Why Distribution Is Key For Marketplaces

Why Distribution Is Key For Marketplaces

Blog Post
October 12, 2023

We're sharing a guest blog post from our past group chat guest Andrew Blachman on why distribution is key for marketplaces. This was previously shared as a deep dive post in the community here.

I’m a huge baseball fan, and I love movies. But if there is one thing I’ve learned as a marketplace operator and investor, despite the promise in Field of Dreams: if you build it, they will not come. In fact, having spent two decades in and around marketplaces I believe that distribution is the most critical component of any opportunity now on the investing side. Unlike other venture categories, where technology innovation can create magic or superior product design can yield huge winners, marketplaces typically succeed (or fail) based on their ability to achieve liquidity and escape velocity, which often boils down to distribution.

With that in mind, I recently read through the review of ticketing group chats (here) and reminisced about how distribution advantages intertwined with my own experience building and investing in ticketing marketplaces. I’ll start by going back to share more about some of the early leaders in the space, how they emerged, and how this leads up to ticketing marketplaces and distribution today.

Going back to how StubHub broke through with paid search ads

StubHub was founded in late 2000, in a challenging time for startups similar to today. Their innovation now sounds simple - they created trust in a historically shady category by sitting in the middle of every transaction, collecting money from the buyer, and only paying the seller when tickets had been confirmed to be delivered. It sounds like table stakes today, but in a world where the alternative was to meet a guy in a trenchcoat in a dark alley near the venue and take your chances, that service was revolutionary. Despite a compelling innovation, though, it was a long time before official partnerships helped StubHub gain consumer traction. Thankfully, a search engine called Google launched paid search ads in 2000, and a StubHub marketing leader figured out that they could pay x dollars for a high intent click that converted to a sale worth y dollars in an era when online ad budgets were being cut. So long as y was greater than x, they could spend more and more and generate cash immediately. It was this realization, and exceptional execution, that helped them establish a leading brand and ultimately attract the interest of eBay, which acquired the company in 2007 for $310 million.

How SEO led GET MEIN! to break through

My own business, GET ME IN!, a secondary marketplace in the UK and Europe, also relied heavily on search, though by the time we were growing in 2006 the paid search model was already saturated and easy profits were squeezed out. The secret to our success? We crushed search engine optimization (SEO). While most other ticketing platforms were reactive and would list new events as they were announced, we created hundreds of landing pages for events that did not yet exist. We canvased every venue, artist and team combination and built a presence on search engines months or years before an event would be announced. When an event finally did go on sale, and keywords would start trending, we would already rank near the top of results, often out-positioning the official venue box office. This won us few friends in the industry, but created a massive advantage against our deeper funded competitors. Ultimately it helped lead to an acquisition offer from Ticketmaster in 2008.

Ticketmaster proved that marketplaces can become kings of distribution themselves

Selling to Ticketmaster was a difficult decision, but ultimately became obvious for one simple reason: again, distribution. To this day, when an event goes on sale the primary platform, often Ticketmaster, is the first port of call, not Google or anywhere else. For high demand events, which make up the bulk of the revenue in secondary ticketing, Ticketmaster can sell out within minutes (or seconds in the case of Taylor Swift). So what happens to that demand that Ticketmaster can no longer fulfill? We knew that Ticketmaster’s ‘No Tickets Found’ (NTF) page was perhaps the most valuable real estate in all of ecommerce and we wanted that page to link to our inventory. In fact, we believed whoever they partnered with would have such a massive distribution advantage as to be unassailable. We wanted that partner to be us, and so we agreed to join forces. I remember vividly in 2009, shortly after we integrated the NTF links with Ticketmaster for sold out events, 50 Michael Jackson shows in London went on sale. In a single day we eclipsed our largest month of GMV from the year prior, processing millions of dollars of tickets. As it turns out, we didn’t predict two things: first, Michael Jackson died unexpectedly before the shows and so we had to refund those millions of dollars of tickets. More strategically, we weren’t unassailable, largely because it became politically untenable for Ticketmaster to wield their distribution advantage. They eventually distanced themselves from the secondary market before stepping back in years later. But the advantage was, and is, real, and has allowed them to quickly close the gap on StubHub and others despite a decades-long late start.

How SeatGeek mastered a new platform with mobile

After the Ticketmaster sale I was lucky to be an early seed investor in SeatGeek. SeatGeek began as a comparison shopping engine for tickets, much like Kayak for airfare. Because they were several steps removed from the transaction, they captured only a fraction of the take rate of competitors, making it difficult to compete in traditional marketing channels like paid search. SeatGeek’s advantage was their early focus on mobile, and their perfect timing of launching a best-in-class mobile experience just as millions of consumers were adopting smartphones. They provided a deal score and seat view for every venue map, and poured on acquisition through the fledgling mobile app stores, catching competitors flat footed. SeatGeek has since evolved into a primary ticketing platform and counts dozens of professional sports teams, venues and leagues as clients, but it was that early focus on mobile and distribution through app stores that enabled them to break out.

Distribution for ticketing marketplaces today (and in the future)

Fast forward to today and I still am enamored by ticketing and in love with distribution advantages. At Marketplace Capital, we recently invested in the seed round for SeasonShare, a company that provides a suite of subscription tools that let teams and venues create innovative pricing options for fans, from the Arizona Diamondbacks to the Sacramento Kings, and dozens of other professional teams. The SeasonShare advantage: their SaaS tools allow teams to appeal to a young demographic and sell lots of tickets, $25m worth a year currently. Moreover, SeasonShare spends nothing on consumer marketing, yet is positioned through these primary relationships to interact with millions of fans and create a marketplace for unsold last minute inventory (more to come).

This writeup is about my experience operating and investing in ticketing, but the distribution thread runs much broader, and is at play in nearly every marketplace opportunity I come across. Put simply, founders need to understand where and how they’ll find a distribution advantage. Without one, no matter how great the product, you could be swimming against the tide, especially in a privacy-enabled world where performance marketing channels have become so challenging. I wish I could pinpoint where the next major distribution opportunities lie - it could be a new platform like AR/VR, a new channel like TikTok, new technology like AI or a new business paradigm such as the changing nature of work, or something entirely unpredictable. Regardless, I’m on the hunt for teams and marketplaces that understand that distribution trumps all else. Let me know your thoughts on this below.

You can connect with Andrew to discuss this post in the Everything Marketplaces community here. A big thanks to Andrew for also being an active community member, where he is often sharing his marketplace experience, insights, and helping early stage founders.