#120 - Promiscuous Supply
Multi-Tenanting & Marketplace Network Effects
Hi 👋 - At scale, online marketplaces are fantastic businesses. However, a crop of startups is aiming to chip away at marketplace networks effect by making multi-tenanting easier for suppliers. Thanks for reading.
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Keeping It 100
Since 2020, Andreessen Horowitz (a16z), a venture capital firm, has released the Marketplace 100, a list of the top 100 private online marketplaces. The report ranks startups based marketplace activity, a combination of app activity, website traffic, and GMV1.
Like music streams or box office receipts, marketplace activity follows a power law, with the top companies representing a disproportionate share of overall activity (the 80/20 rule). For the second consecutive year, grocery delivery service Instacart topped the charts. Instacart accounted for 64% of marketplace activity in 2022, down from 72% in 2021. The most interesting tidbit from this year’s report is that as multi-tenanting gets easier for buyers and sellers, the winner-take-all dynamic of online marketplaces is getting weaker.
Multi-Tenanting 101
Multi-tenanting is using multiple platforms to list or search2. It’s common on social networks like Facebook, Twitter, and Tiktok as well as on marketplaces like eBay, Etsy, and Poshmark. Multi-tenanting can happen on either side of a marketplace, supply (sellers) or demand (buyers). Someone who rides with Lyft and Uber is multi-tenanting. A seller who lists on eBay and Etsy is multi-tenanting. It’s most frequent when it’s easy to simultaneously participate in competing networks3. For example, comparing prices of the same trip on Uber and Lyft takes about eight seconds, so multi-tenanting is easy in ridesharing. In general, the ubiquity of apps, smartphones, and speedy internet is reducing search costs, making multi-tenanting easier for buyers.
Because it lowers GMV and compresses margins4, marketplaces are keen to curb this behavior. On the demand side, subscriptions are a popular tactic to accomplish this. Bundling the psychological load of sunk costs with benefits like discounts or faster delivery increases switching costs. For example, Amazon’s Prime membership locks shoppers in. Many Prime customers begin their product search in the Amazon search bar (much to Google’s chagrin). DoorDash is trying to do the same with DashPass, a $9.99 monthly subscription that provides free delivery on orders above $125. Its objective is to keep diners away from food delivery apps like Getir, GrubHub, and Uber Eats.
As a16z highlights, there’s a growing cohort of startups focused on helping suppliers multi-tenant across marketplaces6. These companies use software to help sellers participate on multiple platforms simultaneously by reducing the time and effort required to list and manage inventory across multiple sites. A few examples:
Guesty is a property management platform for vacation rentals providing reservation management and messaging across booking sites like Airbnb, TripAdvisor, and VRBO.
Mystro let's Uber and Lyft drivers seamlessly toggle between the two apps, cutting down on idle time with no fares.
Olo helps restaurants like Sweetgreen, Shake Shack, and The Cheesecake Factory accept delivery, orders, and payments from multiple platforms.
OneShop enabled resellers to list clothing across marketplaces like eBay, Depop, and Poshmark. Its tagline is, “sell on more sites without doing more work.”
To maximize sales, suppliers want to increase distribution by listing on multiple sites. Historically, this process had lots of friction. Sellers needed to upload photos, write item descriptions, and respond to messages from potential buyers on each marketplace. This takes time and effort. A seller’s mental calculus weighs the effort required to list on a new platform versus potential incremental sales. Guesty, Mystro and others are attacking this pain-point by reducing the effort required to sell on multiple marketplaces. It’s a case of commoditizing your compliment.
Supply & Network Effects
Marketplaces have network effects: more supply begets more demand; more demand begets more supply. Theoretically, this virtuous cycle results in a winner-takes-all dynamic. Reality is messier. One reason why is because multi-tenanting harms the defensibility of the network effect7. This is why Facebook bought Instagram and WhatsApp and tried acquiring Snap (and why TikTok haunts Mark Zuckerberg's dreams). While that’s a social media example, it also applies to online marketplaces (Uber considered acquiring Lyft). Increased ability to multi-tenant reduced winner-take-all dynamics. That’s exactly what companies like Guesty, Mystro, and Olo are doing. This is good for suppliers and a challenge for marketplaces.
Still, marketplaces have the upper hand, especially when supply is fragmented. No one Airbnb host, Etsy seller, or Uber driver has the ability to put a dent in the respective company’s business. The reverse isn’t always true: the driver might be entirely dependent on Uber for his livelihood. This is particularly true for scaled marketplaces. As venture firm NFX points out8:
Because the network is bigger, the number of options will be greater and people will only turn to competing networks in moments of dissatisfaction or as a supplement for the value provided by the larger network.
Size Still Matters
Etsy is a case study in this industrial logic. In early April, the company raised its transactional take rate to 6.5% from 5%. In response, over 20,000 sellers went on strike. This generated a few days of bad PR, but is unlikely to materially impact the company’s results. In 2018, Etsy increased its transactional take rate to 5% from 3.5%. Sellers didn’t strike, but they weren’t happy. Still, since then Etsy’s GMV has grown 3.5x and its seller count has grown 2.5x.
While most marketplaces lack Etsy’s scale, they have significant heft relative to their sellers. Still, the rise of companies like Guesty, Mystro, and Olo means that marketplaces will need to work harder to acquire and retain supply. Additionally, they can be less confident that unique supply will stay unique.
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More Good Reads
The a16z 2022 Marketplace 100. The Network Effects Bible from NFX. Below the Line on Hipcamp and the benefits of unique supply.
Disclosure: The author owns shares of Facebook.
In past reports, a16z looked solely at gross merchandise volume (GMV), a measure of transaction volume across a marketplace. They updated their methodology this year to also include app activity and website activity.
a16z, The Marketplace Glossary.
NFX, The Network Effects Bible, July 2019.
DoorDash, What is DashPass?
Future, The Marketplace 100: 2022.
NFX, The Network Effects Bible, July 2019.
NFX, The Network Effects Bible, July 2019.
Ah yes, the Grubhub letter. Consumers have choices (or at least appearance of) and classic market dynamics take over.
Makes me think that not all marketplaces are equal: some might compress margins even further with inefficiency or multiple actors with a take rate. Of course food comes to mind, as margins are already thin. And, some marketplaces add value - curation, shipping and easy returns, warranty, etc.