Posts from marketplaces

Our portfolio company Kickstarter announced some important changes yesterday. They massively simplified their rules (from over 1000 words to under 300 words). And they introduced “Launch Now”:

At USV, we’ve always been a fan of fully open marketplaces over closed or curated marketplaces. I have written about that a bit here.

That said, you do benefit, particularly early on, by curating the market so that buyers are protected from crap and scams. Kickstarter turned five earlier this year and the company, service, and brand are well understood in the marketplace. I saw a chart on the Internet today that shows just how powerful the Kickstarter brand is right now:

When people think of funding a project on the Internet, they think of Kickstarter first and foremost. So the decision to curate and insure that backers on Kickstarter had a good experience was clearly the right one for Kickstarter.

But crowdfunding is a big business now. There is crowdfunding for seemingly everything now and users’ expectations and understanding has been well set. So it makes sense to be more open and creator friendly. Backers on Kickstarter and the vast number of other crowdfunding sites are now pretty clear about the risks and rewards of backing a project.

I am pleased with these moves. It makes life a lot easier for creators, it will lead to more crowdfunding by more people, it will lead to more projects that backers can back. There will be criticisms that Kickstarter is opening itself up to scammers and crappy projects. That’s always been a criticism of Kickstarter and other crowdfunding sites and will always be. But as this market has matured and gone mainstream, those criticisms need to be seen in the context of the overall success of crowdfunding and Kickstarter’s role as the creator and leader in the market. I think they will be fine.

NYU and The NYC Partnership (the chamber of commerce for NYC) held a conference last friday on the Collaborative, Peer, and Sharing Economy. I was asked to give a closing keynote. I don’t believe it was filmed. If it was, I will post the video here when I find it.

Instead of wrapping up and summarizing what had been discussed, I decided to look out ten years and think about where this sector is headed.

Here is the outline I prepared before going on stage. The talk was only 10 minutes.

– Networks are replacing Hierarchies

– Peer Networks Are The Most Powerful

– We Are In Stage One Of This

* your new boss is the same as your old boss

– We Are Still In An Age Of Centralization

* facebook, twitter, uber, airbnb

– Decentralization Is Next

– Look At The BlockChain For A Model Of Decentralized Commerce

* Gambling Without A House

* Stock Trading Without Exchanges

* Real Estate Transactions Without Deeds

* Transactions Without Clearinghouses

– The Regulatory Challenges We Discussed Today Are Just Scratching The Surface

– The Ultimate Sharing Economy Is A World Of Peers Without Middlemen

– We Will Get There But We Are Not Anywhere Near There Yet

More and more artists are embracing social sharing platforms like YouTube (video), SoundCloud (audio), Wattpad (storytelling) to get their works out and connect with fans. We have invested heavily in this category and both SoundCloud and Wattpad are USV portfolio companies. Another benefit of these platforms is you can use your followers/fans on these platforms like a panel. If you assume that the millions of followers you have on SoundCloud are more or less a representative sample of your entire fan base, then their behavior is more or less a reflection of the behavior of your entire fan base. If they like a new song a lot, it will probably be popular with your entire fan base. If they aren’t so excited about it, then maybe it won’t be a hit with your fan base.

SoundCloud announced a new feature for creators today that is a great example of this. It is called “Top Cities”. This is how SoundCloud describes it:

Plan your next tour, release strategy, and get better at connecting with your fanbase, by knowing exactly where they are — just click the ‘Top cities’ tab in your stats dashboard.

I recall seeing startups crop up from time to time where this was the entire business plan – figuring out where artists fans were so they could plan a tour. It turns out it wasn’t a great business. But I do think its a great feature. And just one example of how you can turn your followers on social sharing platforms into a panel that will allow you to understand them and connect with them better.

There has been a lot of hullabaloo about Airbnb here in NYC over the past few weeks. The NY Post had a field day using Airbnb as a punching bag for a week or so. It made for good tabloid media but lacked a honest discussion of the pros and cons of Airbnb and all that comes with it.

I’ve lived in NYC for over thirty years. It’s a very dense urban living environment. As the Gotham Gal likes to say, “we live on top of each other.” And clearly having your neighbors renting out their apartment to folks visiting NYC for days or weeks at a time is problematic. I think Airbnb has a lot of work to do here in NYC to educate folks about what the service is actually all about, who most of the 40,000 hosts here in NYC are, and how the service works to protect people.

Let’s take two relatively unknown aspects of Airbnb.

– identity checks – many hosts will not rent to people on Airbnb who do not have their identity checked and verified. Airbnb provides this identity check service to the hosts and a large percentage of guests on Airbnb are identity checked before they show up and rent a place.

– smoke and carbon monoxide alarms – Airbnb requires hosts to have working smoke and carbon monoxide alarms in their homes. if a host does not have one, Airbnb provides it to them.

Now let’s compare that to the alternatives. Do hotels verify the identity of their guests? Do hotels provide smoke and carbon monoxide alarms in every room? Do apartments rented out on Craigslist verify the identity of their guests? Do apartments rented out on Craigslist provide smoke and carbon monoxide alarms?

My point is this. You can attack Airbnb for all sorts of things. But consider the alternatives. Do we want hosts putting their apartments on Craigslist instead of Airbnb? Do we want tourists who only have $150/night to spend on housing in NYC to rent a room in a flophouse or the apartment of a photographer who is away for a few weeks on a photo shoot?

I think the better approach would be to have a conversation with Airbnb’s executives about how to make the service work better for New Yorkers. By making Airbnb work better here, we get the best of both worlds. A safer alternative than Craigslist and a more affordable alternative than high priced hotels. My hope is that cooler heads prevail and we find a happy medium that works for everyone.

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.

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.

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.

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.

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.