Recent Writing

Paid Groups & The Passion Economy

In the next few years, we’ll see more large communities moving off major social platforms where they originated + setting up their own independent properties, with built-in direct monetization models.

This is a fascinating example of the Passion Economy at work.

Some notable recent examples:

– Earlier this year, the 800k+ member subreddit Change My View–which promotes discourse around opposing viewpoints–launched its own website with custom features that go beyond Reddit’s capabilities

– The Woolfer, a FB group for women over 40 with 30K members, moved to a paid app/website. The reason? “This is a volunteer-run organization that has gotten too big, and we can’t sustain it anymore unless we make money” (h/t @juliey4’s great thread…)

The themes behind these moves to a dedicated property are:
– Outgrowing existing social platforms and needing additional product features specific to their community
– Lack of monetization options/viable business model for group creators on existing ad-driven social platforms
– In addition, various models have de-risked that consumers are willing to pay for curated, high-quality content/community (e.g. Substack, The Wing, etc).

The challenge will be to leverage existing horizontal social platforms for discovery & distribution, while giving a compelling enough value proposition so that power users move to a narrower, premium community.

It’s the 1000 True Fans idea in action.

What are other examples you’ve seen of this?

The Passion Economy and the Future of Work

Also published on

The top-earning writer on the paid newsletter platform Substack earns more than $500,000 a year from reader subscriptions. The top content creator on Podia, a platform for video courses and digital memberships, makes more than $100,000 a month. And teachers across the US are bringing in thousands of dollars a month teaching live, virtual classes on Outschool and Juni Learning.

These stories are indicative of a larger trend: call it the “creator stack” or the “enterprization of consumer.” Whereas previously, the biggest online labor marketplaces flattened the individuality of workers, new platforms allow anyone to monetize unique skills. Gig work isn’t going anywhere—but there are now more ways to capitalize on creativity. Users can now build audiences at scale and turn their passions into livelihoods, whether that’s playing video games or producing video content. This has huge implications for entrepreneurship and what we’ll think of as a “job” in the future.

The Evolution of The Passion Economy

In the past decade, on-demand marketplaces in the “Uber for X” era established turnkey ways for people to make money. Workers could easily monetize their time in specific, narrow services like food delivery, parking, or transportation. These marketplaces automated the matching of supply and demand, as well as pricing, to enhance liquidity. The platforms were convenient for both the user and the provider: since they took care of traditional business hurdles like customer acquisition and pricing, they allowed the worker to focus solely on the service rendered.

But though these platforms provided a path to self-employment for millions of people, they also homogenized the variety between service workers, prioritizing consistency and efficiency. While the promise was “Be your own boss,” the work was often one-dimensional.

Monetizing Individuality

New digital platforms enable people to earn a livelihood in a way that highlights their individuality. These platforms give providers greater ability to build customer relationships, increased support in growing their businesses, and better tools for differentiating themselves from the competition. In the process, they’re fueling a new model of internet-powered entrepreneurship.

It’s akin to the dynamic between Amazon—the standardized, mass-produced monolith—and the indie-focused Shopify, which allows users to form direct relationships with customers. That shift is already evident in marketplaces for physical products; it’s now extending into services.

These new platforms share a few commonalities:

  1. They’re accessible to everyone, not only existing businesses and professionals
  2. They view individuality as a feature, not a bug
  3. They focus on digital products and virtual services
  4. They provide holistic tools to grow and operate a business
  5. They open doors to new forms of work
  1. They’re accessible to everyone, not only existing businesses and professionals

New consumer products are making it easy for anyone to become an entrepreneur. In the mid-2010s, the rise of the influencer industry allowed top-tier creators to monetize through advertising. These platforms expanded to support a broader range of money-making activities, from manufacturing physical products (e.g. Vybes, Hipdot, Genflow) to creating personalized videos (Cameo, VIPVR, Celeb VM).

Now the ability to make a living off creative skills has trickled down to individuals at scale, helping everyday people to launch and grow businesses. Previously, only established businesses could access software engineering talent to build websites or apps; now, no-code website and app builders like Webflow and Glide have democratized that ability. Startups are also building mobile-first, lightweight versions of incumbent desktop software: Kapwing, for instance, is a web and mobile editor for videos, GIFs, and images that aims to displace legacy creative software.

Companies have the opportunity to engage entrepreneurs in the early stages, then capture economic value as they grow. They might start with a very basic offering and add product capabilities as their customers earn revenue and develop new needs.

  1. They view individuality as a feature, not a bug

Whereas previous services marketplaces were rigidly built for standardized jobs, new platforms highlight variation among workers in categories that can benefit from more diversity in user choice.

Take Outschool, an online marketplace for live video classes in which teachers are predominantly former school teachers and stay-at-home parents. On the platform, instructors can develop their own curricula or browse lists of courses requested by users. Beyond the subject matter, the marketplace’s UI emphasizes each teacher’s background, experience, and self-description. Parents and students can message instructors directly.

A teacher profile on the online marketplace Outschool.

For new platforms, this model can pose a sizeable risk: once consumers are able to work directly with a preferred provider on an ongoing basis, they may take that relationship offline. Marketplaces can combat disintermediation by offering workflow tools, like scheduling and invoicing, and by building in additional incentives that make it worthwhile for providers and users to remain on-platform. Marketplaces that cultivate these direct relationships can also succeed by focusing on areas—like education and tutoring—in which consumers might have repeated matching needs with a variety of different providers over time.

  1. They focus on digital products and virtual services

Whereas past generations of entrepreneurship-enabling platforms typically focused on selling physical products (e.g. Amazon, Etsy, Ebay, Shopify) or in-person services (e.g. Taskrabbit,, Uber), new creator platforms are focused on digital products. A platform built specifically for packaging and selling digital products looks different than a platform that is built for tangible goods.


Podia, Teachable, and Thinkific (at left) are all SaaS platforms that allow creators to make and sell video courses and digital memberships. Previously, these types of “knowledge influencers” had to either conduct classes in-person (restricting them to local customers); jerry-rig platforms meant for physical products, like Shopify; or customize sites like Wix and Squarespace. New platforms capitalize on the idea that expertise has economic value beyond a local, in-person audience.

On the interior design marketplace Havenly, designers work remotely and interact with clients entirely online. For designers, the benefit is a steady stream of clients without the heavy lifting—since Havenly takes care of marketing—and the flexibility to work whenever, wherever. For clients, the benefit is access to a service that would otherwise be expensive or inaccessible.

  1. They provide holistic tools to grow and operate a business

Unlike discovery-focused marketplaces, which monetize through advertising, membership fees, or cost-per-lead, new platforms in the creator stack are often monetized through SaaS fees that increase as customers grow. Others take a percentage of the creator’s earnings. This means that platforms are incentivized to help creators succeed and grow, rather than driving discrete, one-time transactions.

Some platforms offer marketing tools like custom landing pages, coupons, and affiliate programs. Others provide behind-the-scenes support: Walden, for instance, connects new entrepreneurs with coaches for strategy and accountability.

Sometimes, support may be bundled into platforms that help providers start a business. For instance, Prenda—a managed marketplace of K-8 microschools—provides teachers (called Guides) with curricula, computers, software, supplies, and assistance in navigating the necessary regulatory requirements and insurance.

  1. They open doors to new forms of work entirely

New digital platforms enable forms of work we’ve never seen before:

For a more extensive model of how human capital can give rise to new industries, look to China. On the microblogging site Weibo, for instance, users sell content such as Q&As, exclusive chat groups, and invite-only live streams through memberships or a la carte purchases. This has spawned a wave of non-traditional influencers—financial advisors, bloggers, and professors—beyond typical beauty and fashion tastemakers.

Factors to consider: Marketplaces vs. SaaS

When building a company in this space, it’s important to consider the needs of the creators you’re targeting, as well as their desired audience. There are tradeoffs between marketplaces and SaaS platforms. What’s the difference?

Marketplaces are entirely plug and play, meaning providers can sign up and start earning revenue with minimal set-up. The strength of a marketplace’s two-sided network effect is directly correlated to the value it provides as an intermediary between supply and demand. One example of this model is Medium, which charges readers a subscription fee to access stories across the entire platform. The amount of money a writer makes is proportionate to the amount of time readers spend engaging with their stories.

By contrast, SaaS platforms require creators to work independently to acquire customers. Such platforms might help with distribution—providing tools for marketing, managing customer relationships, and attribution—but users are largely responsible for growing their own businesses. On Substack, for example, features include a writer homepage, mailing list, payments, analytics, and a variety of different subscription offerings. Substack collects a portion of the creator’s subscription revenue.

In the marketplace model, writers count on Medium to drive reader traffic and subscriptions. On the SaaS platform (Substack), writers drive their own direct traffic and subscriptions; they can export their subscriber list at any time.

Marketplaces bring value for creators looking to be discovered and attract customers over time. SaaS tools often make sense for more established creators who already have a customer base. In response to this dynamic, many startups are building SaaS platforms that aim to poach large creators from existing marketplaces.

Looking Ahead

New integrated platforms empower entrepreneurs to monetize individuality and creativity. In the coming years, the passion economy will to continue to grow. We envision a future in which the value of unique skills and knowledge can be unlocked, augmented, and surfaced to consumers.

If you’re building a company in this space, I’d love to chat!

Pros and Cons of Managed Marketplaces

Thread: We all know managed marketplaces (where the platform provides additional value-add in terms of intermediating the service delivery) can create a step-function improvement in user experience, but despite that, they can actually struggle to scale as businesses.

Examples of the functions that managed marketplaces often take on include vetting providers, handling logistics, or authenticating goods. This translates into a much better user experience, but can also mean greater operational overhead, lower margins, and difficulty growing.

The complexity of intermediating the transaction is not trivial.

Consider Beepi–a managed marketplace for used cars–which created an amazing user experience (90+ NPS), but ultimately shut down due to challenges becoming unit economic profitable in many markets. For Beepi, the costs associated with each transaction included rigorous inspections, free returns, delivery, and a guarantee to buy the car if it didn’t sell within a certain time frame.

In categories where services are viewed by users as commodities and/or users are especially price-sensitive, the open version of a marketplace often wins out over more managed versions.

For example, Craigslist and Thumbtack are much bigger businesses than marketplaces that have attempted to employ home services pros themselves and own the end-to-end experience.

But for more emotional categories that are more ongoing in nature or have variable outcomes, where each provider is meaningfully different, and the stakes or $ values are higher, the managed version often does better than the unmanaged version.

Here’s some examples where managed marketplaces have gained ground:
– Uber (more managed w/ centralized matching and pricing) vs. Sidecar (double opt in, no centralized pricing)
– Lambda School (managed) vs. open MOOC platforms
– Rover vs. finding a dog walker on CL/via WOM
– TheRealReal vs. unmanaged consignment marketplaces

What do these managed marketplace companies have in common?
1) Focus on a service category where users value the experience differential and are willing to pay a premium that offsets increased costs
2) Building software to improve efficiency
3) Focus on high AOV & high frequency

Another factor to consider is that labor/service marketplaces typically have more overhead than product marketplaces in terms of management.

That’s because every aspect of a service can be managed end-to-end, and there’s frequently a geo-specific aspect to the overhead, vs. a product marketplace can just manage specific aspects of the transaction (validation, logistics)–much of which can be outsourced / centralized.

With any unmanaged marketplace, there’s going to be variance in quality. For categories where there’s less tolerance for uncertain quality/experience and desire for more consistency/certainty, a managed approach can win out.

For founders, the key is finding a way to provide a more delightful, managed experience where it matters, but doing so scalably, leveraging software. For instance, designer goods marketplaces can reduce the # of items needing manual authentication by predicting which items are most likely to be fake.

In addition, validate that you can charge higher prices or increase take rate to cover the costs of managing the marketplace.

TL;DR: Managed marketplaces can create a step-function improvement is user experience, but they can be complicated to operate & challenging to scale. There’s a number of factors to consider in whether to go unmanaged vs. managed, and to what degree.
For more on managed marketplaces, see our blog post:

Enterprization of consumer

New tools are emerging and focusing on *consumers* first. That’s because consumers today aspire to become businesses tomorrow. I’ll dub this the “enterprization of consumer.”

It used to be the case that software tools focused foremost on business customers, because they had business needs and could spend money on such products. In that vein, Canva, Shopify, Wix, etc. built multi-billion dollar businesses based on empowering and selling to a large number of SMBs. 

Now, a new generation of tools have users that are initially just regular individuals, but who want to grow into businesses in their own right. There’s an opportunity to engage users pre-”enterprization”, enable their growth, and capture greater economic value as they professionalize.

The recipe is to start with a very basic offering — something that might even look like just a toy — and, as customers grow and start to earn revenue and develop new needs, get pulled into additional product capabilities. 

By virtue of engaging users early and enabling them to start and grow their businesses, these products build deep workflow lock-in and loyalty, and have the potential to supplant existing b2b-focused platforms.

The undercurrent here is that digital platforms have enabled people to amass an audience, and so creates an opening to help individuals turn their unique skills/knowledge into a business, whether that’s through designing and selling merch, self-publishing, starting a podcast, or other means.

Some examples of the “enterprization of consumer”:

  • Instasize started as a free app for resizing IG photos, then realized much of their user base was comprised of “aspirational influencers” who want to uplevel + differentiate their content and grow their following. So they moved into premium features to help users achieve these goals, including filters and editing tools, as well as an inspiration map that helps users find photo-worthy/Instagrammable locations around the world
  • Substack helps individuals easily launch paid email newsletters. The tool is built to be intuitive enough for normal consumers to use, who can opt to make their newsletters free. At the high end, top creators on Substack are making $500K a year! In the old world, these writers would likely have had to join an existing media publication as their livelihood.
  • Universe enables people to create websites entirely from mobile in a few taps. As a result of being mobile-native, the user base skews young and international. Lots of the websites created w/ Universe are purely personal/just for fun–sites that people likely wouldn’t have built with SMB-focused website builders. You can imagine these mobile-native consumers staying with Universe as they grow and monetize, and the platform can capture more value by building out richer functionality and features.
  • CALA is fashion house technology that makes it easy to design, produce, and deliver custom apparel. Initially, the product was used by a lot of fashion design students and influencers to create one-off projects. As these creators grow into the next generation of fashion designers and launch their own brands, CALA grows with them and can capture more value through the managed marketplace.

The “enterprization of consumer” is all about starting off as a lightweight, accessible consumer product. But as those individual consumers grow into businesses — whether as influencer brands, writers, podcasters, streamers, etc. (jobs that don’t even exist now) — these tools can evolve to meet their needs. 

See my thread on the influencer stack here for related thoughts:

What else have you seen like this?

8 Things to Consider When Building Managed Marketplace Companies

Originally published on

There might be no more beloved image of the American entrepreneurial spirit than that of neighborhood kids who open a sidewalk lemonade stand on a hot summer day. With a little bit of “capital” from their parents — lemons, water, sugar, a card table, some markers and paper — hard work, and good sidewalk placement, children learn about how to start a business and earn some cash along the way.

However, not only are the hurdles to actually build a grown-up version of that business today enormous, but there’s also been a massive increase in government regulation to work in or start a small business in many industries. State-mandated occupational licensing involves a combination of education, training, exams, and fees to work in certain professions, with more and more would-be entrepreneurs impacted. Whereas in the 1950s just 5% of the workforce needed an occupational license, the share has grown to more than 25% of U.S. workers today. In 2003, the Council of State Governments estimated that more than 800 occupations were licensed in at least one state. These occupations span different sectors, salary ranges, and degrees of familiarity to consumers–from upholsterers to locksmiths to milk samplers to civil engineers. A full list of licensed occupations can be found here.

The share of US workers who need state-mandated licenses has grown to 25%
The growth in state occupational licenses (source).

But this growth in licensing also presents an opportunity for marketplace startups. As the low-hanging fruit of other services marketplaces get picked off, the more challenging regulated industries are the ones that remain. The artificial supply-constraint imposed by licensing and regulation makes these services verticals particularly interesting in the context of marketplace-building. Supply-constrained markets hold advantages because there’s already a large pool of demand that wants a particular service; if such marketplaces are able to win the supply side, they can capture a ton of value.

But marketplaces are nuanced and challenging businesses to scale, and for startups operating in regulated industries, there is additional complexity and difficulty. So what can founders and operators do when it comes to navigating the complexities that come with the territory in regulated industries? Where are the opportunities?

Why managed marketplaces matter

In a previous blog post co-authored with Andrew Chen, What’s Next for Marketplace Startups, we detailed how the licensing of workers was more critical in a “pre-internet” world, since licenses established consumer trust by signaling the skills or knowledge required to perform a job. But today, digital platforms can mitigate the need for (some) licensing by establishing trust and ensuring quality through other means — such as user reviews, platform requirements, and other mechanisms like pre-vetting and guarantees.

“Managed marketplaces” models in particular can be helpful in establishing user trust, because they intermediate parts of the service delivery, adding value by taking on functions like identifying high-quality providers, standardizing prices, and automating matching between demand and supply. As scrutiny around safety for marketplaces continues to rise, the importance of trusted labor becomes even more significant. In childcare, for instance, people don’t want to just see a list of all possible caregivers — they want to know with certainty that the providers they’re hiring are trustworthy and qualified, and a managed marketplace can capitalize on this user need by thoroughly vetting all supply.

Managed marketplaces can greatly mitigate the need for licensing because users trust the marketplace itself, particularly on the highly managed side of the spectrum. Such platforms can enable high-quality, but unlicensed, suppliers to offer services alongside licensed providers — and in doing so, promote entrepreneurship and alleviate supply constraints.

Not all service categories are created equal, however, and some are more suited to digital marketplaces than others. Depending on the particular dynamics of each industry, marketplace startups will have different entry points and strategies.

Regulated services marketplaces: factors to consider

Besides all of the traditional lenses through which we evaluate all marketplace businesses, there’s some specific factors unique to categories that involve regulation that can help inform the best approach. And the sooner that founders and operators can think through and address these factors, the better for their company building.

Useful factors to consider when assessing opportunities for new marketplaces operating in a regulated industry include: (1) downside risk of unlicensed supply, (2) burden of licensing requirements, (3) existing industry satisfaction, (4) opportunity to lower prices, (5) market size, (6) latent demand, (7) underutilized assets to unlock supply, and (8) tailwinds around regulatory reform.

Of course, the framework outlined below is just a beginning point in evaluating opportunities for regulated services marketplaces. In addition to the opportunities arising from state occupational licensing, there’s also other forms of regulation — including other means of restricting businesses such as permitting and zoning — at the local (county or city) and federal level.

#1 Downside risk of unlicensed supply and consumer perception

For some occupations, licensing is critical because there is a credible, acute threat to public health and safety. Few consumers would feel comfortable having surgery performed by an unlicensed doctor, even if they had great reviews. In these cases, it makes more sense to have a marketplace that makes discovery and accessibility of licensed providers easier — rather than expanding the marketplace with unlicensed providers.

But for other services, licensing burdens can outweigh potential risks, especially in fields where the potential for adverse impact on health and safety is minimal — like tour guides, florists, or interior designers, for example.

In other words, the tangible benefits of licensing and consumer attitudes are important to consider in designing the right marketplace approach. Of course, consumer perceptions are not fixed: it was inconceivable to many that users would want to sleep in strangers’ homes or get into strangers’ cars — yet the companies that made this possible (and established trust through other mechanisms besides licensing) are now massively valuable.

For categories where consumers are cognizant of risks to unlicensed supply, a more managed marketplace approach can make sense to establish greater trust.

For instance, Outschool is an online platform offering real-time group classes for kids ages 18 and below. Teachers can apply to teach a class on the platform, but don’t need to possess a teaching license, unlike teachers in charter and public schools. But parents are sensitive to potential safety issues when it comes to children’s interactions with adults online, so Outschool closely manages the marketplace. Teachers must go through background checks and an application process; once approved, teachers must then submit class listings for approval within Outschool’s content policy. As a result, consumers are assured of quality, while the marketplace is able to scale on the teacher side.

There is no one-size-fits-all approach for establishing new marketplace startups in regulated industries: the benefits of licensing, the degree of risk associated with unlicensed service providers, and how important customers perceive the licensing to be are critical considerations.

#2 Licensing requirements: How challenging is it to become licensed, and can a marketplace expand supply?

Each state and profession has different licensing requirements, in terms of training, testing, education, and fees. The more burdensome the licensing requirements, the higher the barriers for professionals aspiring to enter that industry — which means a greater potential opportunity for marketplace companies seeking to enable more supply to enter the industry.

In industries where licensing requirements are particularly burdensome to would-be professionals, some marketplaces are facilitating or creating more supply by, for instance, providing education, training, and support in getting licensed. Marketplaces startups that would otherwise find themselves constrained by lack of supply can grow more quickly by establishing their own proprietary source of supply.

For instance, Nana is a marketplace focused on appliance repair and smart home installation — but also has an online academy that trains workers to become appliance technicians. Because of the supply-constrained dynamics in the industry, the company created the Nana Academy in order to create more supply.

Similarly, Lacquerbar is a chain of nail salons that also operates an online education platform for manicurists, inspired by the founder’s own experience in beauty school, where she realized that the standard curriculums often don’t include modern nail techniques and business skills needed for launching careers.

In the education space, Wonderschool helps educators and childcare providers go above and beyond the licensing requirements necessary to launch and operate their own in-home childcare programs. Wonderschool’s mentoring program also helps providers choose a curriculum, set up their home learning environments, and determine their operating playbook for parents, based on best practices.

For founders operating companies in severely supply-constrained verticals, approaches like these — combining education, training, and guidance for the supply side — can be valuable in enabling more supply to enter the industry and thereby growing the marketplace.

#3 Existing industry satisfaction and Net Promoter Score

Industries that entail licensing/regulation and have low NPS are good targets for disruption, because consumers are dissatisfied with the status quo. Companies that are able to offer a step-function improvement in customer experience can win the favor of a large user base — and potentially create their own path to regulatory change.

Case in point: Uber’s NPS is 37, whereas traditional taxi companies had negative NPS scores — anyone who recalls the experience of calling a taxi company and booking a car in advance can understand the delta here. This improved customer experience in terms of reliability and price helped Uber to garner widespread user support which pressured regulators to allow the service to operate.

In the home insurance world, Hippo uses a tech-driven approach to offer cheaper policies and a simpler process to homeowners, in a manner that complies with regulation. The company has been able to achieve an NPS of 76 — whereas legacy carriers have an average NPS of 31 — based on a differentiated experience across the customer lifecycle, from faster onboarding to continuous underwriting to a claims concierge team.

Honing in on industries with low NPS and aiming to create a dramatically better user experience to widen the NPS gap is a common theme among successful services marketplaces.

#4 Opportunity to lower prices

If existing services have artificially high prices due to restricted supply, then startups can offer a compelling value proposition and expand the market by competing on price. There is greater opportunity to lower prices more dramatically when the approach to the supply-side is inherently different from the pre-existing licensed supply model, for instance by introducing an unlicensed version of supply.

For instance, many startups are aiming to democratize access to mental health treatment by broadening who is able to provide such services. Traditionally, therapy is an expensive, luxury product — and among all practicing medical professionals, therapists are the least likely to take insurance (source). By utilizing trained but unlicensed providers, startups like Sibly and Marlow, which provide coaching services through a mix of text, voice, and video, are able to significantly reduce prices and expand the addressable market size. Although these solutions don’t and shouldn’t entirely replace therapy, especially among patients with more severe cases, they can be a useful, accessible solution and widen the market for new customers.

#5 Market size: How large is the industry today?

As with any marketplace, the size of the market matters. For regulated industries, it’s important to consider how many licensed providers exist and how many states require licensing in the profession. The larger the existing market, the greater the addressable audience of customers who could benefit from a marketplace which improves matching between supply and demand and enhances transparency and accessibility of the service.

For example: in the past few years, there’s been an explosion of trucking startups, including Convoy, NEXT Trucking, and Uber Freight — marketplaces that connect shippers (like CPG companies or retailers) with carriers (the trucking companies providing transportation of goods). The reason is simple: it’s a massive industry. According to the American Trucking Associations, in 2017 the trucking industry employed over 3.5M drivers in generating over $700Bn revenue — as a comparison, the global ridesharing market was worth $60Bn in 2018. Furthermore, truck drivers are licensed in all 50 states. The massive market size — combined with a number of other factors including manual existing processes, inefficient capacity utilization, and high fragmentation on the demand and supply sides — means a big opportunity to create efficiencies along the value chain.

#6 Latent demand: How large could the industry be?

Another important aspect to consider along with current market size is latent demand, i.e. the potential size of the market.

In the early days of ridesharing and home rentals, many investors underestimated the market sizes of Airbnb, Lyft, and Uber, because the existing markets were relatively small, and ostensibly already well-served, for taxis and travel accommodations. Uber’s first pitch deck from 2008 cited research that the taxi and limousine market would grow at just a 2% CAGR, and that their “best-case scenario” was reaching $1B+ in yearly revenue. But it turned out that many people wanted the service if the price decreased and it became more convenient — in other words, there was a lot of latent demand — and the market size ended up being a lot larger than predicted.

Given licensed occupations are by definition supply-constrained, current measures of market size don’t always fully capture how large the industry could be if restrictions were relaxed.

Measuring latent demand is tricky, however. It can be proxied by surveying users or by running a test of the service, to understand consumer elasticity of demand.

#7 Availability of underutilized assets to unlock supply

Another aspect that’s compelling for potential marketplaces is the availability of underutilized assets that can supplement and differentiate the supply-side. In Airbnb’s case, enabling regular homeowners to rent out spare rooms greatly expanded the pool of available vacation rentals. Having an underutilized asset that can unlock the supply side of the marketplace means greater access and lower prices.

Some potential examples of underutilized assets in marketplaces include:

  • Private landHipcamp is building a marketplace for camping that enables users to book private land vs. many national and state parks that require permits for camping. This kind of inventory differentiates the marketplace from a consumer perspective, and is also attractive to landowners as a way to monetize their land.
  • Private parking lotsAirGarage, a managed marketplace for parking, makes the parking spaces owned by churches, small businesses, and schools available for booking by consumers. This unlock of an underutilized asset enables lower prices and convenience to consumers and incremental earnings to businesses and other organizations.

#8 Tailwinds around regulatory reform

Momentum for licensing reform creates openings for startups to enter the market, aided by changing regulation. Perhaps the biggest recent example of how regulatory tailwinds can enable more startups is around marijuana: 11 states and DC have now legalized small amounts of marijuana for adult recreational use. As a result of the ensuing expansion of the addressable market, a record amount of venture capital is pouring into the space.

Tracking changes in the regulatory environment can help identify new opportunities. Between 2012-2017, the average state actually increased the breadth and burden of licensure by 4%, but 10 states made reductions to their licensing practices (source).

Some examples where there’s activity happening include:

  • Within hair and beauty, states like Arizona stopped requiring eyebrow threaders to have an occupational license in 2011 and exempted makeup artists from needing a cosmetology license in 2015, which greatly opened the potential labor supply. Perhaps more significantly, this April, Arizona became the first state to recognize and accept all out-of-state licenses, eliminating the need for people relocating from other states to endure the process of getting re-licensed. What all of these changes mean is that providers can more easily offer their services in Arizona–potentially leading to openings for startups helping consumers navigate and transact in these categories.
  • In September 2018, California passed a law allowing cottage food makers to apply for a license to sell homemade foods up to $50K annually. The new law requires counties and cities to choose whether or not they want to conduct inspections and issue permits (source). So far, only Riverside County has started accepting applications for home-based food business permits. We’ll be watching this industry closely to track developments.

Where the opportunities are

We find all of the below opportunities in regulated industries to be especially interesting. Obviously, this list is not exhaustive, but these are verticals where we are particularly interested to see innovation:

Cottage foods

We are passionate about online platforms that empower people to make a living from their passions and unique skills, and cooking definitely comes to mind as an example. Cottage foods are regulated differently depending on state, and there are tailwinds for reform in some markets.

With the rise in consumers preferences shifting towards delivery and takeout, we’re excited about startups that are enabling home chefs and cottage food producers to find customers for their creations. Home kitchens are unused most of the day, and there’s an opportunity to match hungry consumers with home cooks looking to earn extra money. And unlike restaurants, which are limited by real estate space and need permits to set up and operate, home cooking platforms can offer more food variety at competitive prices.

Telemedicine and blended service delivery

Given that healthcare practitioners are the industry with the highest percentage of workers with a professional license, we’re excited about platforms that are making it easier for patients to access licensed providers when it’s convenient for them.

New telemedicine startups like Fuzzy for veterinary care are making care more accessible, cheaper, and higher-quality, by making it possible for patients/clients and doctors to communicate remotely and asynchronously.

Home services & skilled trades

A number of skilled, consumer-facing trades — like plumbing, electricians, and landscaping contractors — have licensing requirements at the state and/or local level.

Furthermore, many of these service verticals are experiencing worker shortages due to a number of factors, ranging from social stigma against trade schools, to increasing emphasis on college degrees and white collar work as the surer pathway to success. According to the National Electrical Contractors Association, 7,000 electricians join the field each year, but 10,000 retire (source). Baby Boomers hold a majority of many skilled trade jobs — and as they retire, millions of roles will be left vacant.

Just as there’s been a number of education and career placement startups that are addressing worker shortages in the tech industry — like Lambda School, Make School, and SV Academy — we think there’s also room for a “Come for the education, stay for the network” play in skilled trades. There’s an opportunity for marketplaces in these supply-constrained service verticals to go beyond simple aggregation of existing providers, into training and education of workers new to the industry.


All 50 states and DC require a license to work as a cosmetologist, a profession that encompasses providing beauty services like shampooing, cutting, coloring and styling hair, applying makeup, and skin and nail services. On average, these laws cost aspiring cosmetologists $177 in fees and over a year (386 days) in education and experience and require them to pass two exams (source).

The second order effect of this is that for most consumers, getting one’s hair done or makeup professionally applied is a splurge reserved for special occasions. We’re interested in ways to fundamentally change the supply model such that these services become accessible for anyone, anytime, particularly in cases where applications of artificial intelligence and computer vision can enable this accessibility.

We would love to talk to any founder building marketplaces here!

Investing in the Podcast Ecosystem

Originally published on

In the world of podcasting, the flywheel is spinning: new technologies including AirPods, connected cars, and smart speakers have made it much easier for consumers to listen to audio content, which in turn creates more revenue and financial opportunity for creators, which further encourages high-quality audio content to flow into the space. There are now over 700K free podcasts available and thousands more launching each week.

As new tech platforms hit scale, we on the consumer team have been closely watching the future of media and the technology driving it — in all forms. We’re interested in investing in the next wave of consumer products and startups coming into the ecosystem, and that includes the audio ecosystem.

Our investment philosophy is to not be too prescriptive, so we do the kind of “market map” overview below to help us have a “prepared mind” when we see new startups in the space. The below deck and commentary (with some sections redacted, of course) was presented to the extended consumer team, including general partners Connie Chan and Andrew Chen, who are investing in this space. If you’re working on anything interesting in this area, we’d love to hear from you!

(P.S.: If you’re interested in getting a PDF version of the 68-page deck itself, you can sign up for our newsletter to get a copy.)

From niche internet community to one-third of Americans

Over the course of the last 10 years, podcasts have steadily grown from a niche community of audiobloggers distributing files over the internet, to one-third of Americans now listening monthly and a quarter listening weekly.

Podcast consumption is rapidly growing, with a quarter of Americans now listening weekly
Americans listening weekly to podcasts grew from 7% in 2013 to 22% in 2019. 65% of monthly podcast listeners have been listening for less than 3 years.

People are already spending a lot of time on podcasts, and it’s growing: listeners are consuming 6+ hours per week and consuming more content every year.

Podcast listeners are consuming 6+ hours per week of podcasts and consuming more content every year
Among weekly podcast listeners, there’s high consumption: 7 episodes per week and nearly 1 hour per day.

The demographic of podcast listeners is not your average American. Roughly half of podcast listeners make $75,000 or more in annual income; a majority have a post-secondary degree; and almost one-third have a graduate degree [source]. There’s also a gender gap with podcast listeners skewing mostly male, mirroring the gap among podcast creators as well. However, the gender gap has narrowed from a 25% gap in 2008 to 9% today.

Listeners are generally educated (30% graduate degrees), millennials (44%), and slightly more than half are male (though gap is closing!)
Podcast listeners are not your typical American: they’re affluent, highly educated, and skew male.

In the years following the release of Apple’s podcast app in 2012, smartphones pulled ahead of computers for podcast consumption and have grown to become the dominant way that consumers listen to podcasts. The green line includes smart speakers, which have grown 70% year over year in terms of listening.

Since Apple launched its Podcasts app in 2012, smartphones have grown to become the most common device for podcast consumption
Since Apple launched its Podcasts app in 2012, smartphones have quickly grown to become the most common device for podcast consumption.

What may surprise people living in heavy commuter markets is that listening primarily happens at home, which represents almost half of all podcast consumption.

We would also anticipate that more recent technologies like Bluetooth-enabled cars and smart speakers — now owned by 53M Americans or 21% of the population — could change the mix of where podcast listening happens.

Podcasts are most often consumed at home (48%) or in a car (26%); macro trends around growing number of connected cars and smart speakers could impact this mix
The lion’s share of podcast listening happens at home, followed by taking place in a vehicle.

Get the full 68-page analysis deck by signing up for our newsletter

A brief history of podcasting

Simply put, podcasts are digital audio files that users can download — or in some applications, stream — and listen to. While podcasts differ widely in terms of content, format, production value, style, and length, they’re all distributed through RSS, or Really Simple Syndication, a standardized web feed format that is used to publish content. For podcasts, the RSS feed contains all the metadata, artwork, and content of a show.

To listen to a podcast, a user adds the RSS feed to their podcast client (such as Apple Podcasts, Spotify, etc.), and the client then accesses this feed, checks for updates, and downloads any new files. Podcasts can be accessed from computers, mobile apps, or other media players. On the podcast creator side, creators host the RSS feed as well as the show’s content and media on a hosting provider, and submit the shows to various directories, such as Apple’s podcast directory.

Podcast content is typically available for free, though creators can choose to set up private RSS feeds that require payment to access.

Current headlines about podcasts today hail them as the next major content medium, describing them as “suddenly hot”, as the next battlefield for content, and as an “antidote” for our current news environment:

How did this “suddenly” happen? As with all tech trends, it had a longer and slower start before going more mainstream. Let’s time travel back 15 years ago, when there were no smartphones and the internet was accessed only through desktop computers.

In February 2004, journalist Ben Hammersley wrote about the emergent behavior of automatically downloading audio content in a February article in The Guardian:

“MP3 players, like Apple’s iPod, in many pockets, audio production software cheap or free, and weblogging an established part of the internet; all the ingredients are there for a new boom in amateur radio. But what to call it? Audioblogging? Podcasting? GuerillaMedia?”

In doing so, Hammersley accidentally invented the term we still use today, “podcasting” — a portmanteau of “iPod” and “broadcast” — for this kind of content. The word was added to the Oxford English Library later that year.

History of podcasting

In 2005, podcasts were added to the iTunes store, with Steve Jobs saying, “Podcasting is the next generation of radio, and users can now subscribe to over 3,000 free Podcasts and have each new episode automatically delivered over the Internet to their computer and iPod.”

In 2007, the first iPhone was introduced, but it wouldn’t be until 2012 that Apple created the Podcasts app. The release of this app is widely considered an inflection point for the industry, as it put podcasts a single tap away for hundreds of millions of users around the world. Ironically, a few months later, Google discontinued its own podcast app called Google Listen.

In 2014, the first season of Serial aired, considered to be the first breakout podcast, with its narrative audio journalism drawing in 5M downloads in the first month.

In the past 5 years, there’s been an explosion of listening behavior and innovative content. New devices made it easier to listen: Alexa launched in 2015, Google Home and AirPods in 2016. And an explosion of new content — ranging from daily news to narrative to talks shows — met the growing listener appetite. In tandem, ad spend has been growing steadily each year, from $69 to $220M in 2017 [source].

The app landscape

Many apps for listening to podcasts, but little differentiation or loyalty

Apple Podcasts played a pivotal role in the development of the industry and remains the dominant app for listening. However, its market share has fallen in the last few years, from over 80% to 63%. The corollary to this stat is that historically, podcasting has been predominantly an iOS user behavior, given that Google didn’t have its own native application, something that changed last summer with the launch of Google Podcasts.

Apple Podcasts is still the dominant app for listening, though its share has declined from 80%+ to 63% in the past few years
Apple’s share of the podcasting market has slipped from over 80% to 63%, while Spotify has quickly grown to almost 10% of the market.

Spotify — which has made a big push into podcasts in just the past couple years — now accounts for almost 10% of listening.

Beyond these two large companies, there’s a long tail of listening apps from smaller companies. Most of these apps all have roughly the same content, given widely open directories of podcast RSS feeds. And there’s hundreds more listening apps out there. The barriers to entry for creating a new podcast app are quite low, since content is all distributed via RSS feeds and anyone can access them. There are also tools for creators to create their own podcast app from their own RSS feed.

A note on comparing listening apps: metrics between apps are not entirely an apples-to-apple comparison, as some apps (like Apple Podcasts, Overcast, and Stitcher) auto-download shows that users subscribe to, whereas others (e.g. Spotify, Castbox) don’t continuously download new episodes. This affects comparisons between apps and may overstate the traction of listening apps that auto-download shows. The industry has not standardized around what defines a download or listen.

A taxonomy of consumer podcast apps

From our research, users seldom feel passionately — either positively or negatively — about the podcast app they’re using. This suggests that the audio content itself is the core element users are engaging with, and since the content is the same on all apps, users don’t feel particular affinity to any one listening app.

Consumer Podcast Listening Apps
Three major categories of consumer podcast listening apps: the incumbent, large existing audience and new podcast focus, and long tail listening apps.

I categorized consumer podcast listening apps into three major categories:

  • The incumbent: Apple Podcasts
  • Companies with large, existing audiences who are newly focusing on podcasts
  • Long-tail listening apps

The major feature of Apple Podcasts is that — despite its shortcomings in user-facing features and monetization — it’s pre-installed on all iPhones, making it a tap away for 900M people worldwide. We estimate that Apple Podcasts has 27M monthly active users in the U.S., based on App Annie, so a sizeable absolute number but relatively small compared to the total install base. Though Apple accounts for the majority of podcast listening, the company currently doesn’t monetize podcasting at all — all ads that you hear on podcasts are a result of advertisers and podcasters connecting off-platform.

For some users, the app is a basic, functional listening app, as compared to other media apps and products, with rudimentary categorization and discovery features. For some creators, the features it currently lacks include native monetization capabilities, in-depth analytics, demographic information for listeners, or any attribution for where listeners come from. Since Apple Podcasts launched in 2012, the app itself has changed very little. The New York Times wrote in 2016 that “the iTunes podcasting hub that Mr. Jobs introduced remains strikingly unchanged,” and beyond adding more analytics features in 2017, the same still holds true today.

In the second category, there’s a number of media and technology companies that have large existing audiences making a big push into podcasts, including Spotify, Pandora, and iHeartRadio. The strategies for these companies are mostly centered around leveraging their existing audiences to cross-promote podcasts; using listener data to personalize listening experiences or to help surface relevant podcasts; and leveraging their reach and existing monetization mechanisms to help creators earn more revenue. Google, which launched a standalone Podcasts app last year, has talked about making podcasts a first-class citizen in terms of surfacing podcast content in search results, as well as the growth opportunity that Google users worldwide represent in terms of potential podcast listeners.

Finally, there’s the long tail of podcast apps. These are comprised of startups and a fair number of non-VC funded companies. These apps are predominantly competing on the basis of better user-facing features such as improved discovery, search, and social capabilities, as well as creator monetization including their own ad networks or direct user monetization features. Increasingly, startups in this last category are also looking for other ways to distinguish themselves outside of listening experience — including experiments with exclusive, sometimes paid, content.

A discussion about shifting user behavior around consuming podcasts would be incomplete without calling out Spotify. In just the past few years, Spotify has burst onto the podcast landscape, moving from being music-centered to “audio-first”, and becoming the second largest platform for listening after Apple Podcasts.

Now the 2nd largest podcasting platform, Spotify introduced podcasts into the app in 2015 and has doubled its market share in the last year to 9%
Spotify’s market share in podcasting has grown to 9% in a few short years based on data from Libsyn, a podcast hosting provider, and the company has laid out plans to become a destination for all types of audio content.

Interestingly, Spotify may be growing the market of podcast listeners: the data below from Megaphone (formerly Panoply Media) shows that downloads of podcasts from Spotify happen in geographies that historically had fewer podcast downloads.

Spotify made a major push into podcasts last year and is stronger in states with less podcast listening overall, suggesting that it has grown the total audience of podcast listeners
Downloads data suggests that Spotify is growing the audience of podcasting.

Spotify also accounts for two of the largest podcast acquisitions in industry history — Gimlet and Anchor — which occurred earlier this year. The company has committed to spending hundreds of millions of dollars more on acquisitions, and has also stated that podcasts are strategically important for driving increased user engagement, lower churn, faster revenue growth, and higher margins than the core music business.

Snapshot of Spotify's podcast business

Spotify CEO Daniel Ek’s letter about their “audio-first” strategy is worth a read. He predicts that over time, more than 20% of listening on Spotify will be non-music content, and that the Anchor and Gimlet acquisitions position Spotify to be a leading platform for creators, as well as the leading producer of podcasts.

Spotify’s Audio-First strategy as articulated by Daniel Ek, Feb. 2019

Podcast creator and listener activity

Extreme power curve among podcast creators

If traction among consumer listening apps appears highly concentrated among a small number of apps, the same can be said of podcast creators. The creator landscape reflects a power-law type curve, with most of the podcasts consumed in the top 1% of all content.

According to Libsyn, one of the oldest podcast hosting providers, the median podcast only has 124 downloads per episode — but the top 1% has 35K downloads per episode.

Podcast consumption follows a power law with a longtail of hobbyist creators

A taxonomy of podcast creators

I created a taxonomy of the podcast creator ecosystem as a rough framework for thinking about the various types of creators, roughly split across five categories: media companies with internal podcast efforts; standalone podcast-only studios; large indies (including what our editor-in-chief Sonal Chokshi calls “cult-of-personality” shows); non-media businesses and nonprofits; and the long tail of hobbyist creators.

Five Types of Podcast Publishers

In order of descending audience sizes, these categories are:

  • Media companies that have internal podcast departments, whose goals in podcasting can range from audience development to diversifying revenue. Examples of companies in this category include traditional media companies like the New York Times, where audio was treated as an experiment before The Daily became a major hit in 2017; radio platforms like iHeartRadio, which bought Stuff Media to double down on podcasting; and digital media companies like Barstool Sports, a sports and pop culture blog which produces a number of podcasts. These companies can leverage their existing user base to drive listenership for the podcast — and if the podcast becomes popular, vice versa.
  • Podcast production companies focused mainly — if not exclusively — on podcasting, which necessitates building a viable business from podcasting alone. Their revenue primarily comes from advertising, which means those podcasts need to amass large, repeatedly engaged listener bases. Examples include Gimlet (the creator of Reply AllStartUpCrimetown, and others), acquired by Spotify in early 2019; and Wondery (Over My Dead BodyGeneration WhyDr. Death).
  • Large indies and personality-driven talk shows primarily hosted by one or two personalities. These podcasts monetize mostly through ads, donations, and sometimes merchandise or live events. Examples include Tim Ferriss, Sam Harris, Rachel Hollis, Karen Kilgariff and Georgia Hardstark (My Favorite Murder), Roman Mars (99% Invisible), Joe Rogan, and many others.
  • Non-media businesses and nonprofits that also produce podcasts. The primary goal behind these podcasting initiatives is mostly brand-building and marketing, rather than driving revenue. Mailchimp and HBS podcasts fall into this category.
  • Lastly, there are the individual hobbyists creating and posting content — often un-monetized and with very limited audiences. Podcasting tools like Anchor and others are democratizing the ability to launch a podcast, which will lead to more and more hobbyist creators.

Note that these categories serve as a rough segmentation of the creator landscape, because there is a lot of overlap and blurriness between some of them.

For instance, NPR — the #1 podcast publisher in terms of downloads — produces many hit podcasts including Hidden BrainHow I Built ThisPlanet Money, and others, and is considered by some as having raised the profile of the medium overall. NPR sells ads on its podcasts and has teams of designers, planners, and strategists, but is technically a non-profit media organization. While podcasting has deep roots in public radio — This American Life, for instance, launched in 1995 under WBEZ (Chicago Public Radio) — the non-profit aspect of these organizations has implications on the business. Alex Blumberg, the CEO of Gimlet and a cofounder and producer of Planet Money, was reportedly frustrated with NPR’s slow decision-making and strict rules around advertising, which led him to found Gimlet: “‘We should be making more; people want more… There should be the Planet Money of technology! Of cars!’”

Rich variety of content

The top iTunes podcasts chart from May 2019 is interesting for its glimpse into the tastes of Americans who have iPhones. A small number of publishers account for multiple top shows, including Wondery and NPR. We can also see how much Americans love crime/mystery content, as well as talk shows!

Top Podcasts Snapshot (iTunes, May 2019)

While NPR and iHeartRadio have roughly the same number of monthly downloads, NPR is able to accomplish this with just 48 shows vs. iHeartRadio’s 170. (Shows with blue check marks have gone through Podtrac’s podcast measurement verification process.)

Top 10 Podcast Publishers - a quarter of unique streams/downloads is NPR podcasts

Making money from podcasting

The current state of monetization in podcasting mirrors the early internet: revenue lags behind attention. Despite double-digit percent growth in podcast advertising over the last few years, podcasts are still in a very nascent, disjointed stage of monetization today.

Monetization Mechanisms (1/2)

Today, podcasts primarily monetize via ads and listener donations. Though we’ve heard anecdotally from advertisers that podcast ads are effective — and are unique in their ability to reach a hard-to-access, attractive demographic — the ad buying experience is manual and tedious. Especially compared to purchasing other forms of digital advertising, since the dominant listening platform (Apple) doesn’t offer a way for hosts and brands to connect.

As a result, you’ll see price sheets floating around online for major shows, with set rates to sponsor episodes, based on historic downloads figures. Ad networks in the podcasting space like Midroll Media and AdvertiseCast aim to make this process easier, while more new listening platforms are also enabling easier advertising, for instance by selling ads on behalf of shows in its network.

But advertising doesn’t always cover the entire cost of producing a show, even for hit shows. Serial is one of the most successful podcasts ever — and the first ever podcast to reach 5 million downloads — and asked for donations in order to fund the production of the second season. This American Life also publishes requests for donations, including these blogposts detailing the high costs of producing the show, with Ira Glass writing, “People sometimes ask me if it’s frustrating, having to request donations directly from listeners. It’s not. It’s the fairest way to fund anything: the people who like these stories and want them to exist, we pitch in a few bucks.”

Donations to podcasters primarily happen off-platform today, via third-party tools such as Patreon, PayPal, and Venmo. The top podcaster on Patreon, Chapo Trap House, a political humor podcast, earns over $131K per month from almost 30K patrons (link). Himalaya, the U.S. podcasting app backed by the Chinese company Ximalaya, has a donations feature. And some other listening apps also have introduced one-off tipping capability or patronage features.

Monetization Mechanisms (2/2)

Another monetization mechanism that companies are experimenting with is branded content. As opposed to advertising — which first start with the content and then sell ads to monetize — branded shows create a podcast in collaboration with a company, for a fee. Examples include The Mission, which is selling to enterprises to create branded podcasts — for instance, a podcast called The Future of Cities, sponsored by Katerra; and Gimlet, which has collaborated on shows like The Venture with Virgin Atlantic. By removing dependence on ads for monetization, branded shows like these are able to go deeper into a subject matter and create more niche content that doesn’t rely on listening volume to generate revenue.

There’s also a lot of activity happening right now in the subscription and membership space. Recently-launched podcasting app Luminary Media (which bills itself as the “Netflix for podcasts”) charges $8 a month for access to a slate of more than 40 exclusive podcasts, and the app also has a free listening experience. The launch has been bumpy, with issues ranging from podcasters taking offense at their tweet that “Podcasters don’t need ads”; to controversy about removing links in show notes, including donation and affiliate links that help podcasters monetize; to using a proxy server to serve podcasts, which made it challenging for podcasters to receive accurate analytics. Luminary’s launch serves to signal a few things — that the golden age of investing in podcasting is underway in terms of dollars flowing in, but also that getting the buy-in of creators is just as important as winning over consumers in building a new platform.

The model of subscription premium audio content is popular in China, where Ximalaya, a unicorn consumer audio platform, has a subscription feature for $3 monthly that enables users to access over 4000 e-books and over 300 premium audio courses or podcasts. Audio content is also available a la carte starting at $0.03 per short, serialized book chapter, or anywhere from $10 to $45 for paid audio courses.

Other monetization models we’ve seen include grants or foundation support, ticket sales for live events, and merchandise sales. There’s also licensing deals happening with the likes of HBO, Amazon, Fox, and other content companies who view podcasts as a source of intellectual property and want to adapt them into movies and TV shows. For instance, Gimlet’s scripted podcast Homecoming debuted as an Amazon Original Series in November 2018. The directionality of influence goes both ways: some podcasts are offshoots of other content — such as HBO’s Chernobyl podcast which discusses each episode of the mini-series — or written content — like Binge Mode’s deep dive into Harry Potter.

Get the full 68-page analysis deck by signing up for our newsletter

Podcast ad revenue is growing but is still tiny compared to other content formats

In 2019, the podcast industry ad revenue is estimated to hit over $500 million dollars, having doubled each year for the past few years. However, overall industry revenue is still tiny compared to that of other content mediums.

Podcast ad revenue is growing, estimated to hit $515M in 2019...

...but industry revenue is still tiny compared to other mediums

In particular, based on average revenue per active user per hour, podcasts monetize at a fraction of other content types.

Podcasts monetize at only $0.01 per listener hour, on average, 10x less than radio
Though podcast ad revenue is growing, the medium monetizes at a fraction of the rates of other content types (source: Nielsen via Hacker Noon)

Limitations of podcast advertising

Based on our conversations, lag in monetization isn’t due to lack of efficacy of ads. Various studies, including by Nielsen and Midroll Media, have found that podcast ads meaningfully increase purchase intent.

Why is podcasting monetization so low? Reasons include:

  • Inability to monetize directly on the dominant platform, Apple Podcasts.
  • The long tail of podcasters not being able to monetize because advertisers only want to work with podcasts that have a high level of listenership. Given the lack of advertising inside major listening apps, advertisers need to connect off-platform with podcasters — whether directly or through an ad network. This manual process means that for most advertisers, the long tail of podcasts requires too much time and effort to find and work with.
  • Lack of clarity around actual listens. For a long time, downloads were used to proxy delivered ads, but a “download” doesn’t necessarily mean a “play”.
  • Detailed listener data is also not available. There’s also a lack of sophisticated targeting tools on par with what Facebook and other digital platforms offer advertisers.

Today, podcast ads are primarily direct response, with ads read by hosts. You’re probably familiar with ads on podcasts with hosts talking about a product and verbally sharing a discount code. Podcast ad attribution is very rudimentary: the common methods of attribution are vanity URLs (for instance,<podcastname&gt;); promo codes entered at checkout; and surveys asking users, “How did you hear about us?”

Despite all these issues and barriers to monetization, podcasts are still able to command a premium CPM of $25 to $50, based on downloads, due to their efficacy. And the highest performing shows can cost even more.

How much are podcasters making?

While the majority of shows don’t monetize at all, the most successful ones can earn substantial revenue through advertising. A couple of data points: in July 2018, The New York Times’ The Daily podcast was projected to book in the low eight-figures revenue in 2018 from ads, and had 5 million listeners monthly and 1 million listeners daily, or about $2 to $10 revenue per monthly listener. For context, The Daily was only started in January 2017. For comparison, in 2018, Spotify earned $605M from 111M monthly ad-supported listeners, or $5.45 per free listener.

The New York Times as a whole had $709 million in digital revenue in 2018, so podcasting is still small relative to their entire business, but has an outsized impact on brand awareness. Michael Barbaro, the host of The Dailyshared in Vanity Fair that “When we started the show, we had many goals. We didn’t realize we were going to make money that was actually going to get pumped back into the company.”

Blogger and podcaster Tim Ferriss has written that if he wanted to fully monetize the show at his current rates, he could make between $2-$4 million per year depending on how many episodes and spots he offers.

Some back-of-the-envelope calculations around how much podcasters are making: Assuming CPMs of $25-50, if a podcast is in the top 1% in terms of downloads episode, or has 35,000 downloads per episode, each episode could generate about $4,000 per episode with two ad slots.

Audio trends and lessons from China

Over the past five years, dedicated audio apps in China have been growing quickly. In fact, online audio market users grew by over 22% in China in 2018, a faster rate than either mobile video or reading. Looking at China can illustrate potential business models — partly through adopting an audio-centric approach rather than adhering to a strict definition of podcasting.

Ximalaya FM, which last raised $580 million in August 2018 with a $3.6 billion valuation, is an audio platform with over 530 million total users and 80 million monthly active users. Ximalaya’s product is audio content in every form — from podcasts and audiobooks to courses, live audio streaming, singing, and even film dubbing. The monetization models are just as diverse: there’s advertising, subscriptions, a la carte purchases, and donations / tipping. Interestingly, not all paid content is included in their subscription membership (similar to Amazon Prime Video’s mix of free and paid content), but members get an additional 5% discount on any exclusive content.

China’s unicorn audio platform Ximalaya helps illustrates creativity in product and business models.

As a result of the platform’s diverse purchasing models, the discover leaderboard filters not only by content category, but also according to monetization method, top hosts, most subscribers, and what’s trending on that very day.

Ximalaya Leaderboards
Ximalaya leaderboards can be sorted by top grossing content, top hosts, highest number of subscribers, and also by category of content.

The app contains many different tabs with categorized content to allow users to optimize their listening experience. As the below screenshots indicate, users with children can get their feeds custom-curated for family-friendly listening; and users interested in learning English can get daily custom curated playlists with lessons, techniques, or even testing advice. In total, there are over 50 interest-based feeds available for users to choose from.

Ximalaya Categorized Tabs
Ximalaya features customizable feeds of audio content.

Ximalaya places a large emphasis on social interaction and community, which also has its own monetization model. One of the app’s most popular features is live audio broadcasting — which resembles live video, but through voice only — where users can host their own channel, invite other broadcasters, and earn money through virtual gifts from their listeners. Popular live streaming categories include music (singing songs or talking with music in the background); chatting about relationships; or discussing anime. Meanwhile, the Discover tab curates audio content into a custom social network so users can see not just the most popular content, but also what people are saying about it.

Ximalaya Social Audio Features
Ximalaya social features include live audio broadcasting — monetized via virtual gifting — and a social feed of other users’ activity.

Ximalaya illustrates a potential path for the development of audio platforms in the U.S., through its wide range of content types, monetization strategies, and interactivity. Examining the product may also hint at experiments it could run with Himalaya, its U.S. podcasting startup.

Beyond Ximalaya, social audio is a growing category in China, with apps like Hello (live audio broadcasting); KilaKila (an anime community with live audio and video broadcasting); and WeSing (a social karaoke app), all of which monetize through virtual gifts. Other apps such as Soul, Zhiya, and Bixin leverage audio for making friends, dating, and even video game companionship. These apps showcase the potential of audio to serve as a platform for social interactivity — voices act as a core component of users’ identity and are the medium through which individuals interact.

Startup trends, challenges, and opportunities

Biggest outcomes: no large standalone companies yet

Early 2019 saw the two largest ever exits in the podcasting industry — but against the larger backdrop of venture-backed companies, the exits were still small. The industry hasn’t yet seen a “Facebook buys Instagram” moment — or a large independent company emerge.

Significant Exits in the Last 5 Years (1/2)

Significant Exits in Last 5 Years (2/2)
Most acquisitions have been for listening apps or podcast production studios. Early 2019 saw the two largest exits ever for the podcasting industry, which were both to Spotify.

In early 2019, Spotify acquired Gimlet Media, the studio behind top podcasts including Startup, Crime Town, and Reply All, for over $200 million; and Anchor FM, a podcast creation and distribution platform that aims to make podcasting extremely simple and enable anyone to start a podcast using only their smartphone, for about $100M.

Beyond these two companies, there have been a number of smaller acquisitions in the space. Most of these exits have been “acquihires” of small listening apps that were subsequently shut down post-acquisition. More recently, podcast studios with expertise producing popular content have also been a target of acquisition, including Stuff Media (to iHeartRadio) and Parcast (to Spotify).

Startup trends: new apps, monetization experiments, production experiments

There’s been a flurry of funding activity in podcasting — so much so that some publications are wondering if we are in a “podcast bubble” (see for example thisthis, and this). Here are some of the major trends we’ve seen.

Investments in podcasting companies have exploded in the past few years
2018 saw a record number of venture capital investments and capital raised for podcasting startups.
Market Map: Audio Companies
Startups are building new listening apps, verticalized audio platforms, and producing podcast content.

1. Consumer listening apps for general podcast content

A lot of startup activity is happening on the consumer side of listening apps: Many startups are capitalizing on the opportunity to create a better listener experience, given that Apple Podcasts is relatively simple and bare-bones, and until recently, there has been no default listening app for Android users. Issues these apps are addressing include better discovery of podcasts through algorithms, curation, or social signals; more effective ways to search for relevant content (e.g. by automatically transcribing podcasts so as to be able to search within them); or improved social features.

We on the consumer team tend to believe that better podcast discovery, recommendations, and other user-facing features alone aren’t sufficient to draw a large listener base. The core of what users are interacting with on a listening app is the content itself — after all, it’s normal for listeners to start playing audio content, then to background the app or put their phones away, so the listening app becomes secondary to the content. As a result, many podcasting startups have expressed interest in offering some flavor of exclusive content, as well as monetization options for creators, in order to further differentiate themselves.

Here’s a small sample of the approaches some of these new listening apps are taking:

  • Charging consumers directly for podcasts — these apps’ exclusive podcasts account for a relatively small share of all of the content available in these apps. Examples include Luminary and Brew, both of which have subscription models for access to exclusive content, in addition to allowing users to listen to widely available free podcasts.
  • Adding a social layer onto podcasts — to help with discovery and/or to capture the conversation happening around podcasts. Some early companies in this space include Breaker, Swoot, and others.
  • Offering translation and transcription — essentially enabling episode-level rather than show-level discovery. Castbox, for instance, offers podcasts in multiple languages, as well as the ability to search within podcasts by transcribing content. The app also recently launched live audio broadcasting that allows anchors to interact with listeners via voice, text, and call-in and to earn tips from followers.
  • Adding context — Since podcasts expose listeners to so much new information and prompt questions, these could be more seamlessly explored without disrupting the listening experience. Entale, for example, is a “visual podcast app” that uses AI to showcase relevant information to users as the podcast is playing — this could be displaying the Amazon link to a book that someone mentions, or linking to the Wikipedia page about a speaker’s biography.
  • Specializing by vertical — For parents growing increasingly cognizant of exposing kids to screen time, having a curated selection of audio content targeted towards kids, suitable for entertainment and learning, can be valuable. Leela Kids, for example, is a children’s podcast app that curates kids-safe content.

2. Vertical consumer audio apps

Beyond general and for-kids podcasts, there’s also a number of adjacent audio apps with more focused content, including those targeting education, audio books, fiction, health and wellness and fitness. By focusing on a specific subject matter and going very deep, these apps aim to create full-stack listening experiences that combine original content around that particular vertical; user monetization mechanisms; and other value-added features that enhance the user experience and help users achieve their goals.

To give a few examples, Calm and Headspace are both guided audio meditation apps, which offer both free and subscription-only content that’s exclusive to their own platforms. Both have features beyond just the content itself that help users with mindfulness — for instance, daily reminders, streaks, visualizations and videos, etc. In the ASMR (autonomous sensory meridian response) vertical, Tingles is an app where fans can watch or listen to videos of ASMR content, filter by specific categories, and support creators through subscriptions. In the fitness category, Aaptiv, ClassPass Go, and MoveWith are examples of companies offering audio fitness classes across a variety of exercise types.

3. Podcast production companies

Lastly, there’s a surge of venture-backed podcast production companies creating podcast content and distributing it through third-party listening platforms. Examples of these include Wondery, the studio behind a number of hit shows including Dirty JohnDr. Death, and American History Tellers; and WaitWhat, the content incubator that developed Masters of Scale with Reid Hoffman and Should This Exist.

Most podcast producers are creating entertainment-focused, general interest content that appeals to a wide audience, likely because of their monetization model, which is primarily ad-supported. Since these content studios distribute through other platforms and don’t have direct relationships with end users, they need to monetize through advertising, which necessitates content that appeals to a wide audience and promotes lengthier consumption times and ongoing listening.

Successful production studios could be prime acquisition targets for media companies as efficient sources of IP, or for consumer listening apps as a way to differentiate based on content — and a number of startups in this space have already been acquired. Another possibility is that once these content companies generate enough listener traction, they could create distribution platforms of their own, and use these as a way to deepen listener relationships and diversify revenue, for instance by charging users for, say, early access to content, back catalogs, exclusive content, or other features.

So what are we interested in investing in?

Given the challenges with monetization, how can startups create a path to becoming a sustainable business? With the distribution and capital advantages that incumbents have — coupled with the fact that Apple and Google own the end mobile platforms, where are the opportunities for startups? And how do we evaluate these opportunities?

To understand startup opportunities, it’s important to consider where the incumbents and large audio companies like Spotify, Pandora, and iHeartRadio are uniquely advantaged:

  • Consumer traction and awareness, and a large audience to which podcasts can be cross-promoted
  • Large budgets for content production and acquisition
  • User data on preferences and existing media consumption
  • Existing monetization mechanisms, such as through ads, subscription

So how to navigate creating a large opportunity, given the above advantages?

We think the most promising players will combine the following aspects:

  • Focus on audio content broadly, rather than exclusively podcasts. Just as the lines between blogs, articles, and other written content online have blurred, the same is happening with all audio content, and so we are interested in all types of content delivered via listening. As outlined above, podcasting was historically synonymous with audio distributed via RSS — now, with the rise of exclusive, paid podcasts, the distinction between podcasting and other audio content is becoming less meaningful.
  • The potential for network effects. We’ve written extensively about network effects and how to measure them; the consumer team loves businesses with network effects! Network effects in audio could take different forms. Like many content platforms, there’s a two-sided marketplace network effect, where more high-quality content makes the platform more valuable to consumers, and more users makes it more appealing for content producers to distribute their content there. All things being equal, most users would prefer to use the platform that has the largest, best inventory of audio content. A social audio app could also have direct network effects, where the experience becomes better with more users/friends.
  • While we prefer full-stack startups that own the experience end to end (positive feedback loops from listening app to content to monetization), we wouldn’t rule out breakout apps that are strong on any one aspect.
  • High-quality differentiated and deeper content vs. broad, free libraries of shallower content. Since the large incumbents seek content that appeals to their large user bases, they’re less focused on seemingly niche, in-depth content. We also believe that for certain high-value content verticals, there’s potential to shift the burden of payment to businesses, schools, or other organizations — rather than on to end consumers.
  • Consumption experience that enhances the experience of the audio content. This could be through live, social audio, or other features that increase stickiness and engagement. For instance, Headspace’s meditation streaks, animations, multi-level categorization, and session length options differentiate and enhance the experience, compared to listening to meditation audio content on general podcast listening apps.
  • Alternative monetization beyond solely ads (Connie Chan has written a lot about this). Given the dominance of existing large platforms like Google and Facebook for ad targeting, it’s becoming increasingly challenging to build a new large company based on advertising alone. We are bullish about audio companies that are aiming to monetize users directly — this could be accomplished through charging for content that has higher perceived ROI, or by introducing payments as a way to alter the content experience (e.g. social recognition after tipping in live streams). More importantly, it’s also a way to align incentives of consumers with content creators.

What could some examples of these startups look like?

1. Vertical audio platforms

We’re excited about startups that are going deep within a particular vertical and building a full-stack audio experience tailored to that vertical. There’s less chance of incumbents competing directly here, given the more niche focus and fundamental differences in feature sets needed to enhance the user experience. We also see greater willingness for users to pay for content that has higher perceived ROI — for instance, various fitness and meditation/wellness audio apps have already gained high levels of traction in usage and monetization.

2. Interactive, social audio… finally

While people have been talking about it for years, we think there’s still an opportunity to finally have truly interactive, social audio. Without being too prescriptive on what this looks like (we want founders to tell us!), the fact is, audio content today is still largely broadcast in nature, with a one-directional flow of information from creator to listener. While there are some conversations happening around audio content (including on Twitter, Reddit, and other forums), they happen in a fragmented, isolated way, and on platforms that aren’t designed for that purpose.

Call-ins to radio and live talk shows are two current forms of interactive audio, with the social element fundamentally contributing to the content itself. Twitch also has podcasters who use the platform to live stream themselves while recording, sometimes responding to user comments which become part of the show’s content. There’s a number of startups enabling users to comment on static podcast content, but the social experience needs to become even more interactive to attract a wider audience and pull users off existing platforms. In China, live audio broadcast, group karaoke, and even audio dating products are flourishing, and there may be an opportunity to create an audio product that is more interactive and social for U.S. audiences, too.

3. Platforms that helps creators own their end users and monetize content

Most creators are disintermediated from their end listeners, since they produce content that is distributed solely through various third-party platforms. Given the brand equity and large followings that some creators have established, we believe that there’s an opportunity to give these creators a way to distribute their own content, own their customers, and to monetize through alternative sources besides advertising and off-platform donations.

Some influential podcast publishers have developed their own solutions to engage and/or monetize their own audiences, including Slate Plus, a paid membership program from Slate with podcast benefits including ad-free and bonus podcast; The Athletic, which launched over 20 exclusive shows behind a paywall in April; and BBC Sounds, an app that puts music, podcasts, and radio from BBC into one personalized destination.

But for creators who don’t have the technical or financial resources to develop their own apps or piece together various third-party solutions to accept payments or manage members, there could be a turnkey platform for creators. Down the line, there’s opportunity to create a network of these creators and listeners, along the lines of “come for the tool, stay for the network.”

The future

“If you think of audio as the way you think of, say, film, like we’re still in the black-and-white period of podcasting. What’s color going to look like? What’s 3-D going to look like?”

I love this quote from the host of Today, ExplainedSean Rameswaram — since we are still indeed in the black-and-white phase of podcasting.

Taking a step back, it’s amazing how much progress the industry has made since the Apple Podcasts app was introduced 7 years. It’s still early days, so if you’re building something that is related to any of these aspects, please drop me a line!

Thank you to Avery Segal for his work on the China section, and Bennett Carroccio for additional research.

The next generation of marketplaces may not even look like marketplaces

I believe the next era of marketplaces is going to look very different than the marketplaces we’ve seen so far.
It used to be the case that marketplaces could add a ton of value just by aggregating any and all supply and demand. The onus was on the users to filter using the available information in the marketplace to choose what they wanted or needed.
This model has worked well for a ton of product and service categories and marketplace companies.
But now, there’s an increasing need for more “managed” marketplaces — platforms that take on more work, not less (e.g., interviewing and vetting suppliers, automatically setting prices, etc.) — to intermediate the delivery of the product or service.
The managed marketplace model is critical to unlocking categories involving high-stakes or high price transactions (such as therapy, home buying, fine art, travel experiences), as well as those impacting users’ lives and health in other ways.
In childcare, for instance, people don’t want to just see a list of all possible caregivers — they want to know with certainty that the providers they’re hiring are trustworthy and qualified.
Last week’s WSJ piece on illustrated the tragic shortcomings of an unmanaged marketplace model:
This week, the company announced it is overhauling its supplier onboarding process, including verifying licenses and credentials and checking criminal databases — adding a layer of management onto a previously open marketplace: Overhauls Vetting of Sitters, Listings
Managed marketplaces are an important evolution in marketplaces. The low-hanging opportunities in marketplaces have been picked, and the next wave of startups are innovating on the underlying marketplace model to tackle more complex goods/services that have remained offline.
In the future, marketplaces may not even feel like marketplaces to the end user. Because they connect all the dots behind the scenes–and provide such a high level of standardization and quality–people feel like they’re interacting with a high-quality, concierge-level service.
Examples range from daycare (e.g. Wonderschool) to skincare (e.g. Heyday). On the surface, Heyday looks like a chain of facial shops — a physical retail and services business. But underneath, it’s building a personalized skincare platform, matching different women to the exact right products for their skin, driven by the company’s growing corpus of data on what ingredients have worked well for various skin types, sourced from their physical business.
What are other interesting innovations in marketplaces? Interested in hearing more examples!

Tweetstorm: The best marketplaces solve a demand need

Tweetstorm: The “influencer stack” and China’s influence incubators