AgriFoodTech Alchemy Issue 2: Why isn’t there an eBay for ag?

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A lot of my former eBay colleagues and some of my ag friends will ask with some regularity “where is the eBay for ag”? In addition, “eBay for ag” has appeared in many ag marketplace startup decks over the past few years. It makes sense, the “x for y” tagline architecture that is so popular to help investors put the new and unknown startup into context is used by many startups in decks, 1-pager summaries, and narratives behind both. eBay is a great name to use in fundraising pitches to venture capital firms because the name became synonymous with a huge emerging segment (e-commerce) and provided Benchmark Capital with what many consider to be the best venture investment of all time, turning a $5M investment into $2.5B (a return of nearly 50,000%).

In spite of the frequent inclusion in pitch decks, so far the eBay for ag type of results have been as elusive as mythical unicorns (not the $1B+ valuation unicorn startups popping up all over Silicon Valley these days, the mythical ones in kid’s fairy tales). I will make a bold prediction — there will not be any eBay for ag results among marketplace startups (and that’s just fine). In fact, it would be great if startups stopped using eBay for ag and got a new “x for y” tagline. Before we go into why the ag marketplace in 2020 is so different from the conditions that put eBay in a great position back in 1995, let’s look at the reason why “eBay for ag” is used so often — the eBay growth machine. To do that, let’s jump in the Way Back machine and ask Sherman and Peabody to set it for … 1995.

eBay founder Pierre Omidyar famously wrote the code and launched the eBay site over Labor Day weekend in 1995 (makes the rest of us feel like slackers with our 3 day weekends, no?) eBay became one of the early internet success stories by creating an online marketplace where consumers initially could buy and sell collectibles. eBay quickly grew from consumers buying and selling collectibles to consumers and businesses buying across categories like electronics, sporting goods, and fashion. The urban legend around Pez dispensers being the first “killer app” was clever marketing by some of my former colleagues. But it wasn’t just clever marketing that created eBay. There were some quality growth dynamics that were at work.

First, think about 1995. The internet was new. Most commerce happened on Main Street, in superstores, in neighborhood strip malls, and in larger regional malls. People went places to buy things. Sometimes they went to special-purpose single category stores (sporting goods stores like Sports Authority and electronics stores like Best Buy). Other times they went to multi-category stores that could be small-to-medium anchor tenants in malls (Sears or Nordstrom) or standalone superstore formats (Walmart). Stores had different value propositions for customers — some promised high-quality merchandise, others promised value, and many offered discounts via coupons or in-store promotions.

Many consumer purchases took place in these stores (and others like them) in the 90s

On the consumer side, if consumers wanted to buy or sell used items there were two primary options — garage sales and classified ads. Both of them routinely required a face-to-face interaction to complete the transaction, and the local newspapers across the country made a good business from placing classified ads and getting them into newspapers that were delivered to most of the local town to help them find buyers. In most transactions, the buyer and seller contacted each other via phone and arranged an in-person exchange of the item for payment (usually cash).

In short, the options for buying and selling consumer items were primarily in person in local markets with cash. Electronic payments were not yet available, very few transactions were capable of happening via mail or email (cash and item needed to be exchanged simultaneously which made in person the preferred exchange format), and buyers and sellers in different markets had little to no access to each other. It seems funny now, but back then that was the state of play.

eBay — Growth drivers for an early (mega) Unicorn

So Pierre’s little marketplace steps into the fray. It’s easy to forget, but there were several other marketplace players in the mid-to-late 90s. eBay had some huge advantages when it entered the fray. In startup parlance, there were some big user problems that had not been well identified before eBay’s entry, and eBay’s platform was well designed to address them. First, the auction format was perfect for consumer items. Compared to classifieds and garage sales, eBay opened up the items to an online audience that was much larger than just a local audience. This meant that eBay sellers got prices that were much higher than just the local audience that might read the classified ad or come by the garage sale in person over a half-day window. As important, most auction listings started with low prices and usually got the seller some price, a big improvement over non-sold classified items or unsold garage sale items for item sellers.

What about buyers? Well, buyers expanded available items from local items only to everywhere and got huge discounts because most auction sellers were new and used $1 no reserve format listings while they learned how to use this interesting new platform. There has been extensive research into how and why the auction format creates irrational FOMO in buyers. Think of your favorite charity fundraiser live auction item where items go for well over anything close to “retail value” because it’s for a good cause but also because the auction mechanics set up a “me versus you” dynamic and the normal competitiveness of people creates a willingness to spend irrational amounts of money in response to both factors.

The biggest problem faced by both classified ads and garage sales was the unsold item. It took time to write and place a classified ad, and they cost money. In many cases the item did not sell, and the seller was left with the item, no cash, and a fee paid without a sale — all in all, a pretty bad experience. The garage sale was even worse — you had to organize the garage sale, promote it, be available at your house for a half day or more, and interact with a lot of lookers and not so many buyers. Having been to and conducted a few of my own garage sales over the years, it’s also a pretty bad experience, and again the seller is routinely left with a lot of unsold items. It’s fair to say that most garage shop buyers are looking for screaming deals and are willing to haggle.

eBay’s competition when it launched in 1995 — black and white classified ads, including garage sale ads, and the driveway for the garage sale (which usually has too many items left in it after the sale ends)

Second, most of the eBay sellers were consumers who were bringing unique items from their house or garage initially. Later, these sellers would find business supply sources via liquidation or partnerships, but initially many sellers would sell their own and their friend’s items to get started and figure out how big this eBay platform could get for them. Garage sale sellers quickly realized that eBay’s auction pricing format could take unsold items and at least get them moved to someone outside their local region (i.e. someone who would never come to their garage sale). I talked to eBay sellers at multiple eBay Live and eBay University events who were no longer having garage sales because the economics of eBay were far superior.

Third, eBay’s clever marketing, combined with the auction format and the dominance of consumer sellers, made it the go-to platform for collectibles. This turned out to be very press-worthy content. The press loved the rare collectible item that went for big dollars in an eBay listing, and even as eBay listings in practical categories increased the press stories around collectible items continued to show up. Having a consistent flow of newsworthy unique items was a huge help in keeping eBay front and center in the mind of many potential new members on a regular basis. Sites that focused on fixed price, commoditized items, and practical categories had a hard time differentiating from similar sites in a way that would get good press coverage, and could never get the critical mass they needed to really challenge eBay.

eBay had a couple other advantages. By being early, they were able to turn collectibles category buyers and sellers into cross-category buyers and sellers. This conversion increased the buying and selling activity significantly and as you would expect increased the lifetime value of that user (also significantly). Had other sites emerged sooner in sporting goods and electronics (and others), it would be have been much harder to dominate in multiple categories. So first mover advantages were effectively leveraged and capitalized on.

One of the big early decisions was to make sure the buying process was as similar as possible on eBay across categories. Buying a collectible, golf club, or CD player all followed a very similar process in terms of reviewing the items, communicating with the seller, and receiving the item. This made it easy to cross categories. Some categories, like automobiles and business and industrial items, could not always be the same user experience (because of online payment limitations), but where possible the eBay buying process was very similar in many categories.

The one problem eBay solved (which wasn’t identified as a problem — until it got solved) that really accelerated the growth curve was payments. When I arrived at eBay in 1999, many people would mention in electronic payments meetings that cash and check were still the preferred payment forms for 99% of transactions, and it was true. By 2006, when I left, eBay had stopped trying to build our own in-house electronics payment solution and purchased PayPal for $1.6 billion. The payment numbers had completely reversed in 7 years and 99% of the items were paid for electronically with PayPal, many of them with “Buy It Now” pricing which acted as a perfect complement to auction items on listings of commodity items with largely known street prices.

Converting cash and checks to electronic payments made payments quicker and got items shipped quicker, both of which were wins for the buyer and the seller. It also allowed eBay to offer buyer protection across the platform because it knew when the payment had been made and (thanks to more product changes and a USPS partnership deal that leveraged the PayPal integration) when the item had shipped and been received. Knowledge of payment and shipment increased consumer confidence in online transactions and consumer comfort when buying from largely unknown sellers.

Another advantage that increased buyer confidence was the eBay feedback system, which allowed buyers and sellers to leave each other ratings after the transaction was completed. This allowed individual sellers to gain an eBay-specific brand by maintaining good feedback and writing quality descriptions. Deceptively simple, the feedback system, when combined with online payments and shipping confirmations, did it’s job and made buyers comfortable buying from people they had no prior history or personal relationship with, without requiring them to meet in person. Now the feedback system had it’s challenges, many of which were actively debated by eBay and eBay community members actively and online in plain daylight, and it has undergone significant enhancements and revisions over 25 years. But from the start the fact that every seller had a rating that was provided from direct transaction partners was a big part of the reason buyers felt comfortable buying on eBay.

Three of the the growth levers for eBay — a story around collectibles like Pez, a feedback system to help buyers get comfortable with unknown sellers, and PayPal (one of the most successful acquisitions of al time)

To summarize, here are some of the highlights (or said another way the tailwinds that eBay was able to ride) of eBay’s growth from a little auction site in 1995 to an e-commerce leader 10 years later:

  1. Auction format (which helped buyers get deals and sellers turn value-less items into money — big win over the two main competitors — garage sales and classified ads).
  2. Consumer users driving inventory growth with used items and collectibles (inventory only available on eBay — big win for the eBay platform over other e-commerce sites).
  3. Standard buyer user interface which allowed first mover advantage to be leveraged by turning single category users (yes, in many cases collectibles were the first category of purchase for many eBay community members) into cross-category users — big win over sites that arrived later and had to focus on one category because eBay and others were already established.
  4. Migration from checks and cash to electronic payments with PayPal — which along with package tracking reduced a lot of “transaction friction” while significantly accelerating the transaction speed and making trust and safety and buyer protection significantly easier.
  5. eBay feedback system — which made buyers feel comfortable buying on the platform by creating a reputation for new sellers and was the same for all sellers in all categories.
  6. Competitors — classified ads and garage sales —were providing a pretty bad user experience and were limited to local exchanges that did not provide great economics for both sides and were a lot of work, even for those that liked both of those formats (in terms of competition, this created some real problem statements that the eBay platform hammered with the core auction product).

So now that we’ve gone through some of the highlights of what helped turn eBay into one of the best venture investments ever, let’s take a look at the agriculture space and see how it compares in terms of a marketplace opportunity. First, let’s compare the agriculture marketplaces and selling platforms to the consumer options of the mid-90s when eBay emerged. Remember, eBay was entering a world of classified ads and garage sales that were in reality local-only marketplaces with bad or no math on a lot of for-sale items and in-person cash transactions as the primary method of exchange between buyers and sellers that were mostly consumers (not businesses).

Farmer’s Markets — the original ag marketplaces

By comparison, most of the sellers in the agriculture and food products space are businesses, often large businesses that are much more price-conscious and margin-conscious than the average consumer selling used items from their garage. One of the oldest formats is the classic farmer’s market, which has been with us for centuries, starting with barter economies near the shore where boats arrived and unloaded into marketplaces for locals to purchase goods from and take them home. They have evolved many times since, but the basic premise of today’s farmer’s market is the same — items available for sale directly from the farmer, in many cases locally grown and within a few hours drive from where they were grown to where they are sold.

There have been attempts to launch virtual farmer’s market sites — often by the farmer’s market organizers who recognize they can create additional value by helping the farmers get more buyers from effective online advertising for the entire group of farmer’s market sellers. For the most part, these are localized efforts to support the real-world farmer’s markets (which my friends that attend on the farmer’s side say are well worth doing and can be lucrative if well managed — this is why it’s tough to get a selling slot at the good farmer’s markets) and the few that do try have a really tough time getting any traction with a national or global virtual farmer’s market. At this point in the internet’s evolution, it’s hard to see any startup emerging with a dominant market position.

Obviously, there are many other ways for farmers to sell their products to consumers beyond farmer’s markets. Grocery stores and other food stores sell direct to consumers and in many cases offer the ultimate convenience of 24/7 availability and electronic payment. This was a big improvement over farmer’s markets, which often lasted only hours. Come by anytime, no need for cash, and short lines for check out. In parallel, food service companies exist to help serve restaurants, corporate cafeterias, schools, and event venues. Again, unlike garage sales and classifieds, there are usually large companies on both sides of the transaction and margins matter (this is not “found money” like so many garage sale items the seller would be happy to almost give away just to get it out of the garage — economic interests are vastly different for an operating business v a garage seller).

What about Direct-to-Consumer (D2C) startups?

Many food producers and/or marketing partners for producers have launched direct-to-consumer (D2C) startups offer farmers and livestock operators the ability to sell online directly to consumers and ship the product right to their house (or business). In some cases, the seller is the grower or livestock operator. In others, startups aggregate products from growers and create the path to customers, frequently via subscription models.

Take a look at a partial list of D2C startups below — note that there are multiple players in each of these categories and it appears unlikely that many of these will scale enough to ever be successful across multiple categories. Unlike eBay, which received a significant amount of “free” (or unearned) media coverage for random item listings over the years, food startups struggle to get heard above the standard noise levels among tech startups. It seems likely that D2C will have some winners in specific categories but very unlikely that any of them can scale to “unicorn” ($1B+ valuation) startups.

Source — www.semisupervised.com (D2C food companies)

The other thing about D2C businesses is they are not truly marketplace players. They generally put the startup in the role of the seller instead of building a platform that allows 3rd party sellers to leverage it to sell their items. In the marketplace model, the platform (eBay) makes money off transaction fees and the seller makes money on the margin, or the difference between what the buyer paid for the item and what the seller paid to acquire and sell the item plus the fees for the sale (transaction fees and payment fees).

This means the selling process is under the direct control of the company, but does not introduce the many-to-many dynamic of true marketplaces, which again makes the hyper-growth of unicorns like eBay much harder to create. So farmer’s markets, grocery stores, and D2C are unlikely to give us any “eBay for ag” outcomes. In short, existing distribution channels for food products are significantly better built than classifieds and garage sales options in the mid-90s.

What about B2B transactions between farmers and equipment providers? Is there a category like Collectibles that a startup can use to establish a beachhead they can dominate and scale in? If you look at capital equipment, I think the answer is no, it’s too late, for multiple reasons. Focused capital equipment marketplace sites like Iron Planet offer buyers a wide range of equipment, including agriculture equipment. Broader multi-category sites like Craigslist also offer capital equipment such as tractors (like these John Deere listings) available right next to other online classified categories.

So there are players at scale in both single-category and multi-category platforms, which mean it’s too late for anyone to come in and dominate the space now. Remember, one of eBay’s biggest advantages was first mover advantage — Pierre and team owned e-commerce before it was even really a thing, let alone a buzzword. In addition, trends like as-a-service offerings (that turn equipment purchases into subscription services through a service provider) could shrink the market opportunity, so there are forces pushing in both directions. This makes it a lot tougher to see an eBay for ag outcome from the agriculture equipment space.

Is there room for an agriculture inputs version of eBay (like FBN)?

What about the inputs for agriculture? These are the things you put in the ground or on the crop to protect it from threats. One of the larger input marketplaces to emerge over the last few years is Farmer’s Business Network (FBN), which offers crop inputs such as fungicide, herbicide, and insecticide. You can make the argument that FBN is somewhat similar to eBay in value proposition terms, because both took an offline process with a lot of inefficiencies and brought the transaction online. The difference is that FBN is selling primarily ag inputs, which makes it a much different value proposition to an investor than early eBay.

I compare FBN more accurately to Iron Planet, with with each of them having a dominant market position in one key category. FBN provides transparency and transaction opportunities for buyers at scale in most regions. With FBN well funded and gaining traction, it’s highly unlikely that any other input seller online could gain enough traction to grow larger or faster than FBN. So a new inputs seller could emerge but would face an incumbent with first-mover advantage in the category in FBN.

But wait a minute, didn’t FBN just raise another $250M? Why yes they did, and at a $1.75B valuation. FBN is in a great position with funding and some traction in market to really start to grow the inputs business. It is a massive opportunity, and they have a chance to dominate if they can execute. But unlike classifieds and garage sales, there is a group that provides recommendations and sells inputs as “trusted advisors” to farmers. Pest control advisors and crop advisors often provide recommendations for their farming clients as to what to put on their crop and when, and the quality members of both groups will be hard to replace with an online marketplace like FBN.

But wait — there’s one more Marketplace player of note (sort of)

There is one last marketplace segment worth mentioning. Most of you probably saw the fundraise announced this week from Indigo Ag for a $360M Series F add-on to the earlier $200M announced in January. That’s a $535M F round with many of the investors staying in for the latest round. As the AgFunderNews article notes (and Indigo CEO David Perry lays out very nicely), Indigo is really 5 startups in 1 (with funding to support that assertion) — Microbials (for reducing chemicals and fertilizers), Carbon (get paid for sequestering carbon), Agronomy (paid for regenerative tactics), Marketplace (sell goods for better prices), and Transport (ship with traceability).

This is a comprehensive and aggressive all-in platform bet with all 5 of the business units (or startups) supporting the key objective of supporting the farmer’s needs all the way through the transaction. Indigo realizes that to get a significant portion of the farmers to move to Indigo Marketplace, they need to not just create the ecosystem around the core transactions. They also need to manage the experience tightly to deliver an end-to-end experience that is better than the current offline experience. I agree with this approach and believe it gives them the best chance for success.

Think back to Crossing the Chasm — startups need to find a beachhead position that solves a large problem and that they can deliver the best possible solution in to establish their first mover position, then they need to work really hard to standardize that in the form of an ecosystem that offers it on a repeatable basis to newer customers. Indigo Ag is staking their beachhead out as the Indigo Marketplace supported by Microbials, Carbon, and Agronomy to move towards regenerative practices and chemical-free practices that support carbon sequestration and Transport to handle the logistics so that Indigo is involved all the way through the farming operation.

Indigo Ag’s clear objective is to get known as the place to start a conversation for farmers that want to bring their farm into the 21st century with all the latest practices, and by enabling all 5 business units they allow the farmer to start a conversation with any of the 5 and then branch out to other supporting business units when the time is right. I consider this approach to be one of the closest things we have to an AgriFoodTech Moonshot at the moment, and if they pull it off, Indigo Ag will be part of a lot of interesting strategic and execution conversations with farmers of all sizes. In short, Indigo Ag wants to become the “trusted advisor” for next-gen farmers and next-gen migration strategies. It is a great bet to make.

So is the “eBay for Ag” tagline dead or not?

So now that we have reviewed the launch and growth of eBay and compared it to the current landscape for ag product purchases by consumers and businesses, it’s easy to see why the “eBay for ag” tagline should get used less often. Remember all the advantages eBay had — first mover advantage with an auction format that provided a much better buying and selling experience than the two main competitive categories (classifieds and garage sales), consumers providing consistent unique inventory, a common buying experience for all categories, rapid adoption of electronic payments with PayPal which sped up transactions and enabled more buyer protection capabilities, and a reputation system with eBay feedback that made buyers comfortable with unknown and often inexperienced sellers.

By comparison, most of the ag transactions are business-to-business on the way to the consumer and are optimized for efficiency and end-user friendly pricing. Consumers have multiple store formats with multiple products in most categories, and the food is readily available 24/7 in many locations. In addition, there are emerging direct-to-consumer options for consumers that prefer the convenience of home delivery.

One of the biggest reasons why “eBay for ag” will not happen is the timing, and this one is easy to forget. The internet has been around for a couple of decades now, so there have been startups in individual categories that have gotten some critical mass (like Iron Planet in capital equipment), and growth in others (Craigslist) which means that the first-mover advantage opportunity has come and gone. In short, if “eBay for ag” were ever going to happen, it would have been in about 2005, not 2020.

So what do we make of the recent large-scale fundraising activities of FBN and Indigo Ag? They are the two marketplace-style startups that have secured significant fundraising and have some early traction that is starting to accelerate in key market spaces. FBN is doing a good job with inputs, but trusted advisors in many cases add enough value to make online transactions tougher than switching from classifieds or garage sales.

That leaves Indigo Ag as the one marketplace play that could scale. Indigo Marketplace with support from the other 4 business units / startups does look to have a chance to get to scale. They are competing against offline transactions that provide low transparency and they can bring new beyond-regional customers to product sellers. If Indigo Ag can get recognized as the trusted advisor of next-gen farming technique implementations, it puts them in a great place to be the trusted advisor (trusted gatekeeper potentially) for farms looking to really invest in next-gen farming solutions.

But wait a minute, you should be asking by now, you made the bold predictions mere paragraphs ago that there would not be any eBay for ag players emerging in AgriFoodTech. That’s true, and I do consider Indigo Ag to be the outlier of the group. Everyone else should lose the “eBay for Ag” tagline. Indigo is the only company that I believe can still make that claim.

But here’s why I think even Indigo does not mean there will be an eBay for ag. When I think about the width and breadth of Indigo’s offerings and their massive ambitions, I consider the 5 individual startups to be complementary and constitute a very wide platform space. If you think about eBay, there was market dominance in e-commerce, particularly in auctions, with the platform support of payments, but it never successfully leveraged the platform beyond core e-commerce.

To be honest, Indigo feels more like a different e-commerce company that was able to leverage complementary businesses. That would be Jeff Bezos and Amazon, with Amazon Web Services (AWS) and Amazon Cloud as significant businesses independent of their core e-commerce business. The Amazon team was able to take a core e-commerce platform and grow complementary businesses to provide both seller services that grew into a world-class set of web-based platform offerings (AWS) and a world-class scalable set of storage infrastructure for businesses that wanted to scale by leveraging outsourced IT resources (Cloud).

As you would imagine, both of these offerings were direct feedback from Amazon sellers that Amazon turned into solutions for their sellers and then scaled it to a global powerhouse for both of those segments. That approach feels a lot more like the one that Indigo Ag is taking. So there’s my final assessment — nobody gets to use “eBay for Ag” and only Indigo Ag gets to use “Amazon for Ag” (since anyone launching now will be unable to catch and surpass Indigo Ag). It will be a massive undertaking to get one or more of the individual Indigo Ag startups to scale, and it will be fun to watch the Indigo Ag team take on the challenge over the next several years.

Executive Summary

Many of my former eBay colleagues have asked if there’s an “eBay for ag” and it has appeared as a tagline on many AgriFoodTech investor pitch decks. In reality, the tagline is misplaced, and eBay for ag is never going to happen. A review of the history and growth of eBay reminds us that eBay had some great early advantages — first mover advantage in an emerging growth category that became e-commerce with an auction format that was far superior to the classifieds and garage sales most people used, and then the magic of PayPal and electronic payments that accelerated transactions and provided buyer protection, along with an experience that was very similar for all categories and provided eBay feedback for newer and unknown sellers to help buyer comfort levels. All of that helped eBay became the best performing venture investment in history.

Agriculture, when sold to the farmer as equipment or inputs, or to the consumer in stores or food service, is an entirely different marketplace than the one Pierre and eBay walked into in 1995. It’s very competitive in all categories, with big players on all sides, extensive negotiations and efforts to optimize the supply chain for efficiency and margin. In addition, first mover position has been taken for years by individual category players like Iron Planet and horizontal category players like Craigslist. Finally, the role of trusted advisors (crop advisors and pest advisors, among others) makes the transactions harder to convert to online purchases.

Once the comparison between the marketplaces is complete, it’s easy to see why eBay became what it did and why “eBay for ag” should no longer be used as an investor deck tagline. If “eBay for ag” were going to happen, it would be 15 years old already. So heads up to all the startup entrepreneurs out there — find a new tagline, RIP “eBay for ag.” Only Indigo Ag can make that claim, and they’re a better fit with a different tagline — “Amazon for ag” based on the scope and breadth of their 5 individual startups.

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Walt Duflock
AgriFoodTech Innovation and Commercialization

VP of Innovation at Western Growers | 5th-generation family farm | 25 years at high-growth SV startups | helped build #1 AgriFood Accelerator