MARKETPLACE MANIFESTO
Efficiency for the Win
Turtle Ventures invests in winners in massive existing markets with massive inefficiencies.
HERE’S WHY…
Many of the best tech companies in the world tackled existing markets and brought efficiency (and corresponding low prices and high customer convenience) to a large industry.
Think…
Barnes & Noble → Amazon
Made buying books more efficient.
Blockbuster → Netflix
Made renting DVDs more efficient.
MySpace → Facebook
Made a better UX.
Webex → Zoom
Made videoconferencing that worked better.
Paper → DocuSign
Made contracts easier to process.
Craigslist → OfferUp
Made selling stuff easier.
Walgreens → Alto Pharmacy
Made getting prescriptions easier.
Taxi → Uber
Made hailing a cab easier.
Stubhub → Lyte
Made selling tickets easier.
Marketplaces are the way to drive efficiency, improve customer experience, decrease transaction friction, and build long term defensible moats.
In almost every industry, there is room for massive improvement in efficiency.
Jeff Bezos talks about customers having divine discontent. This manifests itself by having customers always in search of greater efficiency, lower cost, and more convenience. This is a fundamental rule of human nature… it will always be true.
The tech infrastructure that companies have available is truly astonishing compared to companies from 10-20 years ago. However, businesses still have purchasing departments that require multiple quotes from multiple sources and force transactions through an antiquated process.
Companies that are hiring still post jobs on job boards, screen hundreds of candidates, spend countless hours interviewing, training, and onboarding only to fire 25% of people or have them leave after a couple years.
Many of the greatest success stories in tech come from these marketplaces
Upwork
$1.8B MARKET CAP
Enables companies to hire freelancers anywhere in the world with incredible ease.
Etsy
$13B MARKET CAP
Enables buyers to buy handcrafted goods from thousands of individual creators.
Airbnb
$????B MARKET CAP
Enables buyers to rent rooms and homes from individual owners.
The list goes on…
Then there’s Amazon, Alibaba, Yelp, Netflix, and more. All of these markets existed long before the marketplace came along. Before Etsy, there were thousands of small local craft fairs and lots of crappy individual e-commerce sites. The marketplace came along and radically increased efficiency of the transaction. These opportunities exist in most major industries.
Let’s look at a few more examples
Playbook io
While there are now thousands of different fitness apps on the App Store, Playbook looks and feels more like having a personal trainer than the typical “DVD in an app” type startups that record a few nice videos and have a fairly static experience.
Playbook is differentiated by their Creator app — they work with world class personal trainers to post almost daily new workouts and allow the trainers to engage with users. It’s replicating more of a training experience in a far more efficient manner than the status quo. There are hundreds of thousands of personal trainers that run their own small business and may have some online courses, but it’s never been done in a highly efficient manner.
By driving efficiency, a company can pass those efficiency gains on to consumers in the form of increased convenience, lower customer effort, and lower total cost. When customers (consumer or b2b) receive these gains, their customer satisfaction (NPS) will be very high because it’s compared to other options in the industry. With high NPS, the company will be able to unlock organic growth and therefore better unit economics than the competition. This becomes a compounding effect whereby the new entrant can gain significant market share very quickly.
Alto Pharmacy
To the end customer, Alto Pharmacy is very simple - it’s a pharmacy that delivers. It’s a $400B+ market in the US. The customer experience is phenomenal and dramatically improves the efficiency in procuring prescriptions with no driving to and waiting at local pharmacies like Walgreens or CVS. The customer NPS (Net Promoter Score) is 88 vs. traditional pharmacies that are more like 10-30%. The customer experience is so good, that once a user tries Alto once, we believe we have a customer for life.
Another part of the flywheel is the expansion to other family members and other therapeutic areas, eg, my wife uses Alto at the Obgyn, I learn about it and bring it my general practitioner, and then I request Alto at my son’s pediatrician.
Behind the scenes, Alto has a large product and engineering team to automate as much of the process as possible so they can drive efficiency in this model.
THE PILLARS OF EFFICIENCY
So, how do marketplaces drive this amazing efficiency?
Make discovery faster, better, and more accurate.
First, the process of discovery can be incredibly time-consuming. Before Yelp, there were the Yellow Pages. You’d browse through page after page of listings with very little context. You’d search for a plumber, and lacking any more information, you’d probably call AAA Plumbers, because the best available criteria was an alphabetical sort. Marketplaces can standardize data around sellers, rank and review all of the sellers, and provide an extremely powerful layer of data to make the searching and matching process far more efficient than ever before.
Make transactions easier, safer, and more frictionless.
Next, you’d transact. The transaction process itself can also be cumbersome depending on the industry. If you are buying a new pair of sneakers, it’s relatively easy. If you’re buying a used pair of sneakers however, it’s far more challenging. Who is selling? What is the current condition? Is it real or fake? Does it come in an original box or just a paper bag? GOAT and StockX both came along and drove much more efficiency and quality in the used sneaker industry by building the infrastructure to verify the condition, quality, and authenticity of sneakers for the buyers. By centralizing this operation, GOAT and StockX took on the responsibility of these factors and can do it much, much more efficiently than thousands of individual buyers and sellers. They’ve moved the market from a time-consuming caveat emptor (buyer beware) model to a managed marketplace that buyers and sellers both love.
WHAT TO AVOID
Some potential landmines
A lack of fragmentation
A lack of fragmentation means a marketplace will never be able to capture much of the pie. It could be a deal killer.
A lack of recurrence
A lack of recurrence may make customer acquisition prohibitively expensive.
A preference towards in-person or cash
A proclivity to pay in cash, meet in person, or forge direct buyer-seller contracts may make long term retention impossible. A helpful heuristic is to ask both buyers and sellers if they prefer to transact on or off the platform. If both sides prefer using the platform to transact, you have a winner.
Next steps
Choose your industry carefully. Focus on efficiency improvements in discovery and transactions. Double down on factors that drive long-term network effects of users, data, rankings, and economies of scale. Build the vision for how the industry should work and lay out the master plan to get there.
Then, please come talk to me.