The Marketplace Building Playbook

As investors, we describe marketplaces as platforms that bring together demand and supply to generate a vibrant ecosystem where commerce occurs. In our new series The Marketplace Building Playbook, we will dive into where we see the future of marketplaces evolving and the plentiful opportunities for founders building in this space. This first installment in the series introduces the new types of marketplaces we are witnessing and the exciting companies emerging within each.

A Look Back and a Look Forward on Marketplaces

The internet brought the world closer together, and marketplaces benefited. Web 1.0 focused on getting products online so consumers could find unique goods that would otherwise be hard to source, effectively digitizing commerce. eBay was the prime example of this wave, and enabled online communication and payments with the advent of PayPal.

Web 2.0 captured new technology and behavioral changes. We saw the arrival of real identities online through platforms like Facebook. Meanwhile, an increase in mobile adoption created location awareness which allowed for faster, authentic communication, and brought platforms like Airbnb, DoorDash, Etsy and Uber to life.

We believe the next wave of marketplaces is already underway. These marketplaces fall into three distinct categories:

1. Finding goods through individual curators instead of broad-based search – Patreon, Depop, Whatnot

2. New types of goods that previously didn’t exist (category creators) – Opensea, Pachama

3. B2B marketplaces digitizing fragmented and larger industries – Faire, Ankorstore, Ghost

We are excited about marketplaces because they can have enormous impact at scale. The more they’re utilized, the better they work, and those improvements compound over time.

“Four Questions Every Marketplace Needs to Answer” details the four key factors to a marketplace’s success.

1. Marketplaces have inherent network effects. Possessing global network effects or root density network effects determines the way a marketplace grows and how resources align to match supply and demand.

2. There is also the concept of homogeneous or heterogeneous supply which determines the type of product experience, whether it be a search marketplace like Airbnb or a matching marketplace like Uber.

3. In addition, the incentives of the marketplaces have to keep the transaction online. Simply stated, the trust and convenience of the platform needs to overcome the cost or “take-rate” to use the platform.

4. And finally, the size and frequency of the repeated interactions needs to be somewhat promiscuous, enabling a variety of different actors to participate.

If these four factors are ignored, monogamous relationships are developed and the marketplace is cut out of the transaction.

Changes in consumer behavior are often catalyzed by marketplaces. “In successful behavior-shifting products, the shift leads to a better product, unlocking new types of online interactions and sometimes offline activities in the real world” (Behavior-Changing Products).

All of the large marketplaces of Web 1.0 and Web 2.0 did this. Don’t forget that buying a Beanie Baby on eBay back in 1997 was truly behavior-changing at the time. We believe the next wave of marketplaces will drive behavior changes as well.

What really gets us excited is when these behavior changes translate into momentum where demand clearly outstrips supply. That’s because it’s much, much harder to build demand than it is to secure supply. We call this the tipping scale of demand. People often ask us if they should build demand or supply first. A simple analogy makes the answer clear.

Imagine you have a hair salon. Would you rather have a line out the door of people trying to get their hair cut or the best hairdressers sitting inside waiting for customers? If you don’t have demand, having top-notch supply just doesn’t matter.

If you have infinite demand, you can build out a marketplace and match it with supply.

When people talk about marketplaces, they often neglect to think about their underlying core fundamentals: customers and inventory. Early on, it all boils down to generating a flywheel of demand and supply in the right, targeted areas.

The Rise of “Inspirers” as Individual Marketplace Curators

One of the biggest forces driving a reshaping of modern marketplaces is the shift away from SKU (stock-keeping units) to individuals or who we like to think of as “inspirers.”

Whereas previous marketplaces like eBay, Poshmark, The RealReal, and ThreadUp let consumers search and match based on desired items, new marketplaces will facilitate a process where demand comes to supply to become inspired and conduct commerce.

This commerce can happen in the form of digital media or content like Patreon, or in the form of physical goods like Depop and Vinted, where inspirers can showcase and sell a variety of different goods, connected only by the inspirer, who curates and presents them together. This is a clear outgrowth of social media and the influencer landscape that has persisted over the last decade.

Take fashion, for example. Historically, consumers have wanted to be associated with prestige brands like Abercrombie & Fitch or lululemon. We’re now witnessing an inversion of this trend as people want to play an active role in what or who influences them and their buying decisions, with a clear preference toward buying unique items rather than mainstream brands. This is evidenced by the rising interest in “elite thrifting” and timed “drops” of goods for sale by social media influencers on existing platforms like Instagram and TikTok (check out our exploration of Gen Z social commerce).

If you want to be unique, you can’t rely on search and SKUs because you’re looking for individuality and rarity. In a world with infinite options and limited attention, consumers gravitate towards trusted supply nodes. WhatNot and Voggt are leveraging this trend, augmenting the sale of online collectibles with live shopping experiences that lean into community and scarcity to drive sustained high engagement.

The supply node will become the reason consumers engage, and search will evolve to recommend other supply nodes rather than goods or services. This will create a new opportunity for platforms that offer the traditional protections (trust and convenience) that individual inspirers can’t via their own websites or other existing platforms.

New Marketplaces around Newly Created Goods and Services

Marketplaces often spring up when a new type of product or SKU is created. This happens because new goods can present a whole host of issues that marketplaces can solve for. For example, if new goods are hard to value, marketplaces enable a bid and ask system to hone in on price discovery.

Marketplaces that crop up around a new good help drive the proliferation of that good. Offerings that are less mature can quickly be standardized and packaged through marketplace mechanisms. Classification becomes more standardized, simply due to the fact that you see more of the thing.

The most obvious example of this is what Opensea did for NFTs. Opensea did not know what would work in the NFT space, but by creating a marketplace that allowed anyone to participate in the ecosystem, many different types of new goods were created and then traded on the platform. The durability of these goods can be debated, but there is no doubt that it was an amazing opportunity to build products and tools to foster these communities.

Opensea may not know what comes next with NFTs, but we can be confident they will capture that opportunity because they have set up the product as a platform, enabling them to ride on any emerging trend in the category.

Carbon markets are emerging as governments, shareholders, companies and global citizens accelerate efforts to affect climate change. New marketplaces are making it possible to source carbon products (creating new supply and liquidity),allowing new participants to buy and sell carbon products with increased transparency, trust and choice.

Pachama enables businesses like Amazon and Shopify to offset carbon emissions by sourcing and purchasing carbon credits on their platform. Senken is another player focused on developing a marketplace that keeps a traceable account of carbon assets on the blockchain. As we continue to see innovation in novel carbon emissions projects, sophisticated marketplaces will emerge to help buyers and sellers transact and trade carbon offsets.

With the rapid acceleration of generative AI, we are starting to see experimentation with new digital goods and synthetic products that could spawn entirely new classes of unique creator goods–for example, AI-generated voice, imagery and music tracks.

The potential is limitless on these platforms and the opportunity set will continue to expand as they mature. We can’t wait to see how marketplaces will evolve to foster and accelerate the next wave of goods and services.

The Continued Verticalization of B2B Marketplaces

While consumer marketplaces are entering their third wave of innovation, we believe we are still early in the evolution of B2B marketplaces, which have the potential to tap into the $17.9 trillion global B2B ecommerce market.

The first wave of B2B marketplaces came on the back of familiar consumer marketplaces (e.g. Amazon, Alibaba), and helped businesses benefit from the transparency, network effects, and efficiency of scale of these legacy platforms.

Now, we are seeing a new generation of verticalized B2B marketplaces digitizing legacy industries that are fragmented, lack price transparency, and have high-friction in consummating B2B transactions. Faire in the US and Ankorstore in Europe are two recent examples of the trend, building high-growth wholesale marketplaces for the boutique retail industry.

B2B marketplaces typically have a vertical SaaS component that puts buyer/seller communication on one central platform and automates other aspects of procurement. This enables at least one side to operate much more efficiently than before. These platforms also aggregate industry data to help sellers forecast demand and buyers understand market pricing.

To guarantee consistency within the marketplace product, B2B marketplaces are usually heavily managed and provide services like financing, logistics, and industry data. They often resemble digitally-enabled versions of the legacy players they are disrupting.

Yet B2B marketplaces are notoriously challenging to build and scale; simply digitizing transactions and bringing offline buying relationships online is not enough. The bar is high to clear the “take rate hurdle” for established business transactions, as many of these relationships are monogamous with large dollar transactions.

How to Build a B2B Marketplace

Three factors enable B2B marketplaces to scale and ultimately command an attractive take rate:

1. Aggregation and Discovery: Consolidating highly fragmented nodes (e.g., suppliers, vendors, service providers) onto a single platform and enhancing vendor or product matchmaking via the marketplace. Faire created new supplier-retailer connections by recommending new products to retailers based on the ones that sell well in their stores, enabling a 25% take rate as compared to 15% on existing orders.

2. Utility Leap Forward: Simplifying complex SKU transactions and ROI optimization (e.g., ordering custom manufacturing parts), thereby delivering a 10x better experience than brokers or traditional RFP processes.

For example, Ghost connects surplus retail inventory with the best-performing distribution channels and partners. It uses data intelligence and pricing optimization to dramatically enhance liquidity and ROI for brands and discount retailers in its marketplace.

This often involves collecting new structured data from both sides of the marketplace to support inventory, pricing, and payback optimization.

3. Solving for Trust and Promiscuity: In B2B transactions, buyers face extreme risk in trying out new suppliers for mission-critical functions, meanwhile marketplaces must compete with entrenched business workflows. B2B marketplaces need to layer in value-add services, such as payments, financing, and business intelligence, that de-risk marketplace adoption and build the retentive power of the platform.

For example, by making financing available to vendors within the marketplace, Faire is enabling the supply side to receive guaranteed, upfront payment for their goods, meaning the buyer no longer has to put down a deposit and purchase the goods before they are sold to the end customer. This creates a cash flow benefit for both sides of the marketplace, generating trust and convenience on the platform.

While mature industries may be the laggards in the marketplace evolution, we believe the opportunity remains massive with multiple >$100B+ categories of B2B commerce. We are starting to see an acceleration of B2B marketplaces in heavy equipment, freight, agriculture, food, medical supplies and construction materials, driven in part by pandemic era supply chain challenges.

A few examples of emerging B2B marketplaces in massive, but non-obvious, mature industries include: Aucto (industrial re-commerce), Knowde (industrial chemicals and polymers) and Seso (agricultural labor marketplace).

Given the initial successes of some of these early B2B marketplaces, we believe the winners in the next wave will likely need to automate core business workflows (i.e., layer in software and value-added services like discovery and financing) to support transactions and integrate into customers’ existing systems.

What’s Ahead in Marketplace Building

Top 10 Marketplaces to Watch

Archive, Aucto, Bundle, Ghost, Jamble, Kindred, Pachama, Queenly, Vinted, Voggt

Intelligently built marketplaces will continue to bring transparency and efficiency to all corners of commerce. NEA has a history of investing in game-changing consumer and B2B marketplaces, including Care.com, Contra, Coursera, Letgo (Wallapop), Kindred, MasterClass, Opendoor, Opensea, Patreon, Super, Uber and others.

Marketplaces are tremendously challenging to build, but when they work, they tend to become generational and enduring companies. We are excited to invest in the next wave of marketplaces that are bringing the world together in compelling ways. If you’re building in this space, we’d love to connect.

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Who are we and why do we feel passionately about marketplaces? We’re Jonathan Golden (@jpgg) and Ann Bordetsky (@annbordetsky), two partners at NEA, where we focus on marketplace investments.

Prior to becoming investors, we both had a hand in building iconic tech marketplaces. Ann led Business Development and Strategic Partnerships for Uber across its Rider, Driver, B2B, and Travel business lines during the company’s hyper-growth period. Jonathan led Product at Airbnb for international, monetization, payments and Airbnb for Work.

Together, we bring 15+ years’ experience building and scaling massive consumer marketplaces. We can’t wait to share the lessons we’ve learned along the way with the next generation of founders and operators building the marketplaces of the future.

Follow us at @NEA as we continue our Marketplace Building Playbook series.