The State of Marketplaces

2023 Key Lessons Learned and a Look Ahead

 Disclaimers
This disclaimer applies to this document and the verbal or written comments of any person presenting it. This document, taken together with
such verbal or written comments, is referred to herein as the “presentation.” This presentation is being provided for informational purposes.
Nothing herein is or should be construed as investment, legal or tax advice, a recommendation of any kind or an offer to sell or a solicitation of
an offer to buy any security or offer investment advisory services with regard to securities. This presentation does not purport to be complete on
any topic addressed. The information in this presentation is provided to you as of January 2024 unless otherwise noted and Battery Ventures
does not intend to update the information after its distribution, even in the event the presentation becomes materially inaccurate. Certain
information in this presentation has been obtained from third-party sources and, although believed to be reliable, has not been independently
verified and its accuracy or completeness cannot be guaranteed. Certain logos, tradenames, trademarks and copyrights included in the
presentation are strictly for identification and informational purposes only. Such logos, trade names, trademarks and copyrights may be owned
by companies or persons not affiliated with Battery Ventures and no claim is made that any such company or person has sponsored or endorsed
the use of such logos, trade names, trademarks and copyrights in this presentation. This presentation includes various examples of companies
in which Battery Ventures has invested. For a complete list of all companies in which Battery Ventures has invested, please visit:
https://www.battery.com/list-of-all-companies/. Past performance is not evidence of future results and there can be no assurance that a particular
Battery portfolio company will achieve comparable results to any other company.

The information contained herein is based solely on the opinions of Roger Lee, Courtney Chow and Isabel von Stauffenberg and nothing should
be construed as investment advice. This presentation and the anecdotal examples throughout are intended for an audience of entrepreneurs and
are not recommendations or endorsements of any particular business or an offering of investment advisory services.

1
 Marketplaces: The Battery Perspective
Roger Lee
General Partner
[email protected]
In an increasingly online world, consumer marketplaces continue to
drive innovation as they become more embedded into our everyday
lives. Just two decades ago, eBay and Craigslist were perhaps
the only well-known marketplaces connecting buyers and sellers of
various products and services. Yet today, we see consumers leverage
multiple marketplaces in their daily lives, such as Instacart for grocery
delivery, Bumble for dating and Spotify for enjoying music and Courtney Chow
Vice President
discovering new artists. [email protected]

In many ways, 2023 was a watershed year for marketplace businesses,

as consumer behavior normalized after the pandemic highs and
subsequent spend pullback. Many businesses that had adopted
a “growth-at-all-costs” mindset had to re-orient themselves to profitability
in order to demonstrate sustainable, long-term value. Isabel von Stauffenberg
Associate
In this report, we explore the successes publicly-traded marketplace [email protected]

businesses experienced in the last year — as well as the challenges —

to uncover what marketplace founders can learn. In doing so, we aim
to guide founders through the fundamentals of what drives value in
a marketplace.

2
 Battery Index of Public Marketplaces
Marketplaces saw record share price highs in 2020 – today, prices have normalized to ~2018 levels.
Marketplaces1

$197B2 $194B $127B $124B $87B $79B $45B $39B $36B $23B $23B $21B $19B $16B $13B

*
$9.7B $9.5B $9.5B $8.3B $7.2B $7.2B $6.5B $5.8B $3.6B $3.5B $3.2B $3.2B $3.0B $2.7B

* *
$2.0B $2.0B $1.7B $1.4B $1.3B $1.3B $1.0B $1.0B $0.8B $0.4B $0.4B $0.2B $0.2B $0.1B

Index Value % Change Since December 2012 Index Value % Change Since December 2018
500% 160%
450% 140% +126%
400% NASDAQ
120%
350% (since Dec. 2018)
300% 100%
250% 80%
200%
60%
150% +24%
100% 40% Battery
50% 20% Index of Public
0% Marketplaces
0% (since Dec. 2018)
Dec-18

Sep-19
Nov-19

Nov-20
Jan-20

Sep-20

Jan-21

Sep-21
Nov-21
Jan-22

Sep-22
Nov-22
Jan-23

Sep-23
Nov-23
Mar-19
May-19
Jul-19

Mar-20
May-20
Jul-20

Mar-21
May-21
Jul-21

Mar-22
May-22
Jul-22

Mar-23
May-23
Jul-23
-20%
-40%
NASDAQ Composite Index Battery Marketplaces Index NASDAQ Composite Index Battery Marketplaces Index
1 Battery
Index of Public Marketplaces is a list of public marketplace companies tracked by Battery that are listed on the NYSE or NASDAQ with >$100M Market Cap (as of 12/29/23) with the exception of CVNA and COIN, which have been
3 excluded. CVNA has been excluded due to abnormal share-price increases (+1090% for CVNA given starting price of $4), while COIN has been excluded as we have excluded all crypto-related businesses.
² Source data from CapIQ (as of 12/29/23) – Numbers refer to Market Caps. Battery Marketplace Index is market cap-weighted and pro-rated.
* Denotes a current or former Battery portfolio company. For a complete list of portfolio companies, please visit: www.battery.com/list-of-all-companies/
 2023 Key Marketplace Learnings

1 2
Efficiency Drives Superior Returns Layer on Higher-Margin, Recurring Software Products
Businesses that prioritize efficiency (e.g., a combination Reaching a certain level of network density
of profitability and revenue growth) are valued at higher (supply, demand, data) allows for the introduction
multiples to their peers in public markets. of more profitable and recurring software products.
At the growth stage, it’s important to be mindful of unit This is important to increase customer retention,
economics at both the order and market levels. drive higher average order values (AOVs) and
Companies should ensure there is a clear path to expand gross margins.
profitability, especially for the most mature cohorts.

3 4
Lean Into Viral / Product-Led Growth Loops Be Prepared For (and Leverage) the Power of Gen AI
Overreliance on paid marketing can create a fragile Generative AI is poised to bring about fundamental
business model. Integrate viral marketing and and transformative change to marketplace experiences —
product growth loops to gain a structural advantage for both supply and demand.
when it comes to acquiring customers and
It will be important for founders to integrate AI capabilities
managing marketing costs.
into their products to align with this evolving landscape.

4
 2023 Marketplace Learning #1:

Efficiency Drives Superior Returns

5
 1
The Rule of 40 Explained

Efficiency Drives Superior Returns

Companies that score >40 on the Rule of 40 tend to outperform their peers.

Rule of 40 = Revenue Growth % + EBITDA Margin %

2023E Net Revenue $21.2B $638M

2023E Net Revenue Growth % 25% -29%

2023E EBITDA¹ $7.1B $167M

2023E EBITDA Margin % 33% 26%

Rule of 40 58 (3)
Last Twelve Months (LTM) Share Price Change² +77% (15%)

EV / NTM Revenue Multiple² 5.4x 3.1x

6 ¹Note: BKNG and ZIP FY23E Net Revenue and EBITDA estimates represent consensus estimates. 2Data as of 12/29/23
 1
Battery Index of Public Marketplaces: LTM Share Price Changes1

Efficiency Drives Superior Returns

Efficiency, demonstrated by the Rule of 40, is critical. The Battery Index of Public Marketplaces follows the Rule on aggregate.

2Rule of 40+ ~= 73
70%

60%
59%
50%
Rule of 40 ~= 3
40%

30% 27%
20%

10%

0%
Rule of 40: ≥ 40 Rule of 40: < 40

7 Note: 1CapIQ Share price data as of 12/29/23. 2Green value refers to average rule of 40 value (e.g., average revenue growth % + EBITDA margin %) for all companies above the rule of 40. Red value refers to
average rule of 40 value for all companies below the rule of 40. 40 and above 40 N = 7, Below 40 N = 33. **Analyses exclude CART due to lack of historical data.
 1
Rule of 401 vs. Enterprise Value / Next Twelve Months (NTM) Revenue Multiple2

Efficiency Drives Superior Returns

Companies with a higher Rule of 40 also trade at higher revenue multiples than their peers.

9.0x

8.0x 7.8x
7.0x

6.0x

5.0x

4.0x

3.0x
2.3x
2.0x

1.0x

0.0x
Rule of 40: ≥ 40 Rule of 40: < 40

8 Note: 1 Rule of 40 calculated as LTM revenue growth + LTM EBITDA margin from Cap IQ as of 12/29/23, 2 EV / NTM Rev Multiple from Cap IQ as of 12/29/23. Equal to and above 40 N = 7, Below 40 N = 33
**Analyses exclude CART due to lack of historical data.
 2023 Marketplace Learning #2:

Layer on Higher Margin,

Recurring Software Products

9
 2
Instacart’s Marketplace Growth Paradox

Layer on High Margin Products

Building a marketplace infrastructure and network can be incredibly hard and yield subpar unit economics initially.
Instacart, for example, raised a total of almost $3B to pay the costs of the platform’s “first” model.

Instacart remains unprofitable overall, but Mehta says it becomes

profitable in individual markets around six months after launch. Last
year Instacart expanded from 18 to 30 markets, and this year plans to
add another 30 (inclusive of five new markets already launched).
March 8, 2017

Year Revenue Net Income

2020 $1.5B ($70M) The grocery delivery start-up changed its leadership, slashed its
valuation and shifted its strategy after sales slowed.
2021 $1.8B ($73M) Instacart…has struggled to show that its business model works
and that it is compatible with the historically thin profit margins of the
grocery business.
2022 $2.6B $428M* April 29, 2022

10 *Note: Includes a $358M tax benefit from the release of the company’s valuation allowance on deferred tax assets in the U.S.
Sources: Instacart S1, Axios, NYT
 2
Instacart’s Marketplace Growth Paradox II

Layer on High Margin Products

As expensive as it is, this marketplace infrastructure is critical to locking in both supply and demand.

As of Jun ‘23,
• 1.4K retail banners across 80K+ stores Quarterly Orders (in millions) and AOV ($)
• 7.7M monthly active orderers
80 $135
• 5.1M Instacart+ members $133 67.9 66.5 66.6 66.3
70 64.4 63.8 $130
• ~600K Shoppers 57.1 60.7
60 52.6 51.1 51.4 54.2
$125
50 46.1
$120
40 $118
$116 $116 $115
30 21.7 $114 $113
$111 $111 $112
20 13 15.2 $110 $110 $110 $110
10.1 11.4 $107
10 $105 $106 $105
$104 $103 $102
0 $100
Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23
Orders AOV

Quarterly GTV ($M) and Growth Rate %

$8,000 $7,277 $7,390 $7,465 $7,472 300%

$6,983 281% $7,079 $7,080
$7,000 $6,646 $6,457 250%
$5,920 $5,886 $5,940
$6,000 $5,446
195% 200%
$5,000 181%
150%
$4,000 123%
100%
$3,000 $2,367
$1,553 52% 50%
$2,000 $1,184 $1,344
$1,063 16% 12% 13% 20% 19% 14%
9% 9%
1% 9% 9% -3% 0% 4% 3%
1% 6%
0% 0%
$1,000 11% 14% -11%
-16%
-22%
$- -50%
Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23

GTV ($M) Q/Q Growth % Y/Y Growth %

11 Sources: Instacart S-1
 2
Instacart’s Product Development

Layer on High Margin Products

Reaching a certain level of network density (supply, demand, data) allows for the introduction of more
profitable and recurring software products.

Order Economics • Instacart generates the majority of its revenue from fees (and
subscriptions) paid on each order by retail partners and customers.
• Its second revenue line comes from advertising fees primarily paid
by brand partners.
• In 2022, 71% of revenue came from transactions (up 43% YoY)
and 29% from advertising and other (up 29% YoY).

12 Sources: Instacart S-1; 1100% of shopper tips are paid to shoppers.

 2
Instacart Transaction vs. Advertising Revenue

Layer on High Margin Products

For Instacart, these higher-margin, recurring products included the following:

Instacart+ (Subscription) Instacart Enterprise Platform Instacart Ads

Transaction Revenue Transaction Revenue Advertising Revenue

• Instacart+ membership costs $99 per year • End-to-end software solution supports • Brand-focused advertising solution
or $9.99 per month. Instacart’s retail partners on their own connects brands of all sizes to customers.
• Members spend ~$461 / month vs. non- storefronts. • Instacart Ads supports 5.8K active brands
members’ $223 / month. • Instacart charges partners a fee on orders in 2022, up 5.3% Y/Y. Per Instacart, ads on
completed, or a fixed fee per order for the platform deliver 15%-100% incremental
larger clients. sales lift.

Instacart+ drives stickier consumer Unlocks online grocery TAM – making Advertising revenue is “highly profitable”
behavior: higher AOVs and more frequent Instacart agnostic to where orders happen. and contributes strongly to improving unit
monthly orders. economics – generating ~$740M in FY22,
up ~30% Y/Y.

In a virtuous cycle, the scale and customer base of Instacart’s marketplace improve the Instacart Enterprise Platform through demand and
infrastructure. In turn, the Enterprise Platform strengthens the marketplace through retailer integrations, expanding its breadth.
Lastly, data from the Enterprise Platform improves search, recommendations, replacements and ads, attracting more brands to Instacart Ads.
This three-way symbiotic relationship drives operating efficiencies for all nodes of the company.

13 Sources: Instacart S-1

 2
More Attractive Economics Over Time

Layer on High Margin Products

Ultimately, these platform additions drive increased customer retention, higher AOVs and higher GMs over time —
and can yield more attractive economics.

• Annual GTV Cohorts: Since 2017, Annual GTV by Cohort

annual GTV for customer cohorts has
expanded Y/Y, which more than offsets Cohort Y1 Y2 Y3 Y4 Y5 Y6
GTV lost from customers who churned or
did not further transact. In H1 2023, GTV 2017 1.00x 1.73x 1.74x 3.00x 3.26x 3.52x
from new customers was 1.6x higher than 2018 1.00x 1.49x 2.42x 2.67x 2.81x
GTV from new customers in H1 2019
(despite overall tempered GTV growth). 2019 1.00x 2.18 2.36x 2.43x
• Monthly Active Orderers have 2020 1.00x 0.95x 0.85x
increased their monthly order frequency
on Instacart from approximately 2.1x in 2021 1.00x 1.29x
Y1 to 3.9x by Y6; representing a rise in
average monthly GTV from $226 to $480.
2022 1.00x

• Increasingly Profitable Cohorts: Quarterly Revenue & Gross Profit per Order ($)
As larger orders (higher AOVs and
increased frequency) tend to be more $14.00
$11.38 $11.40 $10.80
profitable, and advertising opportunities $12.00 $10.47
$9.05 $8.61 $8.94 $9.64
$10.00 $8.64 $8.73
increase with more items in an item. $7.71 $7.86 $7.44
$8.00 $6.77
Since 2020, the business has been able
$6.00 $4.06 $4.04 $4.54 $4.47 $8.68 $8.74 $7.95
to achieve positive gross profit in $7.60
$6.83
customer cohorts’ first year with Instacart, $4.00 $6.05
$5.29 $5.89 $4.83 $5.89 $5.26 $4.85
which expands over time (from 4.0% in $2.00
$2.67
Y1 to 6.5% in Y4). $-
$(2.00)$(0.50) $(0.15) $-
$(0.96)

Revenue / Order GP / Order

14 Sources: Instacart S-1
 2023 Marketplace Learning #3:

Lean Into Viral / Product-Led Growth Loops

15
 3
The Battery Growth Magic Number (BGMN)

Viral / Product-Led Growth Loops

Battery Growth Magic Number =
(LTM Rev Growth %) – (LTM S&M % of Rev)

Battery Growth Magic Number > 0

Battery Growth Magic Number <= 0

In order to effectively measure sales efficiency, marketplaces should subtract the last twelve months’ sales and
marketing costs as a percentage of revenue from the last twelve months’ revenue growth. This will help companies determine
how much growth is driven by organic – or efficient – growth vs. paid-for, marketing-driven growth.

16
 3
Average Battery Growth Magic Number (BGMN) vs. LTM Share Price Change

Viral / Product-Led Growth Loops

The top decile of BGMN companies strongly outperform their marketplace peers on LTM share price.

Battery Growth Magic Number

10 8
5

0
(1)
-5

-10 (8)
-15
(14)
-20
(21)
-25
(24)
-30 (28)
-35
Top Decile Top Quartile Top Half Average Bottom Half Bottom Quartile Bottom Decile

LTM Share Price Change

138% 106% 81% 32% -17% -35% -51%

Note: BV Growth Magic Number = (LTM Revenue Growth % – LTM S&M Spend as % of Revenue)*100
17 CapIQ data as of 12/29/23; LTM reflects Q4 FY22A through Q3 FY23A. Forecasts are as of Q3 FY23E expectations.
Top decile N = 5; top quartile N = 11; top half N = 21; bottom half N = 21; bottom quartile N = 11; bottom decile N = 3
Analyses exclude CART due to lack of historical data.
 3
Product-Led vs. Paid-Marketing-Led Growth

Viral / Product-Led Growth Loops

Companies can improve their Battery Growth Magic Number by leaning into product-led or viral growth mechanisms.

BV Growth Magic Number =

LTM Rev Growth – LTM S&M of Rev

LTM Revenue Growth1 +43% +64% (52%)

LTM S&M % of Revenue1 16% 37% 51%

Battery Growth Magic Number 27 27 (103)

LTM Share Price Change +222% +78% (58%)

EV / NTM Revenue Multiple 13.5x 4.6x NM2

18 1CapIQ data as of 12/29/23; LTM Revenue Growth and S&M data reflects Q4 FY22A through Q3 FY23A. Forecasts are as of Q3 FY23E consensus expectations. 2NM is a result of negative EV (Per CapIQ, WISH

has a Market Cap of $143M, $303M in cash and $14M in debt).

Note: Duolingo, PDD and Wish are selected to be illustrative examples where there is correlation between strong share price performance and Battery Growth Magic Number.
 3
The Era of “Unhinged” Content

Viral / Product-Led Growth Loops

Entertainment Over Selling Consistent Storylines Tapping into the Cultural Zeitgeist Enabling Real-Time Conversations
• Duo, the app’s mascot, has become • Duolingo's consistent storylines • Duolingo remains on top of the latest • Instead of traditional ads, Duolingo
a TikTok sensation, with social content deepen viewer-brand connections, themes and cultural moments to remain engages with users organically by
highlighting its relatable humor. fostering belonging among dedicated relevant. leaving witty comments and responses
• The company now has over 8.1M+ viewers in an ongoing narrative. • For example: Duo attended the Barbie on viral videos and moments.
TikTok followers, making it one of the • For example: Duo’s “crush” on singer movie premiere (IRL) in an all-pink • This enables Duolingo to appear on
most-followed corporate accounts on Dua Lipa. This gives the brand easy outfit. This campaign alone created consumers’ “For You Pages” organically
the increasingly popular platform. material any time Dua Lipa is trending. 140M organic social impressions. – without any advertising expense.

Duolingo’s embracing of “unhinged” marketing, where brands deviate from a polished and perfect approach on social media, has proven very popular
online. Gen Z consumers particularly are attracted to this form of authentic, less sales-y marketing, as evidenced by Duolingo’s TikTok success.

19
 3
Pinduoduo Champions “Social Shopping”

Viral / Product-Led Growth Loops

Team Purchases Fuel Both Gamification Drives User-Generated Content Creates Livestreaming Enables Authentic,
Virality & Network Effects Engagement a Flywheel of Trust and Loyalty Real-Time Interactivity
• PDD’s group-buying model encourages • PDD often incorporates gamification • Users are encouraged to create and • PDD promotes livestreaming that
users to invite friends and family to elements such as time-limited offers, upload honest product reviews. highlights “experiences,” like wine
participate in collective purchases. special discounts for reaching certain merchants showcasing vintage bottles
• This user-generated content not only
• As more people join a buying group, the milestones and loyalty programs. adds credibility, but also attracts new and offering wine appreciation lessons.
price of the product decreases, further • These features promote a “treasure- users who trust the opinions and • This approach adds engagement and
incentivizing users to invite others. hunt” mentality, leading to increased experiences of existing members. interaction into the purchasing process,
• This dynamic drives virality as users share user engagement, setting PDD apart creating a social dimension beyond the
invitations with their social networks. from conventional shopping platforms. usual “click-and-pay” experience.

PDD’s innovative “social shopping” and unique product aspects have created a strong consumer flywheel, promoting organic over paid growth.

20 Source: Y Combinator PDD Deep Dive

 3
Paid Marketing: A Wish-ful Thinking Game?

Viral / Product-Led Growth Loops

Unlike Duolingo and PDD, Wish has remained highly reliant on paid marketing to attract and retain users, with lukewarm results.

Wish’s Annual Revenue and S&M Spend

Wish, a startup that's gunning for Amazon and Alibaba,
is spending a reported $100 million on Facebook ads
December 28, 2015 3,000.00 66% 70%

2541
60%
2,500.00
52%
2085 47% 50%
2,000.00 43%
How Wish Built (and Fumbled) a Dollar Store 1685
40%
for the Internet
1,500.00
“…Former employees point to an emphasis on short-term
1090 30%
growth over customer service…
…For a while, the company was the top advertiser on Facebook 1,000.00
20%
and Instagram and among the biggest on Google, spending more
571
than $1 billion on sales and marketing last year…”
500.00
248 289 10%
July 7, 2022
136

0.00 0%
FY-2020 FY-2021 FY-2022 FY-2023E
Wish Q3 ‘23 Earnings Call: “The decline [in Q3 ‘23 MAU] was largely driven by Revenue $M Sales and marketing excl. SBC $M
our decision to reduce ad spend over the past several quarters as we remained
Sales and marketing excl. SBC $M
focused on achieving target returns on our ad spend.”

21 Sources: Business Insider, NYT, Wish Earnings Call Q3 FY23, Visible Alpha WISH consensus estimates
 2023 Marketplace Learning #4:

Leverage the Power of Gen AI

22
 4
Gen AI Will Unlock Supply-Side Demand

Leverage the Power of Gen AI

AI automation will allow marketplace businesses to expand the pool of supply in unprecedented ways.

AI has the power to augment supply — and even unlock net new supply — through various means…

Embedded Design Copilots More Effective Supply / Demand Matching Net New (and Scalable) Digital Products

100+ matches for Community Associate

Austin, TX Within 15 miles

Licenses/Certifications 1

Skills/Experience Education

With Pietra, sellers can harness Indeed’s recommendation AI provides Finesse, a ready-to-wear Cameo has utilized generative AI to
generative AI to effortlessly generate job seekers with a personalized feed platform, leverages AI and introduce novel consumer
entirely new products with the of ideal job matches, increasing the customer input to guide its design experiences. For example, Cameo
platform’s AI-driven design suite. likelihood of applying by 55% decisions, employing generative Kids now delivers personalized
Pietra then integrates seamlessly to compared to search results. AI to create 3D-modeled outfits. “messages” from AI-powered
potential manufacturers — animations of popular cartoons.
streamlining the creative process.

In the future, marketplaces will be able to unlock entirely unique supply based off consumer taste and preference,
leveraging generative AI for personalized services or even “one-of-a-kind” products.

23 Sources: Pietra Creator Studio, Indeed, Finesse, Cameo Cookie Monster

 4
A Gen AI Demand-Side Transformation (SEO)

Leverage the Power of Gen AI

Users’ search experience will be transformed in the AI-driven future, with a multitude of second-order effects.

SPONSORED
SPONSORED

AI
Today, Google’s search-generated engine (SGE) combines data from multiple organic
Previously, companies relied heavily on sponsored content or spend on SEO to
search results and utilizes Google’s LLM to provide a comprehensive response to a user’s
optimize specific key words and phrases.
search query — all without requiring the user to “click out” on any links in the results page.

Google’s SGE will fundamentally change GTM motions — potentially leading to a reduction in web traffic, heightened vulnerability in
Battery Watch Out: Lookingpaid search
ahead, and a shift
we envision in content
a future wherestrategy, among can
marketplaces other changes.
unlock entirely unique supply based off
consumer’s taste and preferences, leveraging Gen AI for personalized services and even “one-of-a-kind” products.

24 Source: Google
 4
Google’s “Results Page of the Future”

Leverage the Power of Gen AI

The new results page dedicates far more screen real estate to Google’s search features and less to
organic and paid search results, offering a more personalized and helpful experience to consumers.

SPONSORED
SPONSORED

Summaries of search
GOOGLE

Recommendations with in-depth,

GOOGLE
generated descriptions

Suggested follow-ups based on search

ORGANIC

Chat functionality for net new questions

Battery Watch Out: We believe Google’s “Search Generated Engine” (SGE) will fundamentally change GTM motions – potentially leading
to a reduction in web traffic, heightened vulnerability in paid search, and a shift in content strategy, among others

25 Source: Google
 4
SEO Strategy in an “AI-First” World

Leverage the Power of Gen AI

Businesses must fundamentally rethink their SEO strategy in a rapidly changing – and competitive – environment.

BrightEdge* Search Generated Experience (SGE) Presence in Search Results

Healthcare E-Commerce B2B Tech Insurance Education Restaurants Entertainment Travel Finance

76% 49% 48% 45% 44% 36% 36% 30% 17%

Overall Impact*
Extreme High High High High Medium Medium Medium Low

Collapsed Gen
70% 25% 23% 34% 17% 4% 5% 3% 5%
AI summary

Opt-In Gen AI
17% 72% 76% 35% 80% 96% 91% 81% 38%
summary

No Gen AI
13% 3% 2% 31% 3% 0% 2% 16% 52%
summary

Unavailable 0% 0% 0% 0% 0% 0% 2% 0% 5%

Opt-In Gen AI summary conservatively assumes 1/3 of users opt-in to SGE (% likely higher as SGE gets more relevant over time)

Certain industries have a greater risk of being impacted by Google’s SGE. For example, BrightEdge* data shows that for
~70% of healthcare searches, Google will provide a collapsed Gen AI summary instead of showing organic or paid-for material.

26 * Denotes a current or former Battery portfolio company. For a complete list of portfolio companies, please visit: www.battery.com/list-of-all-companies/
 4
SGE Disruption May Disproportionately Affect Certain Industries

Leverage the Power of Gen AI

BrightEdge* Estimated Percentage of Search Queries Impacted by SGE1

EXTREME HIGH MEDIUM LOW

76%
49% 48% 45% 44%
36% 36% 30%
17%

Healthcare E-Commerce B2B Tech Insurance Education Restaurants Entertainment Travel Finance

Generative AI’s enhanced capability to deliver highly-personalized search results and recommendations directly to users might circumvent
the necessity for intermediary affiliate platforms in various categories. Users may find their desired products or information more effectively
and directly through AI-powered search engines or platforms, resulting in a decrease in affiliate commissions and a shift in user behavior.

27 * Denotes a current or former Battery portfolio company. For a complete list of portfolio companies, please visit: www.battery.com/list-of-all-companies/
1 Search queries impacted time frame: when Google ends beta period and deploys SGE broadly.
 4
The SGE Checklist For Businesses

Leverage the Power of Gen AI

Adapt to New Realities — Quantify the Risk to Your Business
Different industry verticals face varying degrees of susceptibility to disruption from SGE, according to data from
BrightEdge.* It will be crucial for businesses to assess and quantify the potential risk to their data and adjust their
marketing budget to accommodate new strategies accordingly.

We expect that industries characterized by “low accuracy but high fluency,” such as retail and travel, may
experience disruption sooner. Conversely, “higher-accuracy” sectors like financial services or insurance may take
more time to undergo significant disruption.

Optimize for Related Clusters

In the past, head terms were effective in delivering substantial value and generating high conversions. However,
the evolving landscape now calls for a shift towards optimizing for a cluster of interconnected keywords and
associated attributes to achieve similar or even greater results.
Keep in Mind Alternative Data
AI will aggregate data not only from product descriptions but also from reviews, consumer platforms like Reddit and
other sources. It’s essential for businesses to bear this in mind when handling and assessing customer feedback.

Lean into PLG-Growth Loops

Organic growth and product-led growth (PLG) strategies are less profoundly affected by SGE. As a result,
businesses should constantly refine their PLG approaches to attract as many new, organic customers as they can.

28 * Denotes a current or former Battery portfolio company. For a complete list of portfolio companies, please visit: www.battery.com/list-of-all-companies/
 Marketplace Gen AI Opportunities
Beyond Google, there is opportunity for marketplaces to leverage generative AI to maximize their own search experience.

Search 2.0: New search modalities and recommendations will create stickier, more engaged consumers…

Natural-Language Search — Image-First Search —

AI Companion / Assistants
Based on “Abstract” Descriptions Transcending Beyond Image Reverse Search

Ssense has introduced a In today's landscape, online marketplaces like Alibaba Trip.com’s TripGenie helps Instacart’s “Ask Instacart” is an AI
ChatGPT plugin that enables offer AI-powered reverse-search engines. Looking ahead, consumers generate and guide that provides customers with
consumers to search for specific we envision that image-based searching will shift towards personalize trips by interpreting intuitive product recommendations,
SKUs using phrases and to a broader, more holistic search experience leveraging Gen user input and responding with food attributes and more from simple
search by sentiment: e.g. AI. Eventually, users may even be able to upload entire text, images and related prompts. The platform then directs
“cottagecore” or “whimsical.” "mood boards" to curate personalized shopping lists. itineraries ready to book. users to the most relevant SKUs.

Over time, more search use cases will evolve to search modality #3 — AI assistants. However, consumer behavior may
take time to accept LLM commerce recommendations, as consumers may not be satisfied with a singular “match.”
The most successful AI-based search will likely be more subtle, recommending many products rather than one.

29 Sources: Alibaba, Trip.com TripGenie, Ssense, Instacart

 2024 Advice to Marketplace Founders

1 2
• Efficiency is still king. • Consumer attention is becoming more expensive – lean into
• For early-stage founders: Solve a particular problem in a narrow product-led / viral-growth loops and do not become too
category. Regularly iterate through customer feedback and measure dependent on paid marketing.
engagement, repeat rate and stickiness to prove product-market fit. • Be disciplined about marketing spend as this has true implications
• For growth-stage founders: Deeply understand “cohort profitability” and to company culture, organizational structure, product roadmap and
show a path to achieving positive unit economics. go-to-market (GTM) playbook.

• Pre-IPO: Create optionality and demonstrate long-term viability by • Decreasing customer acquisition cost (CAC) is a powerful
layering on higher-margin recurring software products. At the same time, indicator of strengthening network effects. Ask yourself: Are you
continuously execute on a series of operational optimizations and remain seeing leverage in your strategies over time?
focused on company-level profitability.

3 4
• Continue to explore the integration of generative AI to improve • Don’t fret! Refocus on first principles and play to your core
marketplace experiences. strengths.
• Consider how you can use AI to streamline transactions, whether by • Many large, well-established marketplaces have crafted success
increasing net-new supply, improving match rates or creating a more within changing landscapes and market environments!
delightful customer experience.

30