Disrupting eBay: The Rise of Vertical Marketplaces

As investors in consumer marketplaces, we’re excited to see the rise of vertical marketplaces disrupting eBay. When eBay went public in 1998, the company had seen only $105M in GMV the prior year. With less than half of adults on the Internet, and even fewer participating in online marketplaces, it was difficult to imagine that any individual product category on eBay could be large enough to sustain a stand-alone public company.

Now, however, transacting via online marketplaces has become the norm — and fairly niche categories can generate billions of dollars in transaction value a year. And while eBay was once the dominant place for almost all online marketplace transactions, the company’s yearly GMV growth has slowed substantially in the last five years. Some of this slowdown is expected as the company matures, but we’ve also seen eBay’s market share eroded by startup players in several core categories.

eBay’s GMV has been essentially flat over the past four years.

Where has eBay failed? We’ve identified four key areas where eBay falls behind most vertical-specific marketplaces:

• Authentication. For some product categories, authentication is a necessary for a functional marketplace. For example, buyers of expensive sneakers (like retro Air Jordans) want to ensure that they are buying the real shoes, not knock-offs. Many of these buyers have flocked to platforms like StockX and GOAT, which guarantee that the sneakers are authentic — each pair is examined and verified by a team of specialists. In contrast, eBay does nothing to ensure authenticity, and relies on buyers examining photos and the seller’s past reviews to make their own determination.

Though the pictured eBay listing on the left for Adidas Yeezy Boost 350s include a “100% Authentic” label on the photo and “Legit 5 Stars” in the listing title, the sneakers are not certified by eBay. StockX’s listing, pictured on the right, has been authenticated by the company, with additional detail given on all current bids and asks.

• Quality control. eBay does not approve listings before they go live, and the buyer has no way to make sure the product is even real. eBay is therefore very noisy — there are a lot of fake or junk listings that buyers have to avoid. Part of the appeal of local platforms like OfferUp and LetGois that buyers are able to inspect the product. Digital-only marketplaces have also been able to better curate listings. Sellers on thredUP, for example, send in their clothes to be evaluated before they are re-sold to the end buyer, while buyers on Shift can rest assured that their car has undergone a 200-point inspection and has a 30-day warranty.

Though the eBay listing for a Kate Spade skirt is labeled “new without tags,” the photo is clearly taken from the retailer’s website — there is no way for a buyer to certify condition. In contrast, thredUP inspects and photographs each item, provides details on the condition, and offers an authenticity guarantee.

• Price guidance. One benefit of online marketplaces is that they allow buyers to compare pricing across sellers. For example, a campus bookstore will typically sell a textbook for one price, while Amazon offers the textbook from hundreds of sellers for different prices. eBay also provides price variation, but because there are often thousands of listings on the platform for a given search, it’s difficult to parse through these and determine the fair price for a specific item. Vertical marketplaces are often able to provide better price guidance — Glyde, for example, displays all secondhand phone prices next to what a brand new version sells for, and clearly sorts items by carrier, color, and data storage.

When you search for iPhone 7 on eBay, you get over 12,000 listings with almost incomprehensible titles such as “Apple iPhone 7 a1178 128GB GSM Unlocked”. In contrast, Glyde offers 70 items for an iPhone 7 search, all sorted and labeled by capacity, network, and color (as well as used price versus new retail price).

• Community. With nearly 170M active users buying and selling products in hundreds of categories, eBay lacks a sense of close community. We believe that having a community of like-minded users is key to creating trust in transactions, incentivizing repeat purchases, and encouraging users to participate on both sides of the marketplace. For example, almost all of the users on Kidizen, a marketplace for secondhand kids clothing, are moms. They post photos of their kids’ “looks” in an Instagram-type feed, favorite other users’ items, and curate collections from different sellers. Co-founder Dug Nichols told TechCrunch that he credits the platform’s strong metrics (88% of sessions from daily repeat users, 80% of purchases from repeat customers, 70% organic user acquisition) to this community.

Kidizen’s social features (e.g. ability to follow other users, curate collections, and post photos in both an Instagram-type feed and shared gallery) creates a tight-knit community of moms and incentivizes repeat usage.

After identifying eBay’s core flaws, we looked for vertical marketplaces attempting to disrupt eBay in various product categories, from seed-funded startups like SidelineSwap to public companies like Zillow.

To identify which of these categories could sustain a standalone venture-scale marketplace, we estimated annual GMV in each of eBay’s product categories. We used data from Terapeak, a marketplace analytics company that eBay recently acquired, and ShelfTrend, an analytics platform for eBay sellers. We’ve listed below the top ten categories by our estimation of annual GMV.

— Justine and Olivia Moore

We’re excited about startups aiming to disrupt eBay in one (or more) of these verticals — please reach out if you are working on something in this space! Our emails are justine@crv.com and olivia@crv.com.