on top of also all the information and users you have on your users, I think the graph of social is changing a lot. So you see like Instagram, maybe five years ago, you'd go on to connect and see what your friends are doing. And now most usage on Instagram is interest-based and you're following creators. And now there's a whole layer of companies that are link and bio companies or creator influencer marketplace companies. And these are basically pushing towards having native marketplace on platforms. So companies are already seeing this happen organically through either the graph changing or through creators coming on the platform to push product. I think is a natural fit for marketplaces. And I mean, some of you are too young to remember this, but like Amazon is ultimately one of the best examples of this, right? When they opened up to third-party sellers, that dramatically increased the supply of what you can buy on Amazon, right? And there's lots of platforms like that where they may open up to third-party sellers like a Shein, right? Eventually, these platforms that are selling things that are coming from their warehouses, they might open it up and let factories ship directly. They might let the seller ship directly as long as they can build enough trust and safety mechanisms, whether it's good return services, good logistics services, or more curation or more trust or however they choose to build it.
--:-- Host: When we think of looking forward, because I know everyone loves using this report to really understand what's to come, what marketplace should I found or what marketplace should I look out for? What categories do you all think might be to come? Are there any sleeper categories for 2024?
--:-- Zach Cohen: I wish we had a crystal ball and we could see exactly what categories we're going to grow 500% year over year, because then we'd go invest in all of those companies today. I do think there are a couple categories, like I mentioned before, where we feel like something is hopefully poised to break out that we haven't seen yet. One would be home services. I think there's still a lot to do in automotive, not just the parts, but the actual purchase of the car. There's also, I think, room for a big kind of Indeed killer that takes these kind of blue collar jobs and makes them much easier to find and match and build a LinkedIn for those types of jobs as well, almost, where there's like an identity layer and a reviews layer on that. We still haven't seen anything really kind of inflect there. And so we're always looking for that. I do think one trend, it's not a category, but it might play across categories, would be kind of this intersection of AI and marketplaces that I'm actually starting to see play out on both the supply side and the demand side of marketplaces already, which is really exciting. Olivia, why don't you share some examples?
--:-- Olivia Moore: I completely agree. Yes. So Temu is a great example on the demand side in that you open the app and it's analyzed everything you've ever looked at or scrolled over or clicked on in the past and it recommends things. This is kind of similar to what DoorDash does now as well and has been doing for a few years. They've published a ton of blog posts about this but they've had a very custom algorithm where they kind of predict based on what you've looked at and what people around you have ordered. All of these factors like what can we show Connie first that makes her most likely to actually order something after she lands on DoorDash.
--:-- Connie Chan: My location too when I open it up.
--:-- Olivia Moore: Yes, location is a big one. What you've ordered, what you've reviewed, what's closest to you, what will be fulfilled fastest, what other people in your neighborhood like. All of these factors are really important. And if you're not DoorDash in the past, it's really hard to build that kind of customized algorithm. But this is now becoming accessible to a lot more marketplaces at different stages, which is exciting. On the supply side, where we're mostly seeing it is almost in small business tooling that gets built into these marketplaces. So suppliers on marketplaces, let's take Turo for an example. It can be anyone from one person who's listing one car all the way up to a five-person business that has purchased 50 cars to list on the Turo platform. And especially if you fall kind of closer to the small business end of that category, you have marketing challenges, you have customer support challenges, you have to do your financials and your taxes and your accounting every year. And so what we're starting to see a lot of marketplaces do is build in these AI-powered tools for their suppliers that helps them run their businesses more efficiently. And they can then spend more time getting bookings and making customers happy and less time doing all the back office stuff that comes with running a small business.
--:-- Connie Chan: Travel is a great example. We've looked at some travel companies where they can use AI to create these amazing itineraries in minutes and seconds, actually, that are hyper-personalized based off your budget, based off the number of days you're in that city, based off what you've already seen in the past and you don't want to go revisit the same place. AI just saves time so much for that supply site to deliver some of these services.
--:-- Zach Cohen: Yeah, I think also the search is a really important component, right? AI really can superpower the search. For a travel example, how many days, your budget, where you want to stay, places you want to visit, even if they don't have that data on you, with a couple sentence search. Contextually AI can really generate amazing itineraries or find the exact match on a marketplace for you. So it might remove friction to purchase. I think there's a lot that will come from there.
--:-- Host: Is there also room for companies to provide that middle layer to marketplaces if they don't want to develop that technology themselves?
--:-- Zach Cohen: I think so. We've seen a new rise of kind of marketplace infrastructure companies that do everything from like, how do I run ads on my marketplace? How do I handle reviews? How do I stack rank companies in the search results? Many of which are now starting to become large venture-scale businesses of their own. And so I think there's definitely room for like AI marketplace infrastructure layer that would be excited to see.
--:-- Olivia Moore: Yeah, I think why it's such an exciting time to start a marketplace is because there's just so many amazing third-party tools that can get you up and running really, really quickly. Post-purchase, handling returns, shipping, all of that can be really outsourced and your marketplace can be more than asset light, which is the term that we like to use. And I think Gen AI will just kind of supercharge all of those powers and add even more.
--:-- Host: So often when something becomes easier to create, when it becomes democratized, it becomes a lot more competitive. And I mean, to that end, we've seen so many marketplaces pop up over the last few years. And so how would you advise founders then in this very competitive landscape? How do you stand out, given that it's easier than ever to create one?
--:-- Connie Chan: Yeah, I think when you want to build a new marketplace, you either have brand new unique supply that no one else has, or you have better pricing that no one else has, or you have just a much better fun experience and that's Whatnot, right? So if you deliver something new, then I think you have the right to win, the right to exist. And that has to come through some value proposition that doesn't exist in the market today. Because remember, existing marketplaces are very sticky. Craigslist is still around, right? So what experience are you offering that's super differentiated? It's either a product or it's the actual user experience.
--:-- Olivia Moore: Yeah. To kind of go back to what we were saying about trust and safety is how sneaker marketplaces first emerged, which Goat and StockX have been in the top 10 for the last few years on the list. But I actually went back and looked at a bunch of the very first Reddit posts that got made about StockX in particular. And I was like, why?
--:-- Zach Cohen: Olivia loves doing this.
--:-- Olivia Moore: I love Reddit. I've heard a lot said to start with, I looked at the first Reddit post though. Yeah, exactly. Well, because it's very honest. Like once a company is successful, it's easy to go back and kind of paint a straight line of how they got to where they are. But when you can actually dig into the weeds of how they got their first customers, it's often like pretty fascinating and maybe even a little different than the team behind the company initially remembers. But the question that I had on sneaker marketplaces was like eBay already existed. And I would say it was still very much in its prime when these sneaker marketplaces first started popping up. And so like, why were people using something that wasn't eBay for that? My original theory was for trust and safety on the buyer side, like buyers wanted to make sure these items were legitimate, that they were going to be authenticated. What I actually found was sellers kept getting ripped off by buyers who would order these expensive sneakers, get the sneakers, and then dispute the charge with the credit card company or otherwise say that they weren't real or weren't authentic. And these sellers were getting ripped off and losing a ton of money on their businesses because these broader, more open platforms weren't providing trust and safety for sellers, not just the buyers. Airbnb does this as well in that trust and safety, I think, goes both ways. And so I guess the learning from this for me is like, even if it doesn't seem like there's room to create a new marketplace, there's always something about the experience on existing platforms that one side is probably secretly unhappy with and is willing to change to something new if you're kind of able to nail it and finally get it really right for them.
--:-- Host: Yeah, let's see how that emerges next year. Hopefully we do round five of the Marketplace 100. But Connie, curious to hear from you. We've done four years of this report. Any high-level thoughts around what we're seeing with marketplaces? And again, what's to come?
--:-- Connie Chan: I think the main message I also just want to convey is congratulations to all 100 companies that made it on the list this year. Building a marketplace is really hard, really hard. The early days, getting enough supply so that you have supply there for your demand, getting enough demand so that your suppliers don't lose interest and go away. That is so hard to catalyze. And it takes a long time to get right. It takes a while to find product market fit. It takes a while to get that flywheel working. And so for all the founders who have toiled, for all the employees at these companies in the Marketplace 100, we know how hard it's been. And we congratulate you for the success you've seen because getting on that list is hard. But the good news is for marketplaces, when you do get that product market fit, when you do get that flywheel going, the staying power is great. And the potential of what you can expand into is massive, right? Again, we love marketplaces. We really respect marketplaces and the teams that build them. And because we love marketplaces so much, we're also going to kick off a short series of podcasts where we talk a lot about some of the marketplaces that we really respect and what are the learnings from whether it's metrics that they're tracking that are unique or interesting, or how did they do things that are unique to get their seller or buyers to really start catalyzing that flywheel. And we will also be launching a market newsletter shortly. So more details on how to sign up for that will come.
--:-- Host: Amazing. Thank you all.
--:-- Connie Chan: Thank you so much.
--:-- Olivia Moore: Thank you.
--:-- Zach Cohen: Thanks.
--:-- Host: Thanks for listening to the a16z podcast. If you like this episode, don't forget to subscribe, leave a review or tell a friend. We also recently launched on YouTube at youtube.com slash a16z underscore video, where you'll find exclusive video content. We'll see you next time.
