The unbundling of Craigslist and reddit: the flip side

Reddit-Gold-Added-Membership-Benefits

Earlier this year, I wrote on how I believe reddit may be (or is being) unbundled. In the post, I draw similarities to how Craiglist is being unbundled, and provide several examples of startups that are within verticals of reddit.

Of course, where there is an argument, there is also a counter-argument. And in this this case, there is clearly a counter argument.

I’ll kick if off with a great comment left by Christian Puricelli:

Great post! But I think the unbundling of Reddit is more challenging of the unbundling of Craigslist, because there is one fundamental difference: on Reddit there is no financial transaction (I mean between the users). 3 key success factors of platforms are: the network effect, the curation of content, and especially on platforms that involves financial risky transaction the curation of users and trust (see also http://thenextweb.com/insider/2013/05/26/platform-thinking-how-to-disrupt-craigslist/). A horizontal platform like Craigslist is weak on this 3rd point, allowing vertical competitors like Airbnb that can provide the trust for the transaction to grow. For a non transactional platform like Reddit, this trust factor could not be used by competing verticals for a competitive advantage. So the playing field is more even. Of course this does not mean that it’s impossible as the examples you wrote about show, just that it’s a little be more challenging.

Christian hits the nail on the head.

A fundamental difference is that there are monetary transactions within marketplaces. Where there is a transfer of money, there is a cut of that transaction to be made.

Also, because there is a monetary transaction, trust is also important; important enough that is can be a major differentiating factor. Discussion sites could play up trust also. For example, everyone on Quibb uses their real identity. So do many on Inbound and USV’s new front page. It makes a large difference in the quality of discussions (IMHO). But is trust is online discussion as important as the trust between people when money is exchanged? Probably not.

There is also the difference between need and want. People go to Craigslist to spend money on a service/product they often need. They will take the time for search for that thing they need, and then spend hard-earned dollars on it. People go to reddit to chat with people, which is usually a want (and fairly often, just to procrastinate or kill time). There is a big difference here.

Craigslist monetizes fairly easily. reddit is having a tough time.

Billion dollar companies lay within the verticals of Craigslist (i.e., AirBnb).

Do billion dollar companies lay within the verticals of reddit? If I had to guess, the answer would be “no”, but I would love to be proven wrong 🙂

P.S. This is post number #41 in a 100 day blogging challenge. See you tomorrow!

Follow me on Twitter: @alexshye.

Or, check out my current project Soulmix.

The unbundling of Craigslist and reddit

There are strong similarities between Craigslist and reddit.

Both sites drive incredible amounts of web traffic, and rank highly in the Alexa rankings. Both are horizontal in nature, using a single set of interactions across a wide range of verticals. Both support openness, allowing use cases that are both savory and unsavory. And although both are very functional, they are among the ugliest websites on the Internet.

The unbundling of Craigslist.

Craigslist has remained remarkably successful through the years. Arguably, there hasn’t been a strong competitor since its founding in the 90’s. If anything, competition comes from an unbundling trend, with 100s of startups that are competing to provide a better user experience for specific verticals of Craigslist.

Years ago, Andrew Parker put together a great picture of all the startups competing within verticals of Craigslist. More recently, Chris Dixon has echoed a similar sentiment.

Startups competing with verticals of Craigslist. (via Andrew Parker's blog)

Startups competing with verticals of Craigslist. (via Andrew Parker’s blog)

The same thing will happen to reddit.

Although it hasn’t been written about much, the unbundling trend is going to happen to reddit also. Actually, it has been happening for a while, and it will continue in the foreseeable future.

Here are a few examples:

What else? I would love to build out a more comprehensive list here.

What makes a vertical startup viable?

Each startup within a vertical must satisfy two constraints.

First, there must be a compelling value proposition. It may be the community, the user experience, or whatever. But it must be enough to make users of horizontal company switch products.

Second, the market must be large enough. It doesn’t need to be large enough at the outset, but it must be large enough within a reasonable number of years such that a business can be sustained.

Surely, there are many verticals in which viable startups can be built. But, most likely, there are also many verticals that don’t satisfy these constraints. The horizontal companies will probably always survive, if not only to serve the many verticals that cannot be viable stand-alone businesses.

How would horizontal businesses respond?

The horizontal approaches usually have larger scale, and therefore larger network effects. To squash startups in a particular vertical, they must be nimble enough to observe what works, and improve their user experience for the particular vertical. This is asking a lot from a large company.

If that doesn’t work, they can acquire the company, or hope another company acquires them (since it seems most acquisitions kill a companies product either explicitly, out of neglect, or through mismanagement).

An interesting comparison.

Recently, Tom Tunguz wrote about how the unbundling trend may be the biggest challenge for Facebook, Twitter, and LinkedIn. Unbundling certainly is a threat, but social networks such as Facebook, Twitter, and LinkedIn have appeared more willing to be nimble with their product features and their user experience.

Facebook has changed dramatically since the early days. It’s “move fast, and break things” adage helps out here. Twitter continually tries new experiments, including the recent Twitter music. LinkedIn is in the midst of a drastic change with a new social feed, and with influencer blogs.

On top of that, these social networks have been more aggressive with acquisitions of startups that begin to show success.

One last similarity between Craigslist and reddit.

This brings us to one last similarity between Craigslist and reddit. Both of them don’t seem to move very fast. From a design and functionality standpoint, their user experiences have not changed much over the years. In fact, they almost seem stubborn, refusing to change with the times. Also, they don’t seem to acquire many competitors.

Why is this the case? I don’t know. But, my guess is that this leaves both Craigslist and reddit more vulnerable to unbundling effect, and this is a good sign for startups building within their verticals.

Any thoughts? What other companies are verticals of reddit? What are properties or strategies for successful companies within these verticals? And why do the social networks behave differently when compared to Craigslist and reddit? I would love to hear some different perspectives here.

Follow me on Twitter here.

Check out my latest project Soulmix.

(P.S. I later wrote a post on the flip side of this argument)