Episode Transcript

Connie Chan: I want to talk about your book, Take Back Your Power, which is fantastic, especially for people working in tech. You give lots of tips on how to communicate, how to present yourself, and how to find mentors. What are the common things that you find that people need to learn to better communicate?

Deb Liu: You know, there’s a chapter I call “Not giving yourself a free pass.” It’s about something my friend Carol Iozaki teaches in her class, which she calls “unintentional ridiculous strategies.” And this unintentional ridiculous strategy is: How many times do you go into a meeting and before you walk in, you’re like, I’m not going to say anything at this meeting, or I’m going to sit in the back and just listen, or I’m going to barely show up and be distracted.

But how many times do you walk out of a meeting having done just that? And so, if you show up, really show up. Decide before you walk into a meeting what you want to do and what you want to say and what you want to land. And then leave. There are no hanger-ons. And that really changed the way I looked at really showing up every single day to every meeting.

Either be present or don’t go. And I think sometimes we have this idea of, I’ll just observe and absorb. But we’re not in school. That’s just not how the workplace works.

Connie: Why is that a dangerous track to take?

 

Deb: Well, if people see you in five or six meetings and you didn’t say anything, they’re like, what does she do all day? There’s a huge bias, and I wrote this article called “The Hidden Bias No One Talks About”—and I think the book Quiet by Susan Cain talks about this too—against people who are extremely quiet. There’s just a huge bias against not showing up, not talking. You know, I’ve seen calibrations in meetings where we’re talking about promotions. They’re like, “We should promote her. She gave a great presentation.” And the presentation was 5% of the work. Like, she’s a good PM, but not great. And then I’m like, “We should promote this other person, she’s great.” And they’re like, “No, you know, she doesn’t present very well.” And I’m like, “But 95% of it—she has shipped twice as much as anybody else.” But you see how the calibration committee is all the people who only see you in the bigger room. And so if you’re not showing up, the people who are deciding whether you get promoted, how your ratings are… what they see is the 5%, and they’re judging you 95% on that. And your manager is spending all their time fighting for you the rest of the time. And so what I really encourage people to do is: Help your manager. If you’re going to show up, really show up. Do your very best in the places where other people see you. Because that’s how they judge you. And by the way, whether it’s fair or unfair—I think it’s completely unfair. But at the same time, that’s the reality we live in.

Connie: So I love the conversation we had about marketplaces last time. I want to continue going through marketplaces because you’ve worked at so many yourself and have built some of them from the ground up. How do you think about take rates? I ask this because when we look at marketplaces, not every marketplace is the same. Some companies charge take rates of 20+ percent, some charge zero take rate and then try to add it in later. What are your thoughts on how a marketplace should think about how to price its take rate?

Deb: I actually think you need to think about take rates in three different sections. The first one is listing fees. Listing fees keep inventory from marketplaces. So, often that’s not something a lot of sites do, but at the same time, listing fees also prevents and reduces the number of spam postings, as well. You’re balancing two things. So they use it as a filter, and I think listing fees do that.

That’s one part of it, which is: what is the role of listing fees in your service?. And a lot of services just want maximum inventory. And they will actually focus on quality through different mechanisms. That’s one piece. 

The second piece is really the transactional kind of consummation rate. And that’s where a lot of people make their money. And we’ve seen up to 50% or 70%. For example, I think The RealReal does authentication, so they charge something like upwards of 50% if you’re only selling one bag, or something like that. And so you really need to think about: on the transaction rate, what are you trying to incentivize? 

And in some markets, there’s tons of margin. If you’re selling a bag or maybe something out of your closet, you have much more flexibility because you don’t have a hard cost of goods. You bought this a long time ago—the other option is donation. So therefore, maybe 20%, 30%, even 40% would make sense. But at the same time, you’re really competing with other marketplaces on driving sufficient value and liquidity. 

The third bucket is really thinking about marketplaces where it’s not a single transaction, it’s a long-term relationship—so things like Upwork or Fiverr where you’re actually hiring somebody. It’s the same thing with, say, tutoring marketplaces, where you’re buying something, but you’re not buying it one time—you’re actually buying a relationship. 

And so when you’re buying these teaching relationships, it is so easy for somebody to get your phone number, take it off-platform, and have a long relationship. They’re using the marketplace as lead generation. And so especially in markets like that, where it’s very easy to go off-platform, then maybe you want to charge a lot up front and a little later. Because if you’re charging, say, 20% all along the way, at some point I would just rather pay the service provider directly if I want a long-term relationship or I’m paying them a few hundred or a thousand dollars a month. Why would I want to pay $200 to a marketplace when I could just pay a $100 more to the service provider? So really thinking about: do you want to actually have a graduated schedule, where you charge a lot—maybe 80% up front—and then maybe 5% processing later to keep them on the platform? But if you get that out of whack, you’re doing a lot of introduction up front for long-term relationships, but not capturing sufficient value up front.

Connie: And how do you think about schedule vis-a-vis how big of a seller you are? Would you have different take rates for the first dollar amount, and then a different take rate for the dollar amount after that, and after that, to incent more business?

Deb: I think part of it is about how much your marketplace is small sellers versus very large sellers. A lot of marketplaces have the 80/20 rule: 20% of the sellers do 80% of the sales. But then it’s easier for somebody else to attract that 20% if they’re able to offer something different.

And so what are you doing that’s really keeping them? Is it the brand that you’re offering? Are you offering some incentive? What Amazon does is they offer the Buy Box. And once you earn into the Buy Box you don’t want to leave, so you’re incentivized to drive more sales to that channel.

Connie: I talk about how a lot of the ecommerce of the future will actually come from social networks, because ads and commerce are actually very symbiotic and naturally should go together. It’s only in the U.S. that we kept it separate for a long time, for some strange reason. And only now are we starting to combine the two.

Deb: If you think about it, in the Target circular and the Walmart circular, a lot of those are actually co-marketing deals done with the manufacturers themselves. They are ads for ads.

You know the endcap if you go to any shopping center or supermarket, there’s a pay-to-play to be part of the endcap. It’s part of a larger deal, either through discounts or rebates. Shelf space in a grocery store is the same way.

Connie: I’m not sure people even realize that. When you walk into a store, you don’t realize: yeah, Oreo’s paying for that spot!

Deb: Absolutely, most people don’t know this. I actually spent some time consulting in this industry many, many years ago and  I was shocked. To get on the “eyeline” shelf there’s like a shelf space system that is totally different. And you think it’s organic.

Connie: It’s a different price than the bottom shelf.

Deb: Correct. And so access, buying the shelf space—it’s called slotting fees—is such an important part of the grocery business, because grocery margins are actually very, very low.

Connie: Much of the time, when I think about: what is the future of ecommerce? Just look at physical commerce and replicate it.

Deb: Yeah, I mean, if you think about it, grocery stores are a marketplace. It is a group of people wanting to sell something and a group of people who are buyers looking for something. And grocery stores are arbitrating that and what they show. And yet we don’t think about it that way. We see them as retailers—and in some ways they are—but they are also the arbiters of who shows up. What is sufficient quality, what gets space, and how is it ranked in the ecosystem.

Connie: Yeah. I also want to talk about the defensibility of a marketplace. Because on one hand, they have great moats, fantastic network effects. Craigslist, for example, looks like a very old website, yet it still gets tons of traffic. I still would post a listing on Craigslist if I needed to rent out a place. But how do Craigslist or other marketplaces defend against these new up and coming marketplaces?

Deb: Well, I think the challenge Craigslist had is they didn’t really make the jump to mobile. And one of the big challenges is their site just wasn’t suited for mobile and it was really hard to browse and search on their service. And so that made it an opportunity for disruption. And they also were not category-oriented. So you’ve seen the slide where it shows how all these companies were just picking off pieces of Craigslist.

Connie: Yeah. Jeff Jordan talks about this all the time. You take apart Craigslist and each one is a massive company.

Deb: Absolutely. And so you look at Airbnb: they contacted people on Craigslist and said, “Hey, would you like to list?” They would actually reach out to people and rent places and then ask them to join. And so, it’s an opportunity to really think about what it is that made you special, which for Craigslist was the fact that there just weren’t online classifieds. And they were able to really tackle that.

And local was very difficult because on desktop you had to identify “I am in X place—the San Francisco Bay Area—where do you live? How far are you willing to go to get X?” And so it was very, very hard. But on mobile, we have everyone’s location and you can actually tell within a very small distance where something is and you can search for things within that distance. And they just haven’t been able to make that jump.

That said, it’s still a really vibrant site and I still use it as well, even though I obviously built Facebook Marketplace. But occasionally I’ll browse just to see what’s there, and there’s still some really interesting inventory.

Connie: Okay, so let’s dive into Facebook Marketplace. Some marketplaces, you need geographic density and you have to really own a city before you move on to the next city. And then there are other marketplaces where you’re just throwing something into the mail, and it’s getting shipped by USPS, and it doesn’t matter what city you live in. What do you tell founders to think about if they’re building local versus purely online?

Deb: Local is all about density, density, density, density. People often open too many markets at the same time. But if you can get product-market-fit in one city, and then the next one, and next one… And I think Uber did a really good thing, which was being really focused on density, but having a GM per city that they wanted to go into. So they’re weren’t placing bets nationally, they werer placing bets locally.

Connie: I think a lot about how commerce can evolve, even inside something like Facebook. There’s Facebook Marketplace, but then a lot of transactions also happen on things like Facebook groups. How do you think about those curated or oftentimes private communities that are also selling?

Deb: I think it’s one of those things where it depends on what you’re trying to do. A lot of mom communities actually buy and sell with each other, and they prefer to do that, rather than on an open marketplace. If you have kids sleeping, do you want strangers walking through your house, or do you want a fellow mom to buy those clothes? And it depends on what you’re selling. For a car, you want maximum coverage, because the probability of any individual wanting your car is actually relatively small. It has to be like the right mileage and the right budget, so you really want liquidity—access to buyers. But if it’s something like kids clothing or a crib—somebody wants to come to your child’s room to look at a crib—you want something where trust is much, much higher. And so how do you balance those things? Those closed communities will continue to exist, and I think that they’re an important part of commerce.

Connie: Can we also talk about payments? You have so much experience from Facebook payments. How does Facebook Marketplace even know that you purchased it from a lead that you got from Facebook Marketplace? When push comes to shove, why would they pay online versus just paying you cash or giving you a check in person? But payments is such an important part of a lot of successful marketplaces in seller financing or buyer financing. I know a lot of younger generations use a lot of buyer financing now. Talk to me about the role that payments plays in a marketplace.

Deb: You know, so I worked at PayPal when it was acquired by eBay. So the number one thing that eBay did was “reputation first.” But the next thing they did was payments, because if you send someone a check or you send them a money order and they don’t send you the product, trust was a huge issue. And it was almost impossible to adjudicate that: you say you sent a check, the person said they shipped it, it didn’t arrive—what happens? And so, with payments now you know that the payment went through, you know there’s a tracking number, and suddenly there’s buyer protection. And so that opened up so many possibilities. And it grew eBay at a time when growth was good, but suddenly you could see it really take off after payments. And then the next step was shipping—adding shipping labels, which was a project that I also worked on.

You can see these step functions. You see Poshmark negotiating flat rate shipping for shoes, for example, which was really hugely inventive because they worked with the USPS and everyone has access to that in the U.S.

And so really thinking about these moments for payments plus shipping: what are the things for your marketplace that are the hockey stick? And payments is one of them because you are both adding trust, but you’re also adding guarantees around service provision. And you’re adding something where you, the marketplace, has complete visibility.

Connie: In the beginning, eBay was like an escrow like service. When you think about the role that they were playing versus what marketplaces and payments look like today, oftentimes you pay right at time of purchase. And then the seller may or may not actually ship the thing to you. And then you have to complain on both sides to actually settle the money or to figure out if their transaction was legit or not. How would you redesign that? Or do you think this is the right user flow?

Deb: Well, one thing that the U.S. has never done is true escrow. In a lot of other countries, like in China for example, they really do escrow where you have to accept the item to basically release the funds. In essence, in the U.S. the difference is that we have credit cards and chargebacks. The equivalent is that you can always chargeback. So there is a backstop. It’s a different backstop than in a country like China where you’re basically paying cash, but you’re releasing it on the other end. So we don’t have true escrow. And so I think it’s really understanding: when is the transaction truly consummated where both parties are satisfied?

Connie: Are there other delightful user experiences that have been game-changing for a marketplace?

Deb: On the live video side, QVC has been around for a long time and yet it never has taken off in the U.S., apart from Whatnot and  a couple of these live marketplaces. There’s a lot that could be really, really delightful from a user experience perspective. For example, when you were shopping for handmade goods, it was really hard to find. And now it’s like a whole category. They have to decide how much they’re going to balance the real handmade, custom stuff versus something that’s mass produced, because you’re going there for a different reason. But it’s a delightful experience to see artisans really put their product out there. There are some experiences that are really unique and have been able to capture that.

I think StockX did that with shoes. You’ve seen that with GOAT. They really speak to the nature of somebody who loves sneakers. Which, you might say: how big of a category is that? But it’s the same thing with shopping someone else’s closet. Is that something that you really spent a lot of time thinking about doing? But I bought a ton of clothes on eBay, by the way, many years ago—early, early on. And yet, it’s like a much more personalized, engaging feed as opposed to a search based feed. They gamified re-sharing and liking. 

Connie: It’s knowing your customer and what would appeal to them most.

Deb: Yes. And I think that’s the thing. Each of these marketplaces appeal to a specific category, but it’s very hard to replicate that in other categories. And so, you could probably go to home goods in Poshmark, but could you really go to, say, books? Unlikely, because it’s a much more standard product. And so, really thinking about the extension of where you go. What is it that you bring to the table?

Subscribe to the a16z channel on YouTube so you don’t miss an episode.