Marketplaces are here to stay: The a16z Marketplace 100 Summary

Marketplaces: where supply meets demand

Marketplaces exemplify many textbook theories on economics that are otherwise vague and ambiguous. For example, Uber's surge pricing plays out shocks to supply and demand curves, price ceilings/floors, disequilibrium, and equilibrium. [See earlier post on Uber.] However, marketplaces aren't just monetizing classical economic theories. Successful marketplaces dominate through data science, growth marketing, network effects, and product-market fit. Marketplaces are particularly powerful because the endemic network effect can secure dominance (Airbnb). So what are the most successful marketplaces today? Andreessen Horowitz did most of the work for us in the a16 Marketplace 100. In the following post, we'll break down the list and share the key findings.


What is even a marketplace?

In secondary research, I like to analyze the data before reading the author's analysis in order to avoid bias in my conclusions. Unaided, here's my definition of a marketplace business: "A marketplace connects buyers and sellers that would otherwise have a difficult time finding each other. There is often a technology enabled aspect that compels the engagement of the supply and demand side." Let’s see how well this holds up after culling through the list.


Survey methodology

The marketplaces were selected using a third party ranking tool, Second Measure, which analyzed real time consumer behavior and transaction data across 4,500 merchants focused on the consumer market (as opposed to B2B). The companies were ranked primarily based on GMV.


Results

I found that almost all of the 100 companies fit into four distinct groupings:

  • Commoditized products - marketplaces that allow trading of these commodities in a more efficient, scalable fashion

  • Delivery - delivery that helps restaurants and grocers meet the demand for fast delivery

  • Services - scalable listings for professionals or service providers using the power of crowdsourced communities to ensure strong levels of service

  • Opaque markets - platforms that help to elucidate fragmented markets such as travel, event ticket reselling

  • Education - using online platforms to deliver different types of education to the masses


I list the companies that fall into those categories below.


Commoditized products: Apparel, retail, wholesale

The survey is bounded by consumer marketplace companies, so naturally many of these marketplaces will be commodities. As opposed to product innovation, these marketplaces disrupt the supply chain.


Apparel & Retail:


Education: Given the size, importance, and age of the industry, I consider education to be a stand-alone sector.


Delivery by any other name: Outsourced delivery for grocers, retailers, and restaurants at scale. The marketplaces also serve as an sales channel, allowing the retailer or restaurant access to new consumers.

These marketplaces also augment the ordering/POS system of the merchant.


Relationship/Service oriented: This is a broad category that childcare, pets, transportation, household, health & wellness.


Opaque markets - These marketplaces address fragmented discovery, confusing pricing, and inefficiency supply chains.


Parting thoughts

In all cases, the marketplaces listed are an avenue to connect disparate buyers and sellers. In some cases, there are three sided networks as is the case with companies like Postmates - the delivery side, the buyer, and the restaurant. All have to be in synchronicity for the transaction to complete successfully. A few of these marketplaces took me by surprise. For example, I did not expect to see Spothero on this list. I've used the app to find parking before and it proved to be very useful, but I did not expect it to be a high GMV marketplace. Perhaps this is an indicator of the defensibility of the moat that successful marketplaces build via the network effect (each additional user ands a "node" AKA more value to the platform). I wonder if we will still see these major groupings five to ten years from now.









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