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Our Marketplace Obsession And Bubble


Service marketplaces have recently become Silicon Valley darlings. The marketplace model has been a popular way for VCs to efficiently tap into the local economies at scale, specifically the $800 billion home services space.

It’s a model that dates back to the initial concept of Yellow Pages in 1883. And it makes sense — giving homeowners a convenient way to find local businesses around them (i.e., cleaners, handymen, babysitters, landscapers, pet sitters, etc.), while giving those same local businesses exposure to new clients.

The 1990s saw the first innovation of the marketplace model with the birth of Craigslist. But it has only been over the past 10 years that we’ve seen a major flow of investment dollars into the service space, fueling countless types of local marketplaces to pop up.

Some focus on reviews, some on discounts, some on concierge-like experiences; some offer full-service business tools. And they all typically shoot out of the gates strong — lots of press, lots of hype, lots of dollars being invested to focus on getting up to scale fast.

However, when you dig deep across all these types of platforms, you see a pattern in their behavior: Just as fast as they rise, they fall. This type of valuation behavior is seen time and time again in industries that have another commonality: no moat or barriers to entry. And the timeline between rise and fall is starting to shorten.

Liquidity Marketplaces 2.0

Companies that initially innovated the traditional marketplace model include platforms like YelpAngie’s List and Groupon, with unique takes on pro search and discovery for clients — peer reviews to judge quality, verified ratings to assess trust level and discounted prices for the best deals around. At the same time, they gave pros new platforms on which to advertise — from traditional paid local marketing, to ad hoc lead generation.

These three companies, in particular, collectively raised almost $1.5 billion in venture funding from 2004-2011, helping them each get up to scale as fast as possible while their marketplace offerings were uniquely relevant. At the time these companies were going public in 2011/2012, the economy was recovering, and more capital was flowing into the tech space to build scalable businesses.

As we know, disruption typically happens most quickly in sectors that are indefensible, with low barriers to entry. Coupons and local daily deals sites were all of a sudden everywhere. Locally listed pros and peer reviews soon became the norm, as opposed to something unique and special.

Increased competition and the popularity of the platform model positively impacted both clients and pros — more search and discovery options for clients, more advertising and marketing options for pros.

But for the initial marketplace innovators, any of that initial “IPO hype” fizzled after a few quarters of performance, and valuations declined from peak to trough, 70-90 percent across the board.

Of course, copycat platforms were crowding into the market, but at the same time, there were new types of models that were grabbing market share. These new entrants took a different twist on matching homeowners and pros.

Verticalized Lead Gen Marketplaces

The most obvious derivatives of this business model were vertical-specific marketplaces of all sizes. These allowed clients to dig into a specific industry with deeper pro filters, while at the same time enabling pros to more elaborately display their profiles and work in order to make them stand out.

But there also were innovations in the user experience of discovery and lead generation. Thumbtack and HomeAdvisor (snatched up early by IAC), for example, changed up the search process altogether. Instead of homeowners spending time combing through a bunch of professional profiles, they simply submitted one-time details on which services they needed and the pros (who pay for the warm leads) reached out directly to pitch.

VC money soon came pouring in even faster for these new marketplace companies — Porch raising $65 million (Series B), Thumbtack raising $100 million (3 months after $30 million Series C) and so on. However, shortly after Thumbtack’s raise in 2014, for example, Amazon launched its Amazon Home Services platform.

Then Google announced its intension to optimize local search (via “Google Home Services”) and display profiles of local service pros above organic search results (beta currently live in specific cities and industries). This model is essentially an exact replica of Thumbtack — you can conveniently send detailed service requests to multiple pros in your area and have them all pitch to win your business.

At the same time as liquidity marketplaces were evolving, a new class of marketplace formed with the goal of controlling the client/pro transaction from end to end — the “on-demand” marketplace.

On-Demand Marketplaces

One way to preserve the stickiness and increase the defensibility of a platform is to keep the entire client/pro transaction “online” — from discovery, to scheduling, to communication, to payment — all on the platform itself.

In theory, this gives the client an even easier hiring experience (no need to even pick up the phone!), all the while, allowing the platform to charge a 20-30 percent fee per transaction in exchange for delivering business to the pro.

Companies like TaskRabbitHomejoy and Handy were early on in the on-demand service game. One would think that heavy investment in integrated business tools could be the true differentiator within the marketplace model. Within two years these three platforms raised no less than $35 million…each. But the market didn’t react as expected.

TaskRabbit suddenly laid off significant chunks of its workforce as it struggled to hone in on the right service focus and business model. The company is still finding the right pricing model for itself and hasn’t raised in three years, which many in startup land would say is an eternity.

Homejoy officially shut down last month as the company’s model was potentially in violation of numerous labor laws, with no profitability plan in sight. And Handy, which operates an almost identical business model to Homejoy, is rumored to be churning out economics that were not unlike Homejoy, and has its own internal idiosyncratic issues. (Raising a follow-on Series B this year will give them some breathing room.)

The first on-demand home services marketplace with a “successful exit,” actually, was The company powered through VC funding rounds and went public in 2014, peaking at about a $1 billion valuation. Since then, increased competition and platform churn has plummeted’s value by 80 percent, to just $180 million (note that the company raised more than $110 million in VC funding).

Perpetual Platform Leakage

Low technology barriers are clearly a fundamental problem within this service-pro marketplace industry. (Ironically, this is one of the main reasons why billions of dollars are being invested in the space each year — it’s relatively easy to make a quick buck and replace the older generation marketplaces and quickly grow to scale…until the next marketplace comes along to disrupt you, of course.)

However, the other core problem revolves around perpetual platform leakage. That is, these platforms are all adding a ton of value making that initial introduction between client and pro in high-quality ways.

This is especially crucial within home services since you, as a homeowner, are looking for trust and quality above all else — after all, you’re letting these pros into your home, asking them to fix or clean your most private areas, trusting them with your children, pets, etc.

But the pattern of most of these services are recurring by nature — some on a regularly occurring schedule (e.g., home cleaning, landscaping, dog walking, etc.), while others on an ad hoc basis (e.g., quick toilet fix, handy repair work, pet sitting, etc.).

Thus, there is a huge amount of activity and value taken offline once the introduction has been made, as the long tail of the client/pro relationship takes hold. Clients are perpetually motivated to move their pro relationships off platform, because it’s one less intermediary to go through to directly access the pros they love.

And for pros, the last thing they want is to have their client’s data owned by a marketplace middleman. Marketplaces have every incentive to drive clients back onto their platforms to book more professionals, book new professionals, book competing professionals and even charge for additional transactions.

The marginal utility curve of marketplace innovation appears to be flattening out as the timeline from startup to peak valuation is getting shorter, and the decline from peak to trough valuation seems to be getting sharper.

Featured Image: Radu Bercan/Shutterstock

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IBM’s Dr. John Kelly Is Bringing Watson To Disrupt SF


IBM’s Dr. John Kelly is joining the TechCrunch crew onstage at this year’s Disrupt SF. But he won’t be alone. Instead, Kelly is bringing Watson along with him.

Watson is an IBM project that answers questions using artificial intelligence to accept and process natural language queries. It became known to the public for its exploits in the Jeopardy game show, if you recall.

IBM’s ambition for Watson is not small. In early 2014, its parent corporation formed the IBM Watson Group in New York with several thousand denizens. At the time, IBM pledged $1 billion to the group, while announcing a number of new Watson capabilities, including a tool to accelerate research and a service to visualize “big data insights,” to quote its own language.

Component to the $1 billion pledge was a $100 million venture fund, designed to encourage startups to leverage Watson technology. It will be interesting to hear how well that effort has gone: Are any Watson-focused startups unicorns?

Watson learns first by being fed large amounts of domain information — a “corpus” in IBM’s parlance. It is then trained with various intra-domain question pairs, helped by human experts. After enough training, Watson continues to refine its understanding and answer questions about the domain itself.

IBM is rapidly building out Watson’s capabilities. Listed on the Watson Developer Cloud page are services like “language translation,” and “personality insights,” which I recommend playing with. On the same page, IBM notes that “concept expansion,” “relationship extraction,” and “question and answer” are all currently in beta.

In short, IBM has big plans for Watson, which, through its Developer Cloud service, fits into IBM’s broader cloud push. The company listed three core objectives in its last earnings report: cloud, analytics and engagement. So Watson is part of what IBM envisions to be its future.

Having Kelly on stage should be a treat. We’ll see you all there.

To hear our excellent speakers and more at Disrupt SF at San Francisco’s historic Pier 70, purchase tickets (at special early-bird prices) right here.

Our sponsors help make Disrupt happen. If you are interested in learning more about sponsorship opportunities, please contact our sponsorship team at

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Everything You Need To Know About iOS 9’s New Content Blockers


One of the lesser-known, but potentially groundbreaking, features arriving in the new version of Apple’s next mobile operating system, iOS 9, is support for “content blocking” extensions in Safari.

While that label doesn’t sound too dazzling in and of itself, users who install content blocking apps will see dramatic speed improvements when surfing the mobile web, thanks to the apps’ ability to block things like advertisements, trackers, scripts and other content that can slow down the loading of web pages.

Blockers also promise to protect user privacy as well as reduce data usage (and therefore preserve battery life), while allowing you to focus only on the website content that’s important to you.


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This Week On The TC Gadgets Podcast: CarPlay, Booze, And Keyboards


Welcome to the second edition of the TC Gadgets Podcast on Minecraft.

This week, we’re discussing Apple CarPlay, the MixStik (which helps you to be an awesome bartender), the new full-size keyboard for mobile devices from LG, and the Sensel Morph (a totally different kind of keyboard).

This week’s episode of the TC Gadgets Podcast features John BiggsMatt Burns, Natasha Lomas, Romain Dillet, and Jordan Crook.

We invite you to enjoy our weekly podcasts every Friday at 3 p.m. Eastern and noon Pacific. And feel free to check out the TechCrunch Gadgets Flipboard magazine right here.

Click here to download an MP3 of this show.
You can subscribe to the show via RSS.
Subscribe in iTunes.

Intro Music by Mendhoan.

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Mobile Gaming Live-Streaming Service Mobcrush Has Raised Around $10M


We’ve heard from sources that Mobcrush, a live-streaming service centered around mobile games much in the same way Twitch is known for streaming popular eSports desktop games, has raised around $10 million in new financing, though the number could have gone beyond that.

Mobcrush’s bet is that mobile game streaming will be as big — if not bigger — than some of the competitive game-streaming services that already exist. The gorilla in the room, of course, is Twitch — which Amazon bought for nearly $1 billion last year and has tens of millions (if not hundreds) of monthly viewers. Mobcrush raised $4.9 million in a round that round was formally announced in May, and in July Mobcrush came out of beta.

To be sure, mobile games are becoming increasingly sophisticated. Some of the most popular games on the App Store are strategy games like Clash of Clans. And while these games are lightweight, phones are becoming more and more powerful and gaining more touch points — meaning it’s ever more likely that someone will figure out a way to replicate the complex nature of mobile games (with one new example of a new touch point being Force Touch, which is expected to end up in the next iPhone).

We heard Kleiner Perkins participated in the most recent funding round, with two sources telling us the firm led the round. We were told the round was incredibly competitive, as you might expect for a company making a bet on a mobile Twitch.

“Mobcrush does not comment on rumors or speculations about our financing,” CEO Royce Disini said. “We’re focused on our execution, excited about our growth and the big opportunity for mobile game live streaming, and have added [three] key hires from Apple, Google and Microsoft to help accelerate our growth.”

So, what does this funding round mean? It could be that investors are salivating over the potential of a next-generation Twitch that’s geared entirely toward mobile. On Twitch, games like Starcraft, League of Legends and Hearthstone are insanely popular. It’s not clear if mobile games are going to hit that sort of trajectory, but already there are lots of competitive games on mobile devices (including Hearthstone). Given the success of Twitch, there’s a good chance that investors believe there’s a huge market for streaming mobile games alongside more complex online games.

The counter argument to all this is that there isn’t a set of games like Starcraft that will eventually end up on mobile. Given the lightweight nature of mobile games, it’s possible that there just won’t be a market for hardcore games like League of Legends, even though several well-funded companies like Super Evil Megacorp are going after the space with games like Vainglory.

And, to be fair, Twitch could build something similar and crush Mobcrush (no pun intended). It already has a huge presence on mobile devices and has broadcasts of Vainglory. Twitch is not unfamiliar with finding its way to new markets, pivoting originally from a live-streaming site to focus on video games and creating a $1 billion company in the process.

Mobile’s Starcraft moment hasn’t happened just yet. However, all roads do lead to mobile — and it seems more and more likely, especially with the arrival of Hearthstone (which is of course on PC) on smartphones, that it’s possible companies will find a way to build a hit game that will be popular among the esports crowd.

Featured Image: Mobcrush website

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Gillmor Gang LIVE 08.28.15


Gillmor Gang – Dan Farber, Robert Scoble, Keith Teare, Kevin Marks, and Steve Gillmor. LIVE recording session has concluded for today.

Gillmor Gang chatroom HERE

Gillmor Gang on Facebook HERE

G3 on Facebook

G3 video archives on ustream

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