Why vertically specialized resellers can thrive vs. horizontal marketplaces – Steezy

In a previous post we explained that a key factor that can make the reseller model more desirable than the platform model is the importance of optimizing the quality of the experience for buyers and/or sellers. And in a subsequent post we illustrated this point with the example of ThredUp, where the main user experience that was optimized was that of sellers, providing them speed and convenience in disposing of their unwanted clothes.

In this post, we emphasize a similar point with the example of Steezy, a fast-growing start-up providing online dance classes, but where the main additional value comes from providing the consumer side with a better experience.

In principle, one can find hundreds of thousands of free videos for helping people learn how to dance on YouTube, the ultimate marketplace for digital content. However, it is precisely that dizzying variety of content on YouTube that creates the opportunity for specialized resellers like Steezy.

Steezy is a reseller in the same way Netflix is: it either licenses or produces its own content, and then sells access to this content on a monthly or yearly subscription. Unlike YouTube, Steezy takes full control over how the content is produced and provided. For example, dancers producing content for Steezy have their dance moves professionally filmed in Steezy’s own studios to meet Steezy’s exacting standards. They sign over the rights to this content for Steezy to distribute. In contrast, dancers on YouTube have full control over their content creation (as long as it is not considered objectionable) and can remove or change their content whenever and however they want.

All this control allows Steezy to offer greater value to consumers. The content is high quality, standardized and neatly categorized, making it easy to find and access the specific content that best fits an individual consumer’s preferences (as opposed to endlessly browsing on YouTube). Steezy’s classes are optimized to teach subscribers short choreographies that they can later do on their own, as part of an integrated curriculum to learn a particular dance style. Subscribers can make use of viewing features that are designed specifically for learning dance, like looping a selected part of the video, switching between front or back view, or watching the video in mirror mode (so that the user can simply copy the instructor).

Together, all these aspects make the learning experience a lot better than what one could get on YouTube. Yes, YouTube offers orders of magnitude more variety of dance videos (for free), but as it turns out, the quality of the user experience matters more than content variety in this context. Of course, Steezy is working hard to increase the variety of different types of dances it offers lessons for, but it will never be able to match what is available on YouTube. Nor should it try to do so. Instead, its current vision is to become the “Disney of dance,” which clearly emphasizes its focus on providing a consistently good consumer experience.

The same arguments that explain why Steezy is best positioned as a reseller, should also apply to many other verticals. For example, they also explain how Calm and Headspace were able to build billion dollar businesses by focusing on online mediation and mindfulness, despite the existence of hundreds of thousands of free meditation and mindfulness videos on YouTube. Like Netflix and Steezy, they produce their own content (featuring superstars like LeBron James and Matthew McConnaughey for Calm) and offer it through their apps to users in exchange for monthly or annual subscriptions. For online fitness, another massive vertical on YouTube, there are many recent start-ups providing curated online video content via subscriptions, such as Fit!, which leverages select instructors to create and offer exercise programs targeted at specific use cases (golf, handstands, skiing, surfing, parkour, etc). Another start-up example in a different vertical is The Crafter’s Box. In exchange for a monthly subscription, users can learn a new craft each month: the company mails them a box of materials and provides an associated video in which an instructor shows them how to produce something. Like in the previous examples, The Crafter’s Box offers a much more convenient and curated experience (albeit for a much higher price) for people who want to try out new crafts, than what they could get by watching YouTube and purchasing supplies at their local craft shop.

Once such resellers have established themselves, they can still of course consider adding platform elements, using the methods we discussed in previous posts. In the case of Steezy, it has already started connecting its customers by creating a community of Steezy dancers that take part in weekly dance challenges among other activities. It could also contemplate opening the doors to third-parties, who want to sell products or services to its subscribers. This could be dance venues, or independent dance instructors who would like the chance to offer Steezy users one-on-one coaching or live online dance classes which complement Steezy’s core offering. By opening such a marketplace for third-party instructors, Steezy would have to give up some quality control and would risk hurting its brand, but at the same time it can expand to new formats or new types of dance in a much more cost-efficient way. And if some of these new third-party offerings turn out to be very popular and lucrative, it can always bring them in house later. This is of course the Amazon story: it started off as a reseller of books before expanding into reselling other products, then opened up a marketplace to cover virtually every imaginable product, and now it uses the marketplace to learn which third-party products perform the best so that it can sometimes offer them itself.

In conclusion, it is important to be able to recognize markets in which the quality of the user experience can trump the demand for content or supplier variety, so that specialized resellers (e.g. Steezy) can co-exist with horizontal marketplaces (e.g. YouTube). We believe there are many such opportunities for start-ups to leverage.

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