Andreessen Horowitz partner Jeff Jordan loves him some online marketplaces.
Jordan, the OfferUp and Airbnb investor and former eBay executive who spoke at the GeekWire 2016 Summit, is a big fan of the concept of people selling stuff and experiences to one another. The reason is the phenomenon of network effects, which means marketplaces gain momentum and have an easier time dealing with competition as more people use them.
OfferUp, Jordan said has the fastest consumer spending growth of any company he’s seen, continues to add stuff and users, which makes it more valuable than a company that doesn’t have as many people on it or as many things trading hands. The cycle is true for Airbnb as well, where everyday the inventory of houses and apartments available on the site rises, so more guests are flocking to that marketplace, causing more people to think about renting out places on Airbnb. A similar thing happened when Jordan was at eBay.
“EBay had all the buyers, so then the sellers came, and then they had all the sellers so (more) buyers came,” Jordan said of eBay’s network effects, which allowed the company to stave of challenges in the auction market from Yahoo and Amazon.
Jordan’s not as keen on online commerce in general. Amazon rules that domain, so you’d think it’s a hard one to get into. But it’s exactly the opposite. Online commerce doesn’t require the same network effects as person-to-person marketplaces, so a ton of companies have gotten into the business.
In his career, Jordan said he has seen only three large profitable U.S. online commerce companies: Amazon, Zulily and sports merchandise retailer Fanatics. Jordan said he invested in two of those three, and the one he missed was Amazon.
“E-commerce is a business that has low barriers to entry, and as a result, you are seeing vicious competition for customer acquisition and an inability to raise prices,” he said. “As a result, there is just no profit coming out the other end.”
To hear more from Jordan on Airbnb, Facebook Marketplace as a potential threat to OfferUp, whether we are in a bubble period, the differences between Seattle and Silicon Valley engineers and if the window is open for more companies to go public, check out the full video of his talk above.
