Category Archives: Marketplace

Success and rejection

Jack Ma is the founder of China’s largest e-commerce group Alibaba. Although Alibaba started off as an e-commerce company, it has since expanded to offer other services like payments and cloud computing.

In the video below, Jack speaks about his personal story, how he built Alibaba, and Alibaba’s future plans. What particularly caught my attention was Jack’s perspective on being rejected. He was rejected by Harvard 10 times, Kentucky Fried Chicken in an application process where 23 of 24 candidates were accepted, and his local police department which accepted the 4 other applicants while rejecting only Jack.

He mentions that even at its current large size and negotiating power, Alibaba is still often rejected. This is a strong reminder that you need to want something to be successful, but the more you want, the more likely you are to be rejected. So success and rejection come hand in hand.

The full interview is below.

Horizontal service marketplaces

As Josh Breinlinger explains in his marketplace framework, in service marketplaces with a high purchase frequency like food and car ordering, or large transaction values like real estate and car buying, it makes sense to have a vertical offering. The high repeat rates in the former and the large transaction values in the latter make the unit economics work.

However, in many service marketplaces, the transaction values are less than those of purchasing a home or a car and the purchase frequency is less than that of food and taxi ordering. In order to make the unit economics work, such marketplaces needs to augment the standalone value of the first transaction which likely won’t be repeated until several months later. This requires a horizontal approach where the marketplace offers many services that meet the demands of its target customer profile.

For example, a home services marketplace benefits from offering not only cleaning but also handyman, home improvement, and moving services.

Similarly, a car services marketplace benefits from offering not only car maintenance but also repair and roadside assistance services.

Sustainable success as an e-commerce company

E-commerce sites across verticals use informational content as a way to differentiate themselves from their competitors. The reasoning is that if they attract visitors by providing informational content about the third party products they’re selling, once informed, these visitors will also purchase the products they were looking for on the same site.

At the margin, this is likely true. Providing a visitor with extensive informational content prior to making a purchase helps build trust which makes the visitor more likely to transact on the same e-commerce site. However, very often this earned trust isn’t enough to overcome differences in the price of the product on different sites. If the product is cheaper elsewhere, the visitor simply learns about the product at your site before transacting at the site with the lowest price.

This is especially true for commoditized product categories and verticals with strong third party brand names. For such product categories, the marketplace approach of aggregating and showcasing the third party products available from different suppliers, thereby letting the customer compare the prices of these products to buy from the supplier offering the product at the lowest price, is more defensible in the long term than the e-commerce approach.

This leaves the creation of a new proprietary brand as the remaining approach to achieving sustainable success as an e-commerce company.

The implication of a single buyer or seller purchasing an online marketplace

The value proposition of an online marketplace is that it aggregates demand on one side, supply on the other, and makes it easy for both sides to find and transact with each other.

In other words, the value of an online marketplace comes from the fact that it serves more than a single buyer or a single seller.

As a result, when a single buyer or a single seller purchases an online marketplace company, even if this buyer or seller is big, it’s likely that the marketplace did not live up to its potential. If it had, its value would have been much greater than that which a single buyer or a single seller would have been willing to pay.

Ikea’s recent purchase of Taskrabbit seems to be an example of this.

Taskrabbit freelancers offer services in areas like furniture delivery and assembly to Ikea customers. However, they also offer these services to customers of furniture retailers other than Ikea. In addition, they offer services in many other areas, like home repair, yard work, and house cleaning.

In other words, Ikea’s customers, taken together, effectively represent a single buyer on Taskrabbit. As a result, the price that Ikea would be willing to pay for Taskrabbit would be limited to the value that this single buyer gets from the marketplace. And this value is a fraction of the total value of the marketplace.

The fact that Ikea purchased Taskrabbit despite the former’s status as a single buyer suggests that the latter achieved a fraction of its potential.

Amazon entering Turkey

There have been rumors that Amazon will enter Turkey for quite some time. Although Amazon currently delivers to Turkey from abroad, it doesn’t have a local operation.

Based on the rumors, Amazon’s planned entry date into Turkey ranged from late 2017 to mid 2018. And the closer you asked to the source, the earlier the planned entry date became.

Now that Amazon has established a company in Turkey, which is owned by Amazon Europe, it’s likely that the late 2017 entry date communicated by sources close to the company will turn out to be correct.

Given the proximity of the date, it seems likely that the entrance will be done organically rather than through acquisition. However, given the large value at stake, the strength of local competitors, and the tendency of important negotiations to be settled at the last minute, there could be a surprise.

Amazon’s know-how in 3 areas, including how to ensure the quality of the supply side of a marketplace, IT, and logistics, will be important contributors to improving the e-commerce customer experience and growing e-commerce penetration in Turkey.

Welcome to Turkey Amazon.

Rinse in Chicago

Rinse, a tech-enabled laundry and dry cleaning managed marketplace where we’re investors, announced its Series B funding round in June of this year. At the time of the announcement, Rinse shared that most of the round would go towards expanding into new cities.

The first of these post-round new city expansions is now taking place with Rinse beginning to serve customers in Chicago. This is the fourth city that Rinse is operational in, following San Francisco, Los Angeles, and Washington DC.

If you live in Chicago and want to check out Rinse, you can do so here.

HotelRunner partners with Wix

HotelRunner, where we’re investors, is a cloud-based website development and channel management software-as-a-service (SaaS) tool for hotels. Among other services, the company gives hotels the ability to build their website, accept online reservations, push their inventory to online travel agencies, and purchase third party services from the HotelRunner Store.

While giving hotels the ability to build a website specific to the vertical’s needs is valuable, what differentiates HotelRunner is its channel manager service. This is why HotelRunner recently entered into a partnership with Wix, a leading cloud-based website development SaaS. Wix Hotel users will now be able to push their inventory to and accept reservations from the over 80 online travel agencies to which HotelRunner’s channel manager is connected.

This partnership will drive additional guests and revenue to Wix Hotel users. And the fact that a company like Wix chose HotelRunner as its channel management partner shows the quality and breadth of HotelRunner’s service.

Vivense’s omni-channel ambitions

Vivense is an omni-channel furniture retailer where we’re investors. Although the company started off as an e-commerce player, it soon recognized that it operates in a product category where a high degree of product differentiaton and high order values demand a complementary offline strategy. Vivense therefore pursued a strategy of opening physical showrooms in order to build the brand and trust necessary to convert its online visitors into customers.

Vivense has so far opened 12 showrooms across Turkey. These include 3 on the European side of Istanbul, 2 on the Asian side of Istanbul, 2 in Izmir, and 1 each in Ankara, Bursa, Adana, Antalya, and Samsun.

In addition, the company is moving into its new 8000 square meter operations center in Inegol, a city with a very strong furniture manufacturing presence which is a 3 hour drive outside of Istanbul. Vivense’s previous operations center covered 900 square meters. The growth in the size of the operations center and the new showroom openings are strong signals of the extent of the company’s ambitions.

I had the opportunity to visit both the new operations center and the Inegol showroom over the Eid holidays, and was very impressed with how far the company has progressed since its original e-commerce only days.

Here’s a Turkish article in Hurriyet, one of Turkey’s leading newspapers, which covers the very exciting developments that are taking place at Vivense.

Building tech businesses in the Middle East

Souq, Namshi, and Careem are 3 of the most successful tech startups in the Middle East.

Horizontal e-commerce business Souq was recently acquired by Amazon for $650M, 51% of fashion e-commerce business Namshi was acquired for $151M by Mohamed Alabbar’s Emaar Malls, and car hailing business Careem is valued at over $1B.

Each of these companies is proof that large tech businesses can be built in the Middle East.

Here’s an interview hosted by Wamda Capital‘s Fadi Ghandour featuring the CEO’s of these impressive companies, Ronaldo Mouchawar of Souq, Faraz Khalid of Namshi, and Mudassir Sheikha of Careem.

Rinse’s Series B round

Rinse is a tech-enabled laundry and dry cleaning managed marketplace where we’re investors. The company recently announced the closing of its $14M Series B round of funding led by Partech Ventures.

Now that Rinse has solidified its playbook for expanding into geographies and bringing these geographies to contribution margin profitability, it will be using the new funding to apply the same playbook to grow to 10 new US cities. Rinse is currently operational in San Francisco, Los Angeles, and Washington DC, and among the 10 new cities that it will expand to are New York, Chicago, and Boston.

We commend the Rinse team for their decision to achieve operational excellence with their existing model before rolling it out to new cities. This requires patience and this patience eventually pays off.

We also thank Partech and Rinse’s existing investors for continuing to support the company on its exciting journey.