The liberation of the fixed asset.
A ll marketplaces are unique. But all successful marketplaces are unique in the same way: they liberate an inefficiently used fixed asset.
The quintessential example today is Airbnb. Nothing embodies a fixed asset in people's mind's like real estate does; a vacant bedroom being the model example of a UFA (an Underutilized Fixed Asset, for long). Prior to Airbnb, I doubt many even considered their spare bedroom a practical source of income.
Why are UFAs important? Simply put they are things with fixed costs that are not being used as much as they could be. What makes them important is that they can be used more, and from their owner’s perspective all additional usage is - for the purpose of this discussion - free. As one commemorator wrote: to make a billion dollars, find a multi-billion dollar problem, and solve it.
Liberating UFAs is about solving for those multi-billion dollar problems; or in this case: billion-dollar inefficiencies.
My fund was an early investor in a real-estate portal named EMPG, a recent unicorn in the Middle East's classifieds space. We invested because we saw the cross-side network effect of marketplaces as being incredibly strong. Albeit, very difficult to create. Compelling both sides of a given marketplace to participate in the promise of the other side being there is the perennial struggle. Simultaneously building both sides is significantly more difficult than being able to focus on just one side of the market.
One way to think of underutilised fixed assets is like the energy stored in fissionable material. Marketplaces take a tremendous amount of energy to get their self-perpetuating chain reaction happening. But when they do, the virtuous flywheel will keep spinning.
Marketplaces based on UFAs are the kings of the financial moat once dominate. They often come with very high natural barriers to entry once established because they are plumbing a finite source of supply arbitrage, thus making it hard for new competitors to replicate once they have been identified and tapped.
For a first mover (ie. the company to liberate fixed assets first) most asset owners have their baseline value at zero and therefore they are pleased to receive any additional revenue. For the incumbent, this means supply can be brought on at a much lower cost of acquisition. For the future challenger, the cost of supply acquisition will not be similarly low and thus the economics of being late to the party are fundamentally different (and generally enough to be discouraging for investors).
