Posts from marketplaces

Sidecar

While we believe in network effects and the defensibility and leverage that comes from them, we have never subscribed to the popular theory that one single company can leverage network effects to “run the table” on a large market on the Internet and Mobile.

Certainly Google has largely done that in search and yet there are still several smaller players in the search market in the US, there are a number of regional search leaders around the world, and there are search engines, like our portfolio company DuckDuckGo, that compete on the basis of privacy or some other vector that Google chooses not to compete on.

In e-commerce, many think that Amazon is a force that cannot be reckoned with. And yet there are many successful e-commerce companies that have been built over the years. And there are new e-commerce companies being started every day.

In social networking, many believed that Facebook would be the only social network that mattered. As far back as 2007, I argued on this blog that we would see many social networks emerge offering different social graphs, user experiences, and use cases. We successfully invested in some of them, including Twitter and Tumblr.

In the mobile transportation market, which we believe will be a very large global market opportunity, many believe that Uber will run the table. And it certainly looks like they are doing that right now. It reminds me of the juggernaut that Facebook looked like five years ago when everyone thought they had won the social networking market.

But we believe that there will be a number of meaningful companies built in the mobile transportation market, just like there have been a number meaningful companies built in all of the really large markets that have developed on the Internet and mobile.

We have had an investment in one of these meaningful mobile transportation companies, Hailo, for a couple years and they have leveraged the existing taxi cab market to build a very large mobile transportation company operating in some of the largest cities in Europe and the eastern US, where taxi services are well established and work well.

And last summer, we made a second investment in this sector, in Sidecar. At the time of that investment, Sidecar was planning a significant change to their strategy and product to deliver a true marketplace experience to the mobile transportation market. We agreed with the company that we would keep our investment private until they were ready to launch the new product and strategy.

Well today, Sidecar has launched its new product and strategy and with that, we are announcing that USV is an investor in Sidecar. We are very excited about the marketplace model and what it can bring to drivers and riders in the mobile transportation market.

Om Malik wrote a post on GigaOm a few weeks ago that foretold this new strategy, although I don’t believe he knew about it or had been briefed on it. He wrote:

But this efficiency over the human touch is also an opportunity for Uber’s rivals

The human touch means not turning car owners who want to make a bit more money into limousine drivers. The human touch means allowing a driver to choose when and where they drive. The human touch means allowing drivers to market themselves in the app with a picture and a little bit about them and their car. The human touch means allowing the drivers to change their pricing whenever they feel like it.

The human touch means allowing riders to see the drivers in app and choose the one they most want to ride with. The human touch means giving the rider a real fixed price instead of some multiplier that goes up whenever you most need a ride.

When Sunil Paul, Sidecar’s founder and CEO, laid this out for me and my partners last summer, I immediately thought of Etsy vs Amazon. I use Amazon all the time. It’s a great service. I get the lowest price, quick delivery, and confidence. That’s the Uber model. But I also use Etsy all the time. At Etsy, I get something unique and personal. I get to buy directly from the seller. I get to have a conversation with them. I can favorite/follow them and get notified whenever they post new stuff.

Amazon is efficient and Etsy is personal. There is room for both of them to build big businesses in e-commerce. Uber is efficient and Sidecar is personal. And we believe that there is room for both of them to build big businesses in mobile transportation.

If you live in the the Bay Area, Los Angeles, San Diego, Seattle, Chicago, Boston, Washington DC, or Charlotte, you can try out the new Sidecar marketplace experience.Download the app and give it a try. It won’t be for everyone, but I bet there are a lot of people out there who will really enjoy the human touch of Sidecar and use it frequently.

Video Of The Week: Yancey Strickler’s Commencement Speech At McNally Smith

I came across this short (<15min) video this morning as I was wandering around YouTube. It’s a commencement speech that Kickstarter’s CEO Yancey Strickler gave at the McNally Smith College Of Music in St Paul Minnesota.

I really like the way Yancey frames the opportunities and challenges facing young artists as they head out into their adult lives and careers. It’s optimistic and hopeful. You can’t beat that.

Bitcoin – Getting Past Store Of Value and Currency

Lightspeed India has a post with ten predictions for Bitcoin in 2014. It’s a good read and I agree with many of them. But prediction number 7 is the one I am most interested in right now:

7. The use of Bitcoin will evolve beyond ‘store of value’ or ‘transactions’

The underlying Bitcoin protocol makes itself applicable beyond the use cases of ‘store of value’ and ‘payments’. The Bitcoin foundation took a huge step in allowing meta data to be included in the blockchain. This will unlock a lot of innovation and maybe even prompt regulators to acknowledge the potential of Bitcoin, making it all the more difficult for them to shut it down or suppress it. As one can see from the current Bitcoin ecosystem map (http://bit.ly/1krEd0Z) that there are almost no start-ups, which solely use the protocol without using the ‘coin’ or the ‘currency’ as a function. 2014 will be the first year to see some of these.

I think there have been three phases to Bitcoin so far

1) Bitcoin emerges, community develops, mining, wallets

2) Bitcoin vice, silk road, etc

3) Speculation, trading, collecting, price spike

I think the next two phases will be/need to be

4) Commerce – real people buying real stuff with Bitcoin

5) Bitcoin as infrastructure – this is what prediction number 7 is all about. When will we see entrepreneurs coming to USV to talk about the marketplace for XYZ that they build on top of the Bitcoin architecture?

Soon I hope. I would like it to happen today actually.

Who Is Your Customer?

In a double sided marketplace, of which we have many in our portfolio, it is always tricky to figure out who your customer is. Many marketplaces punt on this question and answer with “both”.

I think it’s hard to run a business with two different customers. It can be done but it is hard.

Yesterday, Kickstarter published some year end stats in a beautiful presentation. I would encourage all of you to take a quick spin through them. It will take you between 10 seconds and a few minutes depending if you watch the videos.

Even though Kickstarter served over 3mm project backers last year, they have never been confused who their customer is. Their mission is is “to help bring creative projects to life” (from their about page).

So Kickstarter focuses on the creative project and the project creator. And by doing that, they end up serving millions of people a year who come to Kickstarter to back a project, or two (between 25% and 30% backed more than one project in 2013), or a hundred (almost 1000 people did that in 2013).

So if you can figure out who your customer is and if you focus on them and their needs and serve them well, you can build a large two sided marketplace that can grow and sustain itself. Kickstarter is a great example of how to do that.

The Mutual Company

I remember a time when I was growing up when many of the savings banks and insurance companies were mutual companies. A mutual company is one where the customers own the company, more or less. It seems like the concept lost favor and many of these banks and insurance mutual companies were “demutualized” in the 80s and 90s. I don’t really profess to understand all the reasons and history behind mutualization and demutualization. I suspect some of you may know a lot more than me about this stuff.

I started thinking about mutual companies after reading Joe Nocera’s column in the New York Times which was based on his read of Jaron Lanier’s “Who Owns the Future?

Joe asks in the title “Will Digital Networks Ruin Us?” and here is the money quote:

the value of these new companies comes from us. “Instagram isn’t worth a billion dollars just because those 13 employees are extraordinary,” he writes. “Instead, its value comes from the millions of users who contribute to the network without being paid for it.” He adds, “Networks need a great number of people to participate in them to generate significant value. But when they have them, only a small number of people get paid. This has the net effect of centralizing wealth and limiting overall economic growth.” Thus, in Lanier’s view, is income inequality also partly a consequence of the digital economy.

At USV we invest in digital networks, so this is a fundamental question that we think about a lot. We would not want to be investing in something that “will ruin us” and we don’t think we are investing in something ruinous. But we do talk about this issue all the time.

I will come back to the mutual company thing in a bit, but first I want to say that Joe and Jaron are leaving out the notion of consumer surplus in their analysis. The newspaper costs money. Twitter is free. In a world where “we” create the newspaper instead of the NY Times Company creating it, the newspaper can and will be free. That is happening all over the place, because of the efficiency of digital networks, and the result is a large amout of consumer surplus that is landing in all of our laps.

But maybe that is not enough. Maybe the creators of these networks ought to mutualize so that their users, who are creating the value, can participate in the upside. We have not seen anyone do this to date. We have talked to a number of startups and networks about the idea. We have not seen any takers yet. But we will continue to have the conversation because this is worth trying and seeing how it would turn out. The result could be a much more sustainable and lasting network. Something for everyone to think about this morning.

UPDATE: My partner Brad wrote a long and thoughtful comment on usv.com about Joe’s column. You can read it here.

Markets and Clearing Prices

Last saturday night in NYC was a bit of a moment for Uber and their surge pricing mechanic. Most people were seeing 3x-5x in manhattan for most of the night and there were reports of 10x for some people.

There was a snowstorm, people were out at holiday parties, and there was more demand for rides than there were cabs. So in some sense the market worked and rides went to those who were willing to pay the most for them.

The next day Mo Koyman tweeted about it and one of the larger twitter conversations I have seen developed.

Today my partner Albert wrote a post about it and noted a couple issues with the way surge pricing works and the way the urban transportation market works. He also points out that the best way to get around NYC is the subway, which is how I got home from a holiday party last night around 10:30pm. I love the subway a lot more than I love any other form of transportation in NYC.

However, this is an interesting discussion because it points out that as markets/networks (Uber) replace hierarchies/bureaucracies (the TLC), we are running into issues that are going to have to work themselves out over time. As Albert points out in his post, the current yellow cab fare model is even more flawed than Uber's surge pricing model. Ideally we will see more supply emerge and a real marketplace structure develop in urban ride sharing. Then we may get reasonably priced rides on a wintery and festive night in NYC.

And then, of course, there is always the subway.

Buying Your Holiday Gifts With Bitcoin

Everyone focuses on the price of Bitcoin these days and it is no wonder why. But for Bitcoin to be anything more than a store of value, we need to see a transactional ecosystem develop. When the citizens of the world will be able to buy and sell from each other and from retailers of all shapes and sizes via Bitcoin, then we will have truly realized the potential of a global digital currency.

Furthermore, transactions can help stabilize what is a very volatile currency today. There is an imbalance of supply and demand right now. If there was as much transactional activity as there is speculative activity, there would be more supply of Bitcoins in the market (as retailers who recieve them turn them into their local currencies).

So everyone who wants to see Bitcoin succeed should want to see transactional activity rise and the sooner the better. This holiday season is a great time to make that happen. We have been involved in a campaign called Bitcoin Black Friday to encourage buyers and sellers to transact in Bitcoin this holiday season.

If you have products to sell and you accept Bitcoin go here and sign up.

If you want to buy your holiday gifts this year with Bitcoin, go here and sign up.

The idea is very simple. Sellers list their products and buyers get alerted when the deals go live and big retailers sign up. I plan to do my holiday shopping with Bitcoin. I hope you all will join me.

Open Science

I saw this tweet from my partner Andy yesterday and immediately clicked through to see what he was talking about

He was talking about an announcement our portfolio company Science Exchange made yesterday. If you don’t want to click thru and read about it, I will summarize here.

Science Exchange is exactly what it sounds like, a marketplace for scientific services where you can find the right resarcher and laboratory to help you complete a research project you are working on.

Yesterday, they announced that The Center For Open Science was making $1.3mm available, via ScienceExchange, to reproduce and validate 50 important cancer biology studies.

I am excited about this for a bunch of reasons; 1) reproducing and validating research is critical, 2) The Center For Open Science is taking a marketplace model to funding this work, and 3) it points to the broader potential for Science Exchange to break down silos, open up research, and lead to better and faster scientific discovery.

As Andy said in his tweet, Open Science really is a thing. A good thing.

Curated Marketplaces

Stephanie Tilenius, who is an EIR at Kleiner Perkins, wrote an interesting post on curated marketplaces last week. She mentions our portfolio companies Lending Club, Etsy, and Kickstarter in her post.

Stephanie argues that the old rules of building marketplaces, that led to big businesses at eBay (where she worked) and Amazon, are giving way to a new set of rules. This line, in particular, got my attention:

Consumers now demand beautifully designed and curated experiences, especially in a mobile-only marketplace.

I agree with Stephanie that marketplaces need to be simple, beautiful, and easy to use on mobile in order to succeed in the world we live in now.

We have a lot of marketplaces in our portfolio. I think they may be the single largest category of investments that we make. They are the commerce instantiation of our large networks investment thesis. So we talk and think a lot about them.

There is a tension between curation and being open to all comers. Lending Club curates its market by limiting borrowers to those with sufficient credit rating. That provides benefit to the lenders on the platform and has led to relatively low default rates over the years. Kickstarter states that "We never curate projects" but they do have guidelines on what can be posted on Kickstarter and what cannot. Etsy doesn't "curate" either but they do have guidelines on what can be posted in an Etsy shop, and those guidelines were changed last week to make Etsy open to a wider range of sellers.

Marketplaces can work in a highly curated model or a wide open model. Stephanie's post suggests to me that marketplaces are moving to a more curated model in order to become more user friendly (in many ways, not just on mobile). I think entrepreneurs need to be careful not to curate too much because you lose the power of the peer network, open Internet model that has proven to be so potent and disruptive over the years.