A little less than a year ago, we published the Battery Network Effects Index, a market index including 36 current or previously publicly traded, consumer-Internet companies, each valued at $1 billion or more at the time. We highlighted the companies because all exhibited profound “network effects”, meaning the services became more valuable the more people used them.
Most of these companies were online marketplaces—either transactional marketplaces, where sellers and consumers meet to buy products or services (think GrubHub, Priceline, Alibaba) or marketplaces fueled by ads (think Zillow, Yelp, Tripadvisor). Someday soon, members of a new class of prominent marketplaces exhibiting network effects—giant companies such as Airbnb and Uber—could join the index.
In our view, network effects on the consumer Internet can be extremely potent: They lead to more-efficient sales and marketing activity; create strong barriers to competition; and can lead to explosive growth as a company’s base of users grow at a fast rate.
We’re always interested in finding new markets where companies exhibiting profound network effects can germinate. Last year, we delved into one we think is potentially promising: dog walking.
In the U.S., people spend tens of billions of dollars per year to take care of their dogs (89 million of them!). This includes everything from dog food, to leashes, to toys, to grooming and dog boarding. And, most relevant for this discussion, dog walking. This trend was also not lost on two entrepreneurs, brothers Josh and Jon Viner, who three years ago started an online dog-walking marketplace called Wag!*. The service matches people who need someone to walk their dog, usually on a one-off basis, with vetted and experienced dog walkers.
We had known of Josh and Jon for a while, including from their prior company Chirpme. In talking to them about their marketplace, it became clear to us that Wag! highlighted several important themes we had already identified related to network-effect companies:
- Tapping a “shadow market.” While dog walking on its own is a billion-dollar market in the U.S., over 90% of Wag! users have never used a dog walker before. This, to us, indicates the potential for the company to tap new, latent demand in the market for pet services, similar to the way in which companies like Uber and Airbnb accessed previously untapped markets in ridesharing and vacation rentals.
- Viral supply: While most marketplaces spend money to acquire their supply–in Wag!’s case, dog walkers—we saw that Wag! had a different, more-viral type of supply acquisition model. Walkers were extremely eager to sign up for the marketplace, driven in most cases by their love of dogs, a type of supply-side interest that is unusual among on-demand marketplaces.
- Technology enables a new experience. Many marketplaces offer new types of digital experiences; Wag! does this for dog owners, offering a well-designed app to summon a dog walker—which lets users track actual dog walks–customer support and digital payments, among other features.
- Frequency of use: The average Wag! customer uses the service more frequently than virtually any other on-demand service we have evaluated. When we benchmarked this to other consumer services, it became clear that this, too, was unusual, and indicated a very loyal customer base.
Wag!’s marketplace performance and related networking effects are attracting other prominent supporters to the company. This week, Softbank’s Vision Fund announced it has led a $300 million investment in the company. In addition, Wag! announced that former LifeLock CEO Hilary Schneider, an experienced tech executive and (of course) dog owner, is joining the company as CEO. We look forward to continuing to partner with Josh, Jon, Hilary and Softbank as the company moves into the next phase of its growth.