Jul 15, 2017 · 21m · a16z
Marketplaces
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In a presentation for TechSummit London, Andreessen Horowitz General Partner Jeff Jordan explains why venture capital investors find two-sided marketplace business models uniquely compelling. Through case studies including eBay, OpenTable, Airbnb, and Amazon, he illustrates how strong network effects, capital efficiency, vertical Craigslist unbundling, and smartphone technology drive the ongoing marketplace revolution.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. How this is scored →
The host as informed peer 0.0 Guest teaching 0.0 Guest disagreement 0.9 The host pushing back 0.0
speaking balance: gold is the host, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 12:40 Critique of Craigslist management and lack of innovation
Jordan uses sharp rhetorical framing, calling non-innovation the biggest sin in technology and describing Craigslist founders as non-value-maximizing.
Hardest push from the host ▶ 3:40 Addressing external competitor pushback against OpenTableIn the absence of a host, Jordan highlights external market resistance where competitors like Urban Spoon offered free iPads to displace OpenTable.
Biggest teaching moment ▶ 8:15 Educating audience on Amazon third-party margin contributionJordan educates listeners on how Amazon's 80-90% gross margin third-party business subsidizes its breakeven first-party retail operation.
The host holds their own ▶ 5:50 Jordan recalling his recognition of Airbnb's eBay-like flywheelJordan demonstrates deep operational domain expertise by recognizing how Airbnb mirrored early eBay community-driven commerce dynamics before others did.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | The host as informed peer | Guest teaching | Guest disagreement | The host pushing back | Why |
|---|---|---|---|---|---|---|
| Marketplaces vs. Retailers: Customer View vs. Business Model | 0 | 0 | 1 | 0 | Jeff Jordan presents a keynote monologue explaining the structural mechanics of marketplaces versus traditional single-seller retailers. Host interaction is absent throughout the presentation, resulting in zero scores for host expertise and pushback. | |
| Case Study: OpenTable's Marketplace Defensibility | 0 | 0 | 1 | 0 | Jordan discusses OpenTable's network dynamics and how free iPad competitors failed to displace its marketplace power. The solo keynote format continues with no active host presence. | |
| Amazon's Transition to a Third-Party Marketplace Model | 0 | 0 | 1 | 0 | Jordan details Amazon's expansion into third-party marketplace sales and highlights its significantly higher gross margins. The uninterrupted presentation structure maintains zero host-level metrics. | |
| Core Advantages of the Marketplace Business Model | 0 | 0 | 1 | 0 | Jordan outlines the operational advantages of marketplaces, such as capital efficiency and infinite scalability. Host scores remain at zero in this ongoing monologue. | |
| The Marketplace Renaissance: Key Drivers | 0 | 0 | 2 | 0 | Jordan explains the marketplace renaissance and offers mild critique towards Craigslist for failing to update its UI over a ten-year period. With no host dialogue, host metrics are scored at zero. | |
| Smartphone Proliferation and Mobile-First Marketplaces | 0 | 0 | 0 | 0 | Jordan presents on how global smartphone proliferation enabled real-time mobile workforces and friction-free listing experiences. Host involvement remains non-existent. | |
| Andreessen Horowitz Marketplace Portfolio and Conclusion | 0 | 0 | 0 | 0 | Jordan concludes his presentation by highlighting notable Andreessen Horowitz portfolio companies and thanking the audience. Host scores remain zero throughout. |
Statements from this episode (21)
Jeff Jordan: Marketplaces Tend Toward Winner-Take-All Dynamics and High Margins
“Marketplaces, which we define as many to many, tend towards, ah, a single winner, and those moats enable margins.”
Jeff Jordan: Online Retailers Lack Moats and Suffer Low Margins
“A retailer, on the other hand, which would be one to many typically experiences perfect competition. You know, prices get competed down, there are no moats. As a result, typically, there aren't a lot of margins in these businesses.”
Jeff Jordan: Two-sided network effects create self-reinforcing competitive moats
“When that wheel starts turning, it starts to become something that's very hard to compete with because if you're a seller, you have to be there because the buyers are there. If you're a buyer, you want to go where all the sellers are.”
Amazon and Yahoo failed to compete with early eBay auctions
“Both launched auction businesses to compete with eBay early in the day. And both quickly got a lot of supply because they listed it, there were no listing fees. They required no economics. And no consumers went. Both businesses were DOA, and they abandoned it …”
eBay generated $83 billion in gross merchandise sales and $3 billion FCF
“Gross merchandise sales last year was about eighty-three billion. Revenue, just under nine billion. Free cash flow, three billion dollars a year. The market cap, we said 30 to 40, actually today it's right in the middle, thirty-five billion dollars. Total vent…”
OpenTable reported 40% to 45% EBITDA margins in its S-1
“I think we had 40, 45% EBITDA margins in the S-One.”
Restaurants returned to OpenTable despite Urbanspoon offering a free iPad alternative
“One competitor Urban Spoon, built a competing service on an iPad and gave the iPad to the restaurants with the free service. And said, you know, you don't have to use OpenTable anymore. A lot of restaurants tried it, and they came right back to OpenTable becau…”
OpenTable stock value increased fivefold within two years of its IPO
“We went public in May, 2009 when I announced I was leaving in May, 20 11. The price was a 120. ... You know, but this is five X increase in value in under, just under two years.”
Airbnb surpassed HomeAway in total user spend in 2017
“Airbnb this year is just blown by HomeAway in terms of total total user spend, or nights, user spend on the system.”
Airbnb booked one million guest nights per day in 2017
“Airbnb right now is doing about a million nights a day people staying in Airbnbs.”
Amazon's third-party marketplace volume surpassed its first-party retail volume
“And according to the analysts last year, Amazon sold more product from third parties than they did as a first party merchant.”
Amazon marketplace gross margins reach 80% to 90% compared to 25% retail
“So Amazon's gross margins as a retailer are just around 25%. Their gross margin as a marketplace are 80, 90%.”
Amazon marketplace profits fund aggressive expansion into new initiatives
“We believe that one of the key drivers of profitability in Amazon, and we believe the core businesses at Amazon are very, very profitable. Are the fact that they're layering on this high margin business on top of essentially close to a breakeven first party bu…”
Amazon required 10 to 50 times more employees than early eBay
“When, early on when I was managing eBay, Amazon had 10 times, 50 times more employees than we did, because they were building warehouses, they were picking out of their own warehouses, they were shipping, they were procuring merchandise, you know, the whole th…”
Marketplaces face no physical growth constraints beyond server capacity
“Marketplaces, there is no physical constraint on growth. Marketplaces can just go to the moon because, again, there is, there's no limiter on the, ah, company's ability to scale other than keep the servers going.”
eBay raised under $10 million and never cashed Benchmark's venture check
“They raised under ten million dollars of venture capital in aggregate, and according to the founder, they never cashed the check that Benchmark gave them.”
Modern marketplace companies are entirely enabled by smartphones
“A lot of the businesses we saw in two point on the last page are completely enabled by smartphones and would essentially be impossible without the smartphone.”
US newspaper classified revenue collapsed by two-thirds over 15 years
“It went down by something like two-thirds in the last 15 years. The revenue from classifieds collapsed by two-thirds.”
Craigslist founders operate like communists rather than maximizing business value
“They're somewhere between social activists and communists and they have not run their business in a value-maximizing way.”
Craigslist growth halted as vertical marketplaces hollowed out its categories
“And Craigslist, which was one of the largest and fastest growing internet properties in the world, particularly in the US, Has now stopped growing, and it's basically, you know, essentially being hollowed out.”
eBay could not launch services pre-smartphone due to connectivity limits
“And when I was at eBay, I, since eBay, I used to think one of my biggest failings there was I didn't build a services business. It seemed incredibly obvious to me that eBay with the community and PayPal with the payments should support a services business. I n…”