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

David Haber

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.

Split-season may be more frustrating than Lori’s character in Walking Dead

Warning: This post—and likely its comment thread—contain speculation and potential spoilers.

Tomorrow’s Walking Dead seems like it’s going to be one of those TV episodes where if you’re running five minutes behind, you need to change plans. Hope you remembered the DVR. Otherwise, better off finding the rebroadcast, waiting for OnDemand access, or—with all this tension—maybe even seeking an illicit Internet stream.

Season 3’s midseason, penultimate episode ended on the cusp of major action. We left our survivors just as the group’s fiercest quartet jumped into their artillery-loaded Hyundai and set off for Woodbury. Rick, Daryl, Michonne, and Oscar (he’s one of the two prisoners) survived Rip Van Winkle’s isolated cabin, eluded the spotlights of The Governor’s gatekeepers… then were immediately foiled by the credits. Ugh. But what’s another week when the first ten minutes of the mid-season finale have to deliver some type of fireworks? The question isn’t if it’ll happen, it’s whether the ensuing action will be good or bad for Rick’s company.

Since first being introduced to Michonne last season and The Governor (plus Woodbury) in episode 3, we’ve been waiting for the show’s most high profile additions to intersect with our group. Last week, Michonne finally crossed paths with Rick and now all signs point to Team Grimes at least gaining entry into the apocalypse’s most famous gated community. Cries of poor pacing and entrapment on a farm feel like an awful long time ago.

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Egypt to vote on new constitution

President Mohammed Morsi says a referendum on Egypt’s draft constitution will be held on 15 December, amid controversy over his powers.

SkrillexQuest, The Future Of Music Marketing: Dubstep Superstar Promotes Single With Online Advergame


When you beat Skrillex’s Legend Of Zelda-style flash game, you see a link to buy its soundtrack on iTunes. SkrillexQuest is an advergame and its next generation of music marketing. You build an emotional attachment to the dubstep DJ’s song “Summit” while it plays as you save the princess. That’s something passive consumption of a music video, 30-second mp3 preview, or banner ad cannot do.

In the age of infinite access to music, how does an artist get remembered? They turn their content into an experience. Developer Jason Oda’s SkrillexQuest transforms the single “Summit” from something you listen to into something you live. It’s lyric “A sullen heart ticking under the ground” turns literal, as your goal is to save dead princess whose been locked underground in a heart-shaped jail cell.

Oda has built several advergames before, including ones for bands Fall Out Boy and Breaking Benjamin. MTV Hive’s interview with Oda explains that Skrillex’s people approached him about developing SkrillexQuest, and that he worked directly with the DJ to flesh out the concept.

There’s little instruction for the player, leading to a sense of wonder and exploration. It draws on nostalgic themes to tug harder on your heartstrings. A speck of dust has found its way onto the SkrillexQuest NES cartridge’s chip, corrupting the in-game world and spawning glitches you must fight. Defeat the boss while rocking out to the most aggressive jam from Skrillex’s new album and you’ll see the human version of the DJ blow the dust away to restore the universe. You grow closer to the music and the artist.

It’s over the top, ridiculous even, but it works. Instead of a single listen, I probably heard “Summit” three times through during the course of the game. The idea of using games to drive exposure to music isn’t exactly new, but the trend is picking up steam. Iron Maiden, Linkin Park, and Juicy J all have their own advergames, and back in April 2011 Daft Punk’s soundtrack to Tron got played for 120 million minutes in two weeks thanks to its placement in Facebook game Nightclub City. And for years artists have licensed their music to games like Electronic Arts’ sport franchises in hopes of sales or awareness boosts.

Still, a custom musician-branded game with a direct link to where you can buy the music it promotes seems fresh and highly functional. Since these types of advergames don’t come with same expectation of high production value you’d get with a big studio title, an increase in demand for them from artists could create jobs for independent game designers. And if streaming services and piracy conspire keep it tough to sell music on its own, maybe it’s the advergames themselves we’ll be willing to pay for.