Investing in Consumer Startups: A Look at Marketplaces, Video, and Growth

Andrew Chen, a partner at Andreessen Horowitz, shares his insights on the exciting trends shaping the consumer startup landscape. He argues that the key to success lies in identifying the intersection of three crucial elements: new technologies, pre-existing consumer motivations, and effective growth strategies.

• He highlights the accelerating pace of technological adoption, contrasting the decades-long adoption of the telephone with the rapid spread of mobile phones.
• Chen emphasizes that while technology changes rapidly, human needs and desires remain constant. This understanding forms the basis of his investment thesis.

Historical Examples of Marketplace Success

Drawing from historical examples, Chen illustrates how companies have leveraged new technologies to tap into consumer desires and achieve significant growth.

• The Michelin Guide, created to encourage car ownership and travel, exemplifies the power of content marketing. This strategy has evolved to modern platforms like Google Arts & Culture, which utilizes interactive features to attract users.
• Chain letters, a phenomenon that took advantage of the US Postal Service as a new communication platform, demonstrate the principles of viral growth. Today, companies like Airbnb and Uber utilize referral programs to incentivize user acquisition through social sharing.
• The "cold start" problem, faced by early CPG companies like Pepsodent, highlights the challenge of establishing a marketplace where both buyers and sellers need to be present. Instacart, a modern example, solved this issue by leveraging technology to generate initial demand and attract both consumers and grocery chains.

The Power of Video Native Startups

Chen argues that video is emerging as a critical platform for consumer startups. He points to the rapid growth of video views on platforms like YouTube, showcasing the increasing appetite for video content.

• He identifies "video-native" products that automatically generate video content as a key area for growth, citing examples like eSports and location-based virtual reality experiences.
• Sandbox VR, a company that offers immersive virtual reality experiences, has embraced this trend by incorporating shareable mixed reality videos, driving viral engagement.

Offline-to-Online Strategies for Marketplace Growth

In a world where online channels are becoming increasingly saturated, Chen suggests exploring "offline-to-online" strategies to drive growth.

• Mobile technology, particularly GPS and AR, empowers companies to create visible offline experiences that can drive users to their apps.
• Examples like Pokemon Go, Lyft, and Lime demonstrate how offline presence can create awareness, generate excitement, and encourage user acquisition.

The Future of Marketplaces and Consumer Startups

Chen anticipates the emergence of new startups that leverage emerging platforms and technologies. He highlights platforms like GSuite, Alexa, Twitch, Tik Tok, Minecraft, and Roblox, all of which offer opportunities for innovation.

• He emphasizes the continued importance of understanding consumer behavior and identifying growth hacks that can leverage new technologies.
• Chen concludes with a reminder that technology changes, but human needs and desires remain constant. It's this understanding, combined with strategic growth tactics, that will define the success of future consumer startups.

The Importance of Growth Hacking

Throughout the article, Chen emphasizes the critical role of growth hacking in driving marketplace success. Growth hacks are creative and often unconventional strategies used to achieve rapid growth. He points out that effective growth hacks leverage existing consumer behaviors and technologies to generate momentum.

• For example, he notes how Sandbox VR leverages the social nature of virtual reality by encouraging users to share videos of their experiences, generating word-of-mouth marketing.
• Similarly, the success of Pokémon Go demonstrates the power of leveraging a mobile game's offline presence to create excitement and drive user adoption.

Building the Next Generation of Consumer Startups

Chen argues that the next generation of consumer startups will be built at the intersection of new technologies, human motivations, and clever growth strategies. He encourages entrepreneurs and investors to focus on identifying these intersections to build the next wave of successful businesses.

• This requires a deep understanding of the evolving technological landscape, as well as an awareness of existing consumer behaviors and desires.
• The success of future startups will rely on their ability to leverage emerging platforms, like video and mobile technology, to create compelling products that meet the needs of consumers and drive rapid growth.