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The Middleman Strikes Back


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The Death of Community

Until recently, there was a strong hypothesis that a thriving, active community would unlock an unprecedented ability to facilitate native transactions. Andreessen Horowitz General Partner Chris Dixon, when announcing his investment in Soylent, noted:

“He [John Borthwick] said he was interested in companies that appear to be focused on selling X but are really online communities that happen to make money selling X. This helps explain why many investors are confused by the sustained success of these companies. One example he cited was GoPro. Many investors decided not to invest in GoPro because they saw it as a camera company, and camera companies generally get quickly commoditized.”

However, investors who properly understood GoPro saw it primarily as a highly engaged community of sports enthusiasts, something that is very hard for competitors to replicate.

And yet, at least on a macro scale, the presumed value is very much in doubt.

Last month, it was reported that native buy ads on Pinterest during the holiday season did not meet expectations:

“The company [Pinterest] began inserting Buyable Pins into its iPhone app in late June, and just added the feature to its Android app in early November. The company says more than 10,000 merchants have joined the program, including big retailers and brands like Macy’s, Nordstrom, Neiman Marcus, Cole Haan and Tory Burch, but at least one of these big partners is seeing fewer than 10 purchases a day on Pinterest, according to a person with direct knowledge of the sales figures. This source and another also said that Pinterest insiders have privately admitted to being disappointed with early sales numbers.”

According to the same report, results are similarly disappointing at Twitter and Facebook. One-time startup darling, community-leveraged shopping portal Polyvore was acquired by Yahoo in 2015 for $200 million — a healthy price to be sure, but certainly lower than once hoped.

Even GoPro, noted by Dixon as a community outlier, has lost nearly 75 percent of its enterprise value in the public markets over the past 12 months. True, it trades at a premium to commodity manufacturers, but it appears its community purchasing may not be as strong as once imagined.

Transactional communities with more vertical specificity outperform bare-bones e-commerce.

Nevertheless, transactional communities with more vertical specificity (such as Soylent) outperform bare-bones e-commerce. And it is clearly the very early innings in Pinterest and Twitter’s efforts to sell products directly through their platforms. Don’t be surprised to see the larger horizontal community players continue to struggle, and ultimately acquire companies in the concierge space in order to boost their conversions, order sizes and frequency.

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