I love digital marketplace businesses! If you track my career in my two plus decades in Silicon Valley, you’ll see a lot of them. I’ve been an operator and/or investor in the A to Z of marketplace companies across time and place — from Airbnb, Belong, and Cadre to eBay, Incredible Health, Instacart, Neighbor, OpenTable, Rappi, Wonderschool, and others — so I have had a lot of time to think about what I love (and don’t!) about this category.

Here are a few of the reasons I like marketplace business:

• They can create magical value propositions for their users, be they two-sided (e.g., eBay connecting buyers to sellers) or three-sided networks (e.g., Instacart connecting shoppers to grocery stores and picking/delivery gig workers). If you’re looking for a hard-to-find item like a Playstation 5, check eBay (the seller will appreciate it). If you want groceries delivered to your home on demand in a very cost efficient manner, open the Instacart app (both the grocery store and the gig worker will appreciate it).

• They can provide economic empowerment at massive scale. eBay currently has annualized GMV of $100B globally, and AirBnB has annualized gross bookings of $41B globally. The strong majority of both figures end up being paid out to their community of sellers and hosts, respectively, helping millions of individuals around the world earn a better living.

• If they work, they tend to develop network effects. The more restaurants OpenTable added, the more valuable they became to consumers. And the more consumers used OpenTable, the easier it was to attract restaurants. These network effects drive increasing returns to scale and create defensibility barriers for the business.

I love digital marketplace businesses! If you track my career in my two plus decades in Silicon Valley, you’ll see a lot of them. I’ve been an operator and/or investor in the A to Z of marketplace companies across time and place — from Airbnb, Belong, and Cadre to eBay, Incredible Health, Instacart, Neighbor, OpenTable, Rappi, Wonderschool, and others — so I have had a lot of time to think about what I love (and don’t!) about this category.

Here are a few of the reasons I like marketplace business:

• They can create magical value propositions for their users, be they two-sided (e.g., eBay connecting buyers to sellers) or three-sided networks (e.g., Instacart connecting shoppers to grocery stores and picking/delivery gig workers). If you’re looking for a hard-to-find item like a Playstation 5, check eBay (the seller will appreciate it). If you want groceries delivered to your home on demand in a very cost efficient manner, open the Instacart app (both the grocery store and the gig worker will appreciate it).

• They can provide economic empowerment at massive scale. eBay currently has annualized GMV of $100B globally, and AirBnB has annualized gross bookings of $41B globally. The strong majority of both figures end up being paid out to their community of sellers and hosts, respectively, helping millions of individuals around the world earn a better living.

• If they work, they tend to develop network effects. The more restaurants OpenTable added, the more valuable they became to consumers. And the more consumers used OpenTable, the easier it was to attract restaurants. These network effects drive increasing returns to scale and create defensibility barriers for the business.