The Next Chapter of Consumer Marketplaces
This issue explores emerging trends in consumer marketplaces and forecasts what the future of the category might look like.
01 | A brief history of consumer marketplaces
Consumer marketplaces are digital platforms that facilitate transactions between individual customers and various sellers, such as peers, freelancers, and businesses. These companies have been among the most consequential in venture capital. Examples include Amazon, Uber, Airbnb, and Etsy.
It’s a model almost perfectly designed for the connective tissue of the internet – linking diverse users across the globe into a singular hub of commercial activity.
Successful consumer marketplaces do four things remarkably well:
1. Define a novel, recurring experience. Amazon created the first destination for purchasing everyday goods (starting with books) through the web browser.
2. Drive better unit economics and scalable growth through new technology. Uber used GPS, mobile distribution, and real-time data processing to achieve economies of scale, on-demand delivery, and a dramatically better cost structure.
3. Harness network effects to create high switching costs. GoodRx’s extensive pharmacy network, discounts, and integrated telehealth services made it difficult for consumers to find comparable savings and convenience elsewhere.
4. Run a creative go-to-market strategy to crack (pun intended!) the chicken-egg problem (where users on one side of the platform only find it useful if the other side is already active). Airbnb did this by scraping Craigslist to automate outreach to its early cohort of hosts, then thoughtfully curating its initial listings to attract renters.
Timing is key to evaluating new consumer marketplaces (although often overlooked). That's because, historically, these models grow in tandem with technological shifts that unlock new types of commercial activity.
02 | Underlying patterns in consumer marketplaces
When examining the evolution of consumer marketplaces, several patterns emerge.
// As automation improves, digital marketplaces are both (a) specializing and (b) handling more complex transactions. Early platforms like eBay managed relatively simple transactions for second-hand, commodity goods. Now, with better data processing and advanced search capabilities, platforms are building products that can match heterogeneous supply (in Fiverr’s case, freelancers with diverse skills) to more complex projects. This trend will accelerate as advancements in AI and improvements in data processing drive even deeper automation.
// Strong network effects lead to industry concentration. In the last several years, 2-3 companies have consistently accounted for 40-60% of total annual GMV among the top 100 private consumer marketplaces [1]. Public companies reflect a similar trend – Amazon, for example, commands nearly 40% of e-commerce market share.
For entrepreneurs, this dynamic highlights (i) the importance of timing, to capitalize on new technology shifts and secure a first-mover advantage, and (ii) the need for a clear product thesis that accounts for precisely how this moment in technology can service unmet needs for buyers and sellers.
// Data ownership and customization are increasingly important for suppliers. SaaS platforms like Shopify and social networks like Instagram are unbundling the traditional marketplace model. Instead of having a central intermediary trafficking transaction flows, sellers are now building custom storefronts and distributing them directly to various devices and social networks in order to retain more control over their data and customer experience. To compete, new marketplaces must also address these needs. This can be achieved by using decentralized infrastructure and/or better self-custodial tools.
// Historically, the most transformative marketplaces build new types of network endpoints. These endpoints serve as the essential building blocks that give rise to entirely new product categories.
A network endpoint acts as a gateway that ingests and processes data into a marketplace network. Examples include distribution channels like web browsers, IoT devices, mobile phones, and APIs that pull and integrate data from external sources. These new types of endpoints introduce unique data assets into the product experience, which then unlock entirely new categories of commerce.
For example, Uber tapped into a new type of endpoint (mobile distribution) to feed a new type of data asset (real-time location data) into its product, which was essential for creating a new category (on-demand rides). Similarly, GoodRx built its own proprietary API to feed a new type of data asset (real-time prescription drug pricing mapped against insurance plan formularies [2]) into its product. This created an entirely new market around prescription savings and price comparison.
I expect these trends to continue in this next wave of technology development.
03 | New trends in consumer marketplaces
Recently, I have been spending time with companies that are in the early innings of building new consumer marketplaces.
A few years ago, this space felt stale – too many "Uber for [inset niche, existing product here]."
But today feels different. Founders are in experimentation mode, testing use cases and exploring the potential for new technology to open up entirely new commercial categories.
One trend I'm digging into is portable identity management. Startups are developing systems for longitudinal digital identities, which integrate seamlessly across different marketplaces. Imagine Craigslist 2.0, where your verified information, preferences, and transaction history travel with you into different niche marketplace verticals. This makes interactions smoother and more personalized, and means fewer fraud issues and enhanced trust between buyers and sellers.
Another trend is around harnessing the power of artificial intelligence to create new economies around very complex workflows. Most existing marketplaces focus on one-to-one matching. But AI can unlock more complex, multi-party coordination. Picture, for example, a personal finance management marketplace that unlocks access for a whole new customer segment that is unwilling to pay traditional advisor fees. An AI agent could organize advisors, tax consultants, investment products, insurance agents, and estate planners. The AI handles administrative tasks and sequencing, ensuring each step is assigned to the right professional at the right time. This frees up time for professionals to focus on their unique skills, take on significantly more clients (and compensation) for their time, and creates greater accountability and transparency for the end buyer.
One last trend is creator augmentation. In the last several years, brands have increasingly looked to influencers to market their products. In 2016, $1.7B was spent on influencer marketing. That figure reached $21.1B in 2023 (a 43% CAGR). [3] As this market continues to grow and large foundational models improve, it will allow these influencers to capture more rent from these arrangements and scale their likeness, tone, and personalized recommendations across the internet. Imagine a creator-led marketplace with:
WYSIWYG tooling [4], so creators can easily build custom, dynamic storefronts that are unique to their brand and voice
a personalized dashboard, powered by models fine-tuned with creator data. This would enable creators to communicate at scale across multiple channels and give them insight into what is motivating their fan base
bespoke product recommendations that align not just with the creator’s brand, but also with the specific follower and their specific relationship to that creator
full creator control over their tooling and data, to build trust, increase the likelihood of adoption, and provide an authentic user experience.
If Sam Altman envisions a world where a one-person team can build a unicorn company, perhaps a more immediate opportunity is for individual creators to build and manage their own mini-marketplaces, all on a singular back-end network.
Conceptually, none of these trends feel entirely new. Many have been in the entrepreneurial imagination for some time. But with recent technology advances, we’re finally seeing products materialize and deliver tangible functionality.
If you are building along any of these themes, or have a different take on what the next, landmark consumer marketplace will look like, I’d love to connect.
[1] Sources: 2022, 2021, 2020 a16z Marketplace 100 reports. Instacart represented 64.2% of private marketplace GMV in 2022, 71.5% in 2021, and Airbnb, DoorDash, Instacart, and Postmates collectively represented 76% of private marketplace GMV in 2020. (Shout out to Bennett Carroccio, co-founder of Canal and an entrepreneur I have partnered with, who first ran this marketplace analysis in 2020.)
[2] A formulary is a list of prescription medications approved for use and covered by a particular health insurance plan or provided by a healthcare provider.
[3] Source.
[4] WYSIWYG stands for "what you see is what you get." It refers to a software interface that allows users to see what the end result will look like while the document or content is being created. This is commonly used in the context of text editors, website builders, and content management systems where the user can format text, insert images, and make other changes in a visual editor that directly reflects how the content will appear when published.
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