The Magic of Liquidity: Web Marketplaces Still Have A Long Way To Go


Editor’s note: David Haber is an analyst at Spark Capital. Prior to Spark, David helped launch Locus Analytics, a start-up asset management business. Follow David on Twitter.

I spent the summer of 2007 working at an online education startup in San Francisco’s SOMA district called Batiq. It was the summer after my sophomore year in college and my first introduction to the world of startups and to a group of individuals – whether they realized it or not – that would dramatically alter the way I thought about business and technology.

One of those people was a recent Harvard grad and our lead developer, Nathan Blecharczyk. We kept in touch over the next couple of years while I finished school and he moved on to his next project, “Air Bed and Breakfast.”

While I didn’t have a contact at USV at the time, I remember thinking that his business sounded neat, but that there couldn’t possibly be that many people who would want to share their home with strangers. Turns out I was in good company.

It wasn’t until the following summer while I was working for the founder of a pharmaceutical royalty company, Royalty Pharma, and watching Airbnb make waves during the Democratic National Convention, that I would fully grasp the potential of marketplaces. It made me internalize what “liquidity” was all about.

What became clear to me during this time is the immense opportunity to be the liquidity provider in a market (existing or new) where there are valuable assets (be they real estate or pharmaceutical royalties) that are, under the status quo, under-monetized.

With its infinite space, instant access and seamless connectivity, the Internet provides the perfect medium to aggregate the long tail of fragmented and illiquid markets. This dynamic has made the opportunity for creating online marketplaces so compelling.

My colleague Andrew Parker perfectly articulated this point in a blog post from 2010 in which he illustrated the “Spawn of Craiglist” and the impact that it had in the various markets it addressed. As Chris Dixon recently highlighted, some of these opportunities are so large that they require specific focus to be successful.

I thought it might be worth revisiting Andrew’s graphic, to see how the world has changed since 2010:

It’s safe to say that there has been an explosion in marketplace businesses. These 82 companies (nowhere near exhaustive) have collectively raised close to $2 billion in venture capital and have created many billions of dollars in value. As I look at this list, as well as all marketplace companies that we get pitched at Spark, I keep coming back to a few salient points that I believe dictate the potential value of these companies:

  • Size of the Market. Don’t be fooled by the incumbent market. Think about the one that may be created or unlocked. While the initial focus might be small, what does the potentially broader market look like for this company (i.e. from couch surfing to the travel lodging industry in its entirety)?
  • Excess Capacity. Some call it an asymptotic market, but it’s simply the fact that a good portion of a given industry is sitting idle or under-monetized. Why is that? Can it be changed by a new business?
  • Friction/Opacity. Are there middlemen in this market that shouldn’t exist? The larger or more considered the transaction, the more likely there are intermediaries (i.e. buying a bike vs. buying a company). Intermediaries benefit from (and often perpetuate) opaque markets. They withhold information in order to make margin. Value is created when these intermediaries can be dis-intermediated.
  • Fragmentation. Is this market highly fragmented, or are there a few dominant players? There isn’t much opportunity in a market where there is concentration on one side or the other.
  • Customer Experience. Whether you become the transaction processor that eliminates an awkward in-person cash transaction or simply provide a more compelling user interface to a staid business (i.e. like Uber has done with the livery business), a better customer experience can be the differentiating factor for your success (and one that keeps transactions within your platform).

While these are interrelated points (and there are certainly others that I have missed), these are the ones I often come back to. If you look back at the graphic above, the most successful companies to date have addressed these issues.

While the talk of the Internet town these days is that the wind behind consumer Internet companies has waned, I still fundamentally believe that there are opportunities for businesses to provide liquidity to large, previously untapped markets. I’m especially keen to see mobile-first approaches to marketplace businesses. And I also expect many of these marketplace dynamics we’ve seen in consumer businesses to emerge as key elements in the next generation of successful b2b and enterprise software businesses. We’ll be looking for these.

More TechCrunch

Welcome back to TechCrunch’s Week in Review. This week had two major events from OpenAI and Google. OpenAI’s spring update event saw the reveal of its new model, GPT-4o, which…

OpenAI and Google lay out their competing AI visions

Expedia says Rathi Murthy and Sreenivas Rachamadugu, respectively its CTO and senior vice president of core services product & engineering, are no longer employed at the travel booking company. In…

Expedia says two execs dismissed after ‘violation of company policy’

When Jeffrey Wang posted to X asking if anyone wanted to go in on an order of fancy-but-affordable office nap pods, he didn’t expect the post to go viral.

With AI startups booming, nap pods and Silicon Valley hustle culture are back

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

A new crop of early-stage startups — along with some recent VC investments — illustrates a niche emerging in the autonomous vehicle technology sector. Unlike the companies bringing robotaxis to…

VCs and the military are fueling self-driving startups that don’t need roads

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

2 days ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

2 days ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo