Interview, Fireside Chat
a16z GP Jeff Jordan: The Ultimate Guide to Two-Sided Marketplaces | 20VC #966
- Predicts a continued shift where aggregating fragmented supply creates defensible network effects that become "brutally hard" to compete with once a critical mass of approximately 10 percent of the target market supply is achieved.
- Anticipates that platform diversification is necessary as "45% of Millennials" use TikTok instead of Google for restaurant discovery, challenging the duopoly of Facebook and Google which investors increasingly avoid funding.
- Warns that capital efficiency is critical, noting that "97% of the money" invested in Uber will likely fail to return 1x, while marketplace businesses generally struggle with efficiency except for those with positive cash transaction models like Airbnb and Incredible Health.
- Expects that Customer Acquisition Cost (CAC) typically rises during scaling, creating a risk of "erosion" for companies relying on heavy paid acquisition, especially given "super volatile" channel spend driven by privacy changes and regulatory concerns over the next year.
- Forecasts that "December 2023" represents a macro environment requiring planning for downside scenarios, reflecting a sentiment swing away from companies that "spend, spend, spend" to drive growth.
- Predicts that businesses will succeed by creating new markets or offering robust value propositions that allow founders to delay external fundraising, as seen with Incredible Health's accidental profitability and ability to raise cash at a $1.65 billion valuation.
- Suggests that while some models like Instacart initially hemorrhaged money with losses of "$20–$25 per order," they can reach "significantly profitable" status through operational optimizations such as dedicated aisles and scanning software, alongside revenue from ads and grocer deals.
- Notes that "frequency" is a major barrier for brands in infrequent service categories like home repair, whereas successful marketplace categories persist by addressing core human relationships such as rides, home share, and dating.
- Advises that founders should avoid owning supply due to "channel conflict" and "one-way door" risks, citing Instacart's avoidance of fast commerce and OpenTable's preference for not controlling the supply side directly.
- Emphasizes that decision-making should focus on the quality of the process rather than outcomes, acknowledging that market timing often matters more than the idea itself, as seen in the comparison between Instacart's success and Webvan's failure driven by mobile phone adoption.
- Indicates that messaging strategies should begin with specific, "outrageous" claims that slowly expand, leveraging themes like community to make alien concepts like stranger-to-stranger hosting enticing.
- Outlines a preference for remaining in a "passenger seat" as an advisor to avoid making primary decisions for entrepreneurs, while still warning founders of high-probability risks like driving a business "over the cliff."
- Anticipates that cohort curves improving over time can signal the presence of a network effect, whereas businesses needing to "buy users at scale" often see economics erode over time.
- Predicts that "Travis getting capped at Uber Eats" was an unforeseen factor in the consolidation of food delivery, influencing past investment decisions like passing on DoorDash.
- Observes that post-pandemic trends include companies availing themselves of flexible leasing terms for commercial real estate, moving away from traditional seven-year terms to nine-month terms with usage a few days a week.