Dan Hockenmaier: belief

Transcript context

…Awesome. Another common question that marketplace founders have is should I go vertical or should I go horizontal? So thinking about eBay as an example, they are very horizontal. You could buy anything you want on eBay. And then there's all these spinoffs that emerged, just classic cars, eBay for classic cars, eBay for guitars. And I'm curious if you have any advice there for either an early stage founder trying to decide should I go horizontal or vertical and/or where do you find the biggest opportunities to slice off a piece of a successful horizontal marketplace? Yeah, absolutely. And in that eBay example, there are now a few quite successful examples of this like [inaudible 00:50:23] and StockX are two where they carved out the sneaker category and the key insight was you couldn't trust the inventory you were getting on eBay. So there's a lot of work you need to do to verify, and those businesses just did it much better than eBay. Broadly though, I think that we over hyped the idea of unbundling. So I think every six months I'm seeing an article where somebody wrote, "This is the unbundling of Reddit, the unbundling of LinkedIn, the unbundling of Facebook." We're going to take all those blue links that you saw on another site and they're all going to become new businesses. And very rarely that thesis plays out. I think the core logical error in the argument for unbundling is that they over focus on one type of improvement, which is user experience and they under focus on the things that make scale businesses have better economics. And so to unpack that, if you look at UX, like if you built a LinkedIn just for construction workers or just for architects or just for investment bankers, you could definitely build some set of features that group liked better than the core LinkedIn experience. But then you have to weigh that against all of the benefits of being broader. And so the two big pieces of where you get benefits from scale are in your customer LTV and then I think the network effect you can build. So if you go back to that Thumbtack example, we had a spreadsheet which tracked hundreds of verticalized competitors where somebody would try to pick off the electricians category, the wedding category, the lessons category, and very few of them got traction for the simple reason that we could upsell customers into a thousand things. And so our customer LTV was always higher and we would always win when we were bidding against those other customers on SEM keywords that were relevant to that category. So it becomes very hard to compete if you're picking off this kind of narrow thing unless you find something which that sub-segment is itself very high frequency or very high dollar value. So Airbnb's an example. They unbundled from Craigslist because they picked off this massive high frequency, high dollar value category [inaudible 00:52:16] but there's not that many of those examples. And then I think the other source of benefit would be the network effect. So if you go back to LinkedIn, for example, I think actually there's an opportunity and we see some successful businesses picking off now blue collar work. So there's a company called Workrise. I think they used to be called Rigup where they're basically building like a LinkedIn but for blue collar work. And that works really well because it's a huge segment and it's somewhat self-contained. But for most other things there's a lot of fluidity between the employers and the employees in terms of who wants to transact with one another. se it's a huge segment and it's somewhat self-contained. But for most other things there's a lot of fluidity between the employers and the employees in terms of who wants to transact with one another. And so if you're an investment banker, you don't really want to be on the LinkedIn investment banker because you're probably in the future going to want some other job. So you want to be in the biggest network that's relevant to you and so this is why you can complain about LinkedIn's UI all day, but they have a very strong place in the market because of that network effect. So broadly, I think there are some pretty interesting examples, places where you can unbundle but they're rarer than people think.…

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