Skip to content

The Last 10 Years Have Been About Social Networks — The Next 10 Will Be About “Market-Networks”

Market Networks NFX Guild image[**Note: a shorter version of this article appeared on TechCrunch.]

 [**Disclosure: we are advisors and/or investors in many of the companies mentioned in this post including Honeybook, Houzz, Lyft, Angelist, Poshmark, Doordash, Meerkat and GoodReads]

[**Note: If you invest in marketplaces, networks, market networks, and other businesses with network effects, please apply to attend the NFX Guild Conference to see NFX Guild companies present. If you run one of these companies or plan to start one, please apply for investment from NFX Guild and be a part of the next NFX Guild Class.]

 

Most people didn’t notice last month when a 35-person company in San Francisco called HoneyBook* announced a $22 million Series B.

What was unusual about the deal is that nearly all the best-known Silicon Valley VCs competed for it. That’s because HoneyBook is a prime example of an important new category of digital company that combines the best elements of networks like Facebook with marketplaces like Airbnb — what we call a market-network.

Market-networks will produce a new class of unicorn companies and impact how millions of service professionals will work and earn their living.

 

What Is A Market-Network?

“Marketplaces” provide transactions among multiple buyers and multiple sellers — like Poshmark*, eBay, Uber, Patreon*, and LendingClub.

“Networks” provide profiles that project a person’s identity and then lets them communicate in a 360-degree pattern with other people in the network. Think Facebook, Twitter, GoodReads*, Meerkat*, and LinkedIn.

What’s unique about market-networks is that they:

  • Combine the main elements of both networks and marketplaces
  • Use SaaS workflow software to focus action around longer-term projects, not just a quick transaction
  • Promote the service provider as a differentiated individual, helping build long-term relationships

market network three rings

An example will help: let’s go back to HoneyBook, a market-network for the events industry.

An event planner builds a profile on HoneyBook.com. That profile serves as her professional home on the Web. She uses the HoneyBook SaaS workflow to send self-branded proposals to clients and sign contracts digitally.

She then connects the other professionals she works with like florists and photographers to that project. They also get profiles on HoneyBook and everyone can team up to service a client, send each other proposals, sign contracts and get paid by everyone else.

Market networks Angelist Honeybook

 

This many-to-many transaction pattern is key. HoneyBook is an N-sided marketplacetransactions happen a 360-degree pattern like a network, but they come here with transacting in mind.  That makes HoneyBook both a marketplace and network.

A market-network often starts by enhancing a network of professionals that exists offline today. Many of them have been transacting with each other for years using fax, checks, overnight packages, and phone calls.

By moving these connections and transactions into software, a market-network makes it significantly easier for professionals to operate their businesses and clients to get better service.

 

We’ve Seen This Before

AngelList* is also a market-network. I don’t know if it was the first, but Naval Ravikant and Babak Nivi deserve a lot of credit for pioneering the model in 2010.

On AngelList, the pattern is similar. The CEO of the startup creates her own profile, then prompts her personal network of investors, employees, advisors and customers to build their own profiles. The CEO can then complete some or all of her fundraising paperwork through the AngelList SaaS workflow, and everyone can share deals with everyone else in the network, hire employees, and find customers in a 360-degree pattern.

In 2013, when I met Oz and Naama Alon, two of the founders of HoneyBook, they were building a beautiful network product — a photo-sharing app for weddings. We sat down and I walked them through the new idea of a market-network. They embraced it immediately, and have taken it to a whole new level – from the design and workflow to the profile customization and business model.

Houzz* is a third good example. Houzz connects homeowners with home improvement professionals and with products they can buy for their home. They have a product that is very nearly a market-network. The company raised $165M in its last round.

Joist is another good example. Based in Toronto, it provides a market-network for the home remodel and construction industry. Houzz is also in that space, with broader reach and a different approach. DotLoop in Cincinnati shows the same pattern for the residential real estate brokerage industry.

Looking at AngelList, Joist, DotLoop, Houzz and HoneyBook, the market-network pattern is visible.

Currier Market Network Map 1

 

Seven Attributes Of A Successful Market-Network

  1. Market-networks target more complex services

In the last six years, the tech industry has obsessed over on-demand labor marketplaces for quick transactions of simple services. Companies like Uber, Lyft*, Mechanical Turk, Thumbtack, DoorDash* and many others make it efficient to buy simple services whose quality is judged objectively. Their success is based on commodifying the people on both sides of the marketplace.

However, the highest value services – like event planning and home remodels — are neither simple nor objectively judged. They are more involved and longer term. Market-networks are designed for these.

  1. People matter

With complex services, each client is unique and the professional they get matters. Would you hand over your wedding to just anyone? Your home remodel? The people on both sides of those equations are not interchangeable like they are with Lyft or Uber. Each person brings unique opinions, expertise, and relationships to the transaction. A market-network is designed to acknowledge that as a core tenet and provide a solution.

Currier Market Network Map 2

 

  1. Collaboration happens around a project

For most complex services, multiple professionals collaborate among themselves—and with a client—over a period of time. The SaaS at the center of market-networks focuses the action on a project that can take days or years to complete.

  1. They have unique profiles of the people involved

Pleasing profiles with information unique to their context give the people involved a reason to come back and interact here. It captures part of their identity better than elsewhere on the Web.

  1. They help build long-term relationships

Market-networks bring a career’s worth of professional connections online and make them more useful. For years, social networks like LinkedIn and Facebook have helped built long-term relationships. However, until market-networks, they hadn’t been used for commerce and transactions.

  1. Referrals flow freely

In these industries, referrals are gold, for both client and service professional. The market-network software is designed to make referrals simple and more frequent.

  1. They increase transaction velocity and satisfaction

By putting the network of professionals and clients into software, the market-network increases transaction velocity for everyone. It increases the close rate on proposals and speeds up payment. The software also increases customer satisfaction scores, reduces miscommunication, and makes the work pleasing and beautiful. Never underestimate pleasing and beautiful.

 

Social Networks Were The Last 10 Years. Market-Networks Will Be The Next 10.

First we had communication networks like telephones and email. Then we had social networks like Facebook and LinkedIn. Now we have market networks like HoneyBook, AngelList, DotLoop, Houzz and Joist.

You can imagine a market-network for every industry where professionals are not interchangeable: law, travel, real estate, media production, architecture, investment banking, personal finance, construction, management consulting, and more. Each market-network will have different attributes that make it work in each vertical, but the principles will remain the same.

Over time, nearly all independent professionals and their clients will conduct business through the market-network of their industry. We’re just seeing the beginning of it now.

Market-networks will have a massive positive impact on how millions of people work and live, and how hundreds of millions of people buy better services.

I hope more entrepreneurs will set their sights on building these businesses. It’s time. They are hard products to get right, but the payoff is potentially massive.

 

 

 

 

 

An Epiphany about Network Effects

NFX Guild logo square16 years ago, in 1999, we founded Tickle, a company most of you don’t remember.  It was one of the first viral, user-generated content sites.  It offered self-assessment tests and quizzes.

It got pretty big.  100 million registered users when the Internet only had about 600 million users.

But unfortunately, the retention was near zero.  People would come to the Tickle website, take the tests for about an hour on average, get viral with their friends, and leave.

Without retention, every few months we had to redesign the product and re-find product market fit.  We A/B tested all day.  We swam in data and language changes and site releases.  We didn’t sleep much or relax.  We took no pleasure in our victories because we could see they wouldn’t last long.

We tried adding and subtracting features, and that helped.  The product got a bit better every week.  But that frenetic feeling wasn’t going away.

During those sleepless months of 2001, a realization hit us. “Our product really doesn’t add any more value to user #100,000,000 than it did to user #1.”

At that moment, the importance of “network effects” was seared into our brains.

We were really good at getting new users, but onboarding those users wasn’t making the product better. With this realization, we started building products that had network effects.

In 2001, we launched a dating marketplace — Tickle Matchmaking, which eventually became LoveHappens.  It registered 29 million people who captured each others’ attention with photos and profiles for many months.  The more people we had there, the better off other users were.

In 2002, we launched Tickle Social Network – coincidentally the same day MySpace launched — and it grew to 30 million users.  These people created content for each other on a daily basis. The more people, the more content, the more valuable for all the members.

In 2003 we launched Grapevine, an advertising marketplace for advertisers to buy ads on user generated content sites like ours, Hi5, Bebo, etc.  The more ad units we had, the more valuable to the advertisers.  The more advertisers we had, the more valuable Grapevine was to the publishers.

Each of these businesses had a network effect, and they each felt better to run than our initial business.  Unfortunately, perhaps due to lack of skill, or perhaps due to running five different businesses inside the company and thus being spread too thin, each of these products fell short of dominating their markets.  While we had been profitable for three years, had $32M in revenue doubling every year, and we had plenty of cash… but weren’t out of the woods.

As it happened, in 2004, two months after Facebook launched, Monster offered to buy Tickle for $110M. We took it.

Inside a network effect business

Once we were part of Monster, we experienced the power of a successful network effect.

Monster is a two-sided labor marketplace.  Employers on one side, employees on the other. The company was founded in 1994.  They dominated their market and had a market cap of $3.5B at the time.

In every element of the business other than the sales team, this was a poorly run company.  I don’t think they had changed the website in two years.  Poor product, poor customer service, poor strategic decision making, and from what we could tell, a lack of insight into what was about to happen to them because of LinkedIn and others.  We tried to get them to let us build a LinkedIn competitor when LinkedIn had less than 1.5 million users, but to no avail.

What stood out was that none of this mismanagement mattered.  They had a network effect in place.  Like Craigslist, the only feature that mattered was that everyone was there.  The buyers found efficiencies in using them and so did the sellers.  Both sides of the marketplace kept coming, and Monster kept making money.

So enduring is their network effect, that Monster still posted $770M revenue in 2014, despite hardly changing the product, and despite years of buyout rumors intended to replace the management.

Lesson learned.  Network effects were what mattered, and that’s where we were going to focus.

To pursue our newly acquired thesis around network effects, we did several things.

Our first angel investments were all network effect businesses. First was Flickr, which sold to Yahoo. Second, a family social network called Maya’sMom that eventually sold to Johnson & Johnson. Third,  Goodreads that sold to Amazon after seven years.

The first board of directors I joined?  SecondLife,  the virtual world, where every new user add more entertainment and potential revenue to every other user.

Our first purchase was a set of memorable and spellable URL’s for building networks and marketplaces like riddle.com, jiff.com, blue.com, mapper.com, monday.com, healthgorilla.com, nationalgamingleague.com, etc.

This 2013 TechCrunch article  chronicles some of the other companies we’ve worked with such as marketplaces Poshmark, Lyft, and Jiff. Since 2013, we’ve been working with companies like Honeybook  and MeerkatFull list of companies here.

I should also point out a case study failure.  We declared Twitter a big deal early. In fact, I tried hard to convince Bill Gurley at Benchmark to invest.  Being the gentleman he is, he texted me two years later when Benchmark announced their investment and just said, “We finally did it.” I texted him back saying, “did what?”  He sent me the link to the Techcrunch article announcing the investment.

We didn’t invest in Twitter.  Why?  Because at the time, 2007, I didn’t have an investors’ mindset.  I had a builders’ mindset.  I was focused on making product.  So it simply never occurred to me to email Ev Williams and ask to invest.

Now I’m adopting the investor mindset.  That’s part of the thinking behind launching NFX.  I’ll post more about that next.