Hollow Content

his week Andreessen Horowitz released The a16z Marketplace 100, where it ranked the largest and fastest growing (private) consumer marketplaces. It’s surprising to see such a list based on so little insight/analysis come from such a storied and otherwise respected venture firm. It’s something more akin to what we expect from buzzfeed then it is a top venture firm. Entertaining, yes. Substantive, no. Grossly misleading, ahh yea.  

It’s an understatement to say I’m a very strong believer in the power and opportunity that marketplaces can deliver. I’ve seen first hand the compounding value that is built when a global marketplace like Etsy charts a course that no-one believes in or understands. Even centered around a product as raw as hand painted ornaments crafted by hobbyists in their own homes. The power in connecting individuals (particularly globally) over a mutually beneficial interest is tremendous. However, if the economics don’t allow the business to continue to match buyer and seller and provide a high degree value in the match, then the marketplace isn’t a business. Simply having a buyer and a seller doesn’t make a great marketplace business. 

The ‘methodology’ behind a16z’s Marketplace 100 seems to boil down to - grab Second Measure data, flag startup names, create pivot table, sort descending by count, publish list. Expectedly, this type of content receives applause from companies on the list because, “hey it’s good publicity for our company”. It receives applause from vc’s who have invested in companies on the list because, “hey it’s good publicity for our portfolio”. It receives applause from other founders looking for attention for their startup because, “hey we need some publicity”. Apart from those audiences, anyone familiar with the business models of the companies on the list knows they are far from equal and far from being ranked according to the value of their businesses.   

The fact is there are some amazing businesses in that list that are adding tremendous value for buyers and sellers and have the ability to do so in a profitable and sustainable way. There are also plenty of names on that list that are completely unsustainable businesses that will not be able to offer their buyers and sellers remotely the same product they do today over the long term. 

The marketplace hypothesis that matters is -- we can bring supply and demand together, facilitate a match and a transaction that both sides find value in, and we as the platform can extract enough value in brokering that match that we will be able to keep enhancing the platform that brings these two parties together offering each side more and more value over time. 

Three out of the top five companies on the a16z Marketplace 100 haven’t tested that hypothesis. Delivering food for +$0 cost to the restaurant and +$0 cost to the diner while eating a loss of -$15 per order is not a business.

Does it matter if everyone uses your product if you lose more and more money with every transaction?

Is the Post Office a great business?