In the end, all networks converge: Facebook marketplace is eating up the markets.

When I think of marketplaces in the future I see Facebook against the world.

Facebook vs eBay vs Amazon vs Shopify vs Craigslist Vs everyone-that-comes-along-in-any-vertical.

A few years ago this comparison would seem nonsensical.

But in the ever-expanding internet universe, these businesses are not commerce, fashion or social. They’re all network businesses.

This makes sense once you look under the hood. Networks don’t derive value from individuals but rather from their interactions. And ultimately, monetize in similar ways:

1. Ads

2. Listing fees

3. Rake.

(4. SaaS – but let’s leave that for another post).

So is it any wonder that marketplaces are targeting ads? 

Marketplaces go after ads and services 

eBay, in its 2019 annual report, mentions that marketplace net transaction revenue grew to 8.86% up from 8.25% as a result of “promoted listing fees”, a nifty way to promote sellers’ items.

The marketplace recorded $85bn in GMV and of the total revenue 7.5% was attributed to…ads. 

Amazon makes $12.5bn in revenue from ads, 23.5% up in 2020, which is not far from the rate at which AWS, the crown jewel of the company, is growing.

But it’s not only the behemoths.

Etsy made a controversial foray in advertising revenue. In contrast to the more commonly accepted model of “you may promote your listing” they forced advertisers to pay an extra % in case their item was sold as part of a cross-promotional effort namely Etsy advertising on their behalf across Pinterest, Facebook and Google. In other words, Etsy is no less than forcing their retailers to pay for the services of an outsourced marketing department which is genius and yet a step too far.

Instacart, Deliveroo, Uber Eats & basically any marketplace where sellers are not commoditized (will) offer a promotional boost and eventually seek the ad revenue as the next frontier.

Is it any surprise? Marketplaces exist to allow users to discover and for sellers to sell. 

All marketplaces started by offering the same things to users: Search amongst a plethora of suppliers and better pricing as a result of information symmetry. Today, marketplaces dominate by improving the experience of transacting with others.

eBay was the pioneer of this new wave of marketplaces. First it established trust with its sellers reviews. Later by purchasing PayPal, it added further ease and value to parties. Payments not only increased the profit margins but allowed the marketplaces to expand in value-adding services. eBay, using PayPal’s capabilities, added the “money back guarantee” and in doing so, created a new playbook for marketplaces.

One where marketplaces would use their low cost structures and high profit margins to reinvest in streamlining the experience. In turn, users would be happier, buy more and return more frequently. Whilst eBay might be the pioneer it is far from an isolated case.

Amazon revolutionized logistics with Prime and changed eCommerce forever. AirBnb offers insurance to hosts. ThredUp offers to sift through the seller’s clothes, price them and sell them saving them the hassle. OpenDoor is willing to buy house’s upfront. 

Meanwhile,  internet penetration and digital marketing maturity are increasing driving paid advertising costs up. In turn, capturing a bigger part of the customer lifetime value turned from opportunity into imperative. Capturing a higher chunk of revenue is necessary and a mix of advertising revenue and services offered is the way.

Yet there is one outlier in the game. A network first, Facebook didn’t need to worry about customer acquisition. All of us are there.

From ads to transactional revenue: the Facebook way

Engagement, growth and more engagement. The Facebook playbook in a nutshell. If anything was obvious early on it was that user engagement needs to be protected at all costs.

Facebook holds its users’ real identity and and the responsibility to protect it is a business imperative. Over the years, Facebook has invested significantly in what is internally called “community integrity”. The aim was clear: remove all posts that are net detractors of engagement and stymie growth. This was a key move their predecessors had missed and a precocious one at that.

At the same time functionality built around identity propelled their targeting capabilities to levels previously unmatched – even by Google -.

Sign in with Facebook was a key move that subtly, yet critically, allowed Facebook to break out of its own limitations. Businesses all over the web would allow Facebook to track their users outside of the network. This was a fantastic move for two reasons: better targeting directly improves targeting and thus revenue but also allows Facebook to gain critical data it didn’t have before whilst rooting across the whole worldwide web. 

Facebook had secured trust amongst its users. Now it also had intent. And with its advanced machine learning it could mine and classify all sorts of interactions. Recommendations requests. Preferences. And of course, commerce.

The social network had all the information it needed. The best part? Unlike any marketplace, users join and broadcast information for free allowing the business to continually reinvest in engineering tools and targeting capabilities.

What remained now, was to come up with an efficient way to expose that information. 

Facebook launched its marketplace in 2016 reaching 800m users in 2018; its foray on search, however, had started much earlier. In 2011, the entity graph was introduced which, given its scale and time, was an engineering marvel. 

The original focus was on people’s relationships. This quickly extended to map entities around each user. Facebook was already building an advanced ranking mechanism for listings and items. 


And somewhat like that Facebook had the foundations for a strong marketplace of its own with built-in acquisition, trusted connections, never-ending inventory and incredible targeting. 

Facebook marketplace model, Mark Tsirekas

The first steps were ultimately successful as the marketplace reinforced the existing flywheel.

It also provided yet another reason to be on Facebook which meant increase on the time users spent, data the network aggregated and ads served. So far so good. 

But to compete in the future of marketplaces, Facebook will need more; it will need to create vertical experiences for buyers and sellers alike.

So the question becomes: Is there anything stopping Facebook from doing so? 

The main thing in Facebook’s way is itself

Facebook’s ever-compounding flywheel is predicated on two things: zero cost of customer acquisition and targeting. This is the core asset powering everything very much like Google’s search is powering all its verticals. 

But when it comes to commerce, what got the company so far can be a challenge for the future. Specifically, there are a few things that will be roadblocks:

  1. Public market expectations
  2. Finite real estate 
  3. The Facebook Brand 
  4. Opportunity Cost
  5. Identity 

Public market expectations 

Most startups go through the “valley of death”. 

This is the concise way of saying that even for the most successful companies, innovation is costly and to kickstart the flywheel a business – marketplaces in particular – requires heavy investments upfront which may never pay off. 

Additionally as capital becomes cheaper and add-on services a strategy for marketplaces (think Opendoor), said experiments require increased costs per unit. 

Facebook owns $55B in cash or equivalents. So not a showstopper so far, right? 

Indeed, cash is not the core issue. Expectations are. Whilst a startup can stay away from the spotlight for years, Facebook can’t. Risky bets are likely not to be welcomed by analysts not just because of their short-term financial impact but also because they raise questions of strategic coherence. Each new service layer adds costs which are accompanied by more rigid organizational changes. Financing, delivery, insurance – all require customer support and bespoke operations. 

Should Facebook start building teams around these activities who knows how that would change the company profile in the years to come? It’s a risk worth considering. 

Finite Real estate 

You wouldn’t buy coffee from the Coca-Cola company, would you? But you might buy Costa Coffee which is owned by Coca-Cola. And in essence, you’re buying from Coca-Cola without thinking of it like that. A brand is a powerful asset but has its limits.

Facebook diversified its brand on social networks by owning Instagram, WhatsApp and Oculus amongst others. But when it comes to marketplaces it still uses its own brand and accompanying real estate.

So far, Facebook has doubled down on two products: Marketplace and Dating. 

Both of them have occupied prime real estate in the Facebook app facilitated by a navigation bar overhaul. The bottom navigation is dynamic serving whichever app the algorithm deems appropriate but currently seems to be pushing dating a lot. 

The Top Facebook Updates You Need to Know: October 2020

The center of the bottom navigation is so prominent users will click on by accident. But what about all the other applications Facebook has created such as offers, movies and blood donations to name some? Surely, these can all be served by dynamic shuffling in the nav bar but to entrench a position in a user’s mind, more is needed. Facebook will need to spin off its successes for them to occupy their own space on the web and in the user’s mind. And of course that bears the question: would these be successful on their own, away from the mothership and how would that work?

The Facebook brand 

Then we have the elephant in the room meta-problem: the better Facebook gets at targeting, the more creepy people deem it to be. This is not a problem that can be shrugged off; the resulting clash is more than a nuisance. It’s an orthogonality between its primary and secondary value creating activities.

To put this better in perspective, consider how a firm value chain works. The value chain represents the set of activities a firm must perform in order to compete. The key idea here is that the activities summed provide a value that is larger than the individual cost.

Each firm has primary activities that pertain to the production of its services and goods and a set of secondary activities that supercharge the primary activity. 

As an example consider the cost of creating a pair of shoes.

Cost of material: £10.
Cost of labor: £10
Distribution: £10

Design & branding: £10

Marketing: £10

Management: £10

Final retail price: £100. 

The key here is that if a business is selling the material is only making £10. So is another firm assembling the shoe (labor). But it’s the business that owns the design, marketing and management of production that reaps the excess value of the final price. 

And this is what great businesses do: operate an individual value chain synergetically to position itself  as a dominant player in the industry value chain.

Under that lens, here’s what the Facebook Value chain looks like for marketplaces. 

The primary activity for Facebook is to add more users to its network, keep them engaged, and then show them listings that are relevant to them across categories. 

Facebook value chain, Mark Tsirekas

And all of it is underpinned by excellent targeting capabilities which in turn rely on an endless stream of information people give Facebook. 

And here lies the conundrum. The better facebook gets at targeting and predicting the needs of the individual, the more disliked it becomes. It becomes “creepy”.

In all fairness, creepy is a compact way of saying that Facebook inadvertently surfaces the existential anxiety in all of us. Facebook’s algorithms expose our flaws, predict our desires and in doing so remind us how vulnerable and normal we all are.

Beyond philosophical implications, this is bad for business. Facebook is not “cool” and this is costing in terms of new community monetization and capturing value. 

While disliking the brand won’t be a showstopper for the daily mindless feed scroll, it certainly is an issue for services that Facebook would be primed to capitalize but require a different level of trust and brand association. 

Brand is important for a simple reason. Every purchase we make is a vote in the community and culture the brand stands for. 

eBay introduced a world of discovery and bargain. Staying at an Airbnb still maintains the edge of the experimental. Etsy supports the creators. 

But Facebook is a threat. 

Would anyone want Facebook to become their general practitioner, insurer and bank with which they pay both of the above? Unlikely. 

Opportunity cost

Corporate strategy argues the firm should leverage its existing assets to optimize the chances of continuous innovation. In practice this means that you don’t expect a grocer to produce shoes or a fashion retailer to do research on chemicals. Each to their own. 

Similarly, Facebook’s core asset is the astounding engagement of its user base. From the perspective of building marketplaces, Facebook has no cost of customer acquisition (CAC). Its users keep coming back and that is an opportunity to promote more ads.

Facebook advertising cohort net revenue, Mark Tsirekas

This creates a virtuous flywheel. User A brings User B. Together they stay longer in the network and consume more ads which in turn help businesses and Facebook grow. 

There is a stark difference between the growth curve of the advertising business and Facebook’s. Whilst the business grows its cost and revenue somewhat proportionately, Facebook’s net revenue increases while its cost structure remains the same. In other words, Facebook’s profit margin from advertising increases without further effort. 

This is part of the Facebook magic. And so here lies the other question: 

When does it make sense to risk enraging your advertisers to pursue a new business line? 


When a user posts something in the marketplace, it is visible to all. Again, staying true to the flywheel logic this is perfectly sensible. Every post is another attempt to keep people on their screens. 

However with dating, Facebook had to break that link. The app is designed with privacy in mind and its marketing rhetoric revolves around that

Despite the marketing attempts, users will still feel wary of being exposed to a certain extent. After all, it’s their own identity. And since dating requires time and exposure, there should be doubts over long term user retention. Same goes for all activities which are deeply personal.

So, looking ahead what is Facebook’s marketplace endeavor going to look like?

The future of Facebook marketplaces 

Here’s what seems likely to happen then in the next 5 years and how nascent marketplaces should view the giant. 

  1. Facebook will invest in engineering driven services with high profitability to add value to its marketplaces (e.g. payments). 
  2. It won’t venture in categories where it would require an overhaul of mindset and cost structure (e.g. iBuying). 
  3. It is likely to launch further marketplaces in verticals with low set up costs and a strong human touch (e.g. recruitment) 
  4. Finally, for the attempts which will work we might see them to be separated from the core site/app and try to capture their own space (e.g Dating, Marketplace). 

Facebook will invest in payments & engineering driven solutions

Facebook will aim to capture the transaction in-network. Whether that is within the Facebook marketplace, through WhatsApp or as a tool via Facebook Pay the intent is clear: own payments when a transaction occurs.

This makes a lot of sense. Payments bode well with the general strategy of the business. Rely on technical implementation, have low marginal costs and keep the users in the network. 

Similar services: ID & verification, insurance underwriting, psychometric matching.

Won’t venture in new categories

Facebook is unlikely to go after innovations that require an overhaul in its structure and mindset. 

For Uber to scale, Uber partnered with maps, car manufacturers and even set up physical stores to serve their drivers’ queries. And Uber is still in deficit. 

Whilst Facebook could rely on individuals to create its own mobility network, immersing itself in the operational side of it seems unlikely.

Service based marketplaces

But it is likely that Facebook will not stop fighting for services. Should dating work, this will herald a new playbook for Facebook. One where it can monetize 1-to-1 relationships.

And in services there’s all that. Recruitment being a close relative to dating and a huge market. And given Facebook is already eyeing up work, similar experiments in job seeking seem sensible.

Facebook will spin off apps 

As Facebook tries to deal with the finite space it has to entrench itself as many more things than a social network in the mind of its users, it makes sense to spin off its successful apps to extend the real estate it owns within our smartphones. 

Consider this as an emancipation moment and a filtering process: 

Is an app established enough to stand and grow on its own? Spin it off

Is an app in need of the Facebook mothership? Position it in the middle of the users’ screen till it becomes a habit. 

What does this mean for vertical marketplaces? 

In the categories Facebook will venture into, marketplaces will face increased competition. This might not be felt immediately as the eCommerce market is growing but it will intensify the need for differentiation. 

I expect that more and more marketplaces will compete on the Experience layer of the transaction (delivery, fintech, services) which in turn implies a higher cost structure to start a marketplace. 

For the moment, this is ok since Venture Capital is at an all time high. From a cultural standpoint it becomes difficult to be an founder running an indie marketplace (like yours truly).

However it seems unlikely that Facebook, despite its unfair advantage, will become an unstoppable marketplace factory anytime soon and likely that consumers will reap the benefit of increased competition and corresponding innovation. 

Interesting times ahead. 

Games, corporatism and misaligned incentives: the internal downfall of the newsroom

You are reading Part 1 of a 3-part series on the publishing industry.

Part 1 is about the past. Specifically, the internal mechanics of publishing and the forces that defined the industry’s response to Google and Facebook. 

Part 2 is about today. How has publishing adapted to the change, what is working and what is not? 

Part 3 is about tomorrow and what sustainable news & content publishing can look like. 


If you thought Google and Facebook killed the news industry you’d be right; but only partially right. 

It is true that the internet nullified the raison d’être of buying the paper. It’s also true that these two internet behemoths robbed the publishing industry of its audience and the attention that came with it. 

Disruption is the inevitable outcome in the life of any company. It is not possible to predict the future; it is within the realm of possibility to respond to the present. And that is where news has failed; in providing no response of their own for the past 27 years.

This is a story of games, corporatism, and misaligned incentives. Let’s start at the beginning. 

The business model of news

The first colonial American newspaper was printed in 1690. The New York Times is 169 years old. The industry itself is 330 years old. 

As it often happens, the news revolution was kindled by matching idealistic founders with a technological revolution; in this case, the printing press.

In the process of distributing the news, the founders of the first newspapers were the first to capture public attention en masse.

And in doing so, in these past three centuries, newspapers have enjoyed their fair share of influence, and profits. So much so, that there is a special term for their importance in our society. “The fourth estate” was coined to denote their crucial role in regulating our society. There was no other industry that enjoyed this level of attention. 

If anyone understood the importance of how stories underpin economic value, it was news publishers.

The news was immediately entrenched in society and publishers exerted a strong influence in the public sphere. With an addictive product, the revenue model was simple. Want the paper? Pay per unit. Want to read more newspapers? Buy more units. Circulation became the core metric. And circulation skyrocketed.

At the beginning of the 20th century, advertising found its natural place within the newspaper and the combined business model exploded. Advertising had zero marginal costs from a print and editorial perspective but all the upside. The news started selling the attention it captured.

And the cherry on the top? Starting a newspaper was hard. Matched with a high barrier to entry due to fixed costs (printing press, distribution) news publishing offered a recipe for a long-term oligopoly. 

The news business model had been on an unstoppable growth trajectory that would last almost  100 years. 

New Statesman, 2012

Internally, the job of a journalist was perceived as an elite craft and the editor’s job was revered. Editors commandeered the nation’s attention and journalists instigated commercial, political and social action one word at a time. The editorial team were the superstars of their industry basking in the widespread belief that revenue and influence stemmed from their actions. This level of attention is addictive and when the individual finds themselves in the middle of change, change is not welcome.

News itself was a cornerstone of society, a part of the system. The most brilliant of the institutions. The blueprint of a corporation. 

Fast forward to the end of the 20th century.

The market had reached peak maturity.  Revenue concentration, combined with barriers to entry has led to consolidation leaving a few despots and trusts running the show. They had become part of the establishment. 

And then the internet arrived.

Going free online  (1994 – 2006) 

Today it’s clear that the orchestrators of the internet, Google and Facebook, won our attention and the advertising dollars that come with it. In hindsight this is obvious. However, it could have been different. It started with one crucial decision: posting online for free. 

The Telegraph started posting online in 1994. The Guardian in 1997. Both for free. Reading the news online for free is a given today but at that point paying for news was standard behavior. In fact, the only behavior. So why go free? 

It is true that payment technology was embryonic (PayPal didn’t exist) and people’s appetite for transacting online was nonexistent. But even then, there could have been simple ways to work around this. News publishers had tight relationships with distributors and could reach corner stores, kiosks, and off-license shops. Selling a digital subscription through print would require a passcode within the newspaper to access a site. Or one providing yearly access. Cash could be exchanged physically at the point of purchase. Technicalities were not the sticking point.  

The first reason that emboldened publishers in going online early and free was conflating the notion of readership with that of a loyal audience. This is justified as in the past circulation was the only measure of both revenue and attention. Paying for information was a good enough signal the customer cared. And so, the presumption that readers would be loyal online too was not scrutinized. Circulation online was named traffic – the new core metric that mattered.

Since traffic was important, missing out on the new way to capture the audience bred fear. Fear of missing out. Every major publisher was petrified by the “what if” scenario where the internet explodes (hint: it did) and they missed out on following their audience (online). 

The reasoning went as such:
“If we go online, we can capture a new audience. And if we go free and the competition goes paid, we could capture their audience. In the likely scenario our competition goes free as well, we find ourselves in a good position for the future. This is more important than payments for now.”

So before understanding the threat of Google and Facebook, the news publishers viewed the internet as a Zero-sum game between themselves; one in which they were compelled to participate. 

To exemplify, assume a total market of 100 readers. Then a simplistic version of the publisher’s perceived payoff of going online in 1997 would look like this: 

Going online: Publisher’s perceived payoffs

From a short-term perspective, publishers were incentivized in going free. Going paid was also tricky as no one could predict the trajectory of news monetization online. What would be the right business model and how many people would be interested in reading online was unknown. In fact, buying a paper every morning was more convenient than downloading the news via a clunky modem on a slow churning PC. 

But in fear of their competitors thriving in the new medium, going free was a “what if” inspired action, a defensive play. Assuming a static order of things, there is certain merit to this logic. 

This period lasted approximately 15 years. It was not until 2010 when it became clear that the drop in print revenues was not a blip but rather a combination of broadband penetration, Google’s search dominance, and Facebook’s 600 million friends. 

Monetization online was still a question mark albeit one thing was clear; the open web was not good for business. Print circulation and ad revenues had been in decline for the past 5 years, quickly depreciating the once most valuable assets of the corporation, the printing press.

The time to be nonchalant and experimental had run out. Still, no business innovation. The News industry decided to chase pageviews instead of long term viability. This time it was not games of fear but rather corporatism and misaligned incentives that got in the way. 

Why the publishers didn’t react: an ode to corporatism (2006 – today) 

This might not be obvious yet it’s not an overstatement; the executives were, in fact, incentivized to avoid innovation. Here’s why.

The executive team (CEO, CFO) would set a strategy. Since they are appointed by the BoD, this is who they answer to. Their career success hinges first on staying in good terms with their managers, secondarily with the City of London (or Wall Street if you’re in the US), and then and only then with their customers.

Of course, where you pay attention defines what you see. 

Inevitably a CEO who wants to maintain their position has to keep the BoD and thus the stock at a stable level. How is this going to happen? Generally, there are two options: go after the market or go after internal mechanics. The former involves increasing market share, product innovation, and revenue with customers. It assumes entrepreneurship, innovation, and taking uncomfortable bets. The latter implies cost-cutting. And it bodes well with the corporate management approach. 

See, under the corporatist view, the interrelation with large institutions is the primary driver of value rather than market competition and innovation. Customers are simply in between and disposable. And institutions want to see higher earnings per share. And so innovation was too risky. It could rock the boat.

And there was the spin. Traffic was growing rapidly and despite digital advertising margins squeezed by Google and Facebook, the digital ads revenue was growing too. So, it was easy to present a story hinged on digital ad growth as a deus ex machina somewhere in the future.  

In parallel, circulation was plummeting for every publisher and the return of the fixed assets -printing, factories & distribution- is diminishing. This means one thing: an opportunity for consolidation. Consolidate printing and distribution, reduce the number of employees, increase prices per unit, and increase operating profit in the short-term leaving the long-term business model question to the successor. Such is the corporation. 

In the UK, there’s a perfect example: Reach PLC (FKA Trinity Mirror). In 2015, Reach PLC acquires Local world, a large regional publisher. In 2017, the Guardian scraps their £80m printing facility in Manchester and outsources printing to Reach PLC. In 2018, Reach PLC acquires the Express and other core publishing assets from Northern & Shell, combining circulation and revenue. Their operating profit margin increases almost every year whilst revenue like-for-like (revenue without the contribution of the acquisitions) drops sharply.

 Reach PLC, annual statement, 2019, page 2

Meanwhile, quantity over quality becomes an unspoken rule. Journalists are judged by the number of pageviews they rack up. Each journalist is required to publish multiple times per day at an average reach of 10,000 views per article, so that a stifling number of ads can be inserted and the short-term digital growth bubble won’t burst. The editorial department sees its craft slowly commoditized and finds itself ensnared in an existential crisis. A once symbiotic relationship between them and their corporate patrons becomes a balancing act ahead of a rift.

The effect on the product is also clear. Bounce rates are higher than ever, brand loyalty eroded and publishers are commoditized further, one post at a time. Editorial is not allowed to invest in what they do best; corporate is focused on margins and technology is a catch-up play. No hint or attempt for product innovation. 

The new strategy and story to stakeholders is simple: maintain a strong cash-flow position derived from the declining print revenues until digital revenue takes off. The elephant in the room is this won’t happen and it’s obvious both for strategic reasons but also by looking at the numbers. Given the digital advertising value chain, ads revenue for newspapers will never take off to cover for the loss of print revenue. 

Yet, this is a long-term problem. In the short-term these moves have a positive effect. Operating profit is increased and that is the goal. So much so, that the new CEO’s bonus is 70% influenced by operating profits and only 15% by “strategic goals” i.e. product innovation. The other 15% is revenue. However this is the same remuneration structure the previous CEO was offered. Perhaps an optimistic bet – if not naive – to replace the individual instead of the goal structure, especially since the CEO’s goals cascade over layers of the business stifling innovation. Then there’s the cynical view: pointing the finger at an individual is more convenient.

The narrative was found at last. But it was not one to inspire editorial, employees or customers. It is one of a beleaguered, ailing industry that is willing to do anything to survive. Erode its core value, destroy product integrity, and trust. A narrative suitable for Boards of Directors and investors. Publishers can keep on painting a positive picture of recovery whilst fundamentally passing the pressing question “what are we doing in the future” down to their successors. 

Financial analysts herald consolidation and cost cuts as moves to efficiency. The exec team will be deemed successful by executing on the strategy they set out and approved from the beginning. 

But in truth, at this rate, most news publishers will not make it. 

At last, startups are making shy steps towards a sustainable business model. Fake news, clickbait, and rigidity in news reporting have intensified the necessity for quality news and thus, business innovation. New organizations are embracing the world of social media and leverage niche audiences. It is still to be seen whether news publishers can ever reach their old glory and society can maintain the integrity of the fourth estate.

In the next part I examine news (and general content publishing) revenue models of today. What works, what doesn’t, and why.


Disclaimer: From 11/2016 till 6/2018 I acted as an Entrepreneur in Residence at Reach PLC working under the CTO to diversify the revenues of the business. The above post only reflects my personal beliefs.