StubHub is the world’s largest ticket marketplace and the biggest player in the $6bn market for re-selling live-event tickets with an approximate 50% market share according to the WSJ. It offers fans the choice to buy and sell tickets to tens of thousands of sports, concert, theater, and other live entertainment events. This market dominance has been the direct result of indirect network effects improving its ability to both create and capture value.
Network Effects: StubHub benefits from indirect network effects. Like any marketplace, StubHub’s two main constituents are both buyers and sellers. Buyers want to come to a market where there are many sellers and sellers want to come to a market where there are many buyers. StubHub was able to be the leader in the space by being the first online player to leverage partnerships with ticket originators (sports teams and concert venues), which its main rival at the time, eBay, failed to do. Partnerships enabled StubHub to be the official re-seller to ticket originators (at a percentage of their commissions) helping drive volume to the site from both buyers and sellers. Currently, StubHub has more than 120 partners including Staples Center, 28 MLB clubs, 35 colleges, etc. This market dominance actually led to an acquisition by eBay in 2007 for $310mm.
Value Creation to Fans: StubHub’s mission is to “provides fans a safe, convenient place to get tickets to the games, concerts, and theater shows they want to see, and an easy way to sell their tickets when they can’t go”. To buyers, the value proposition is a safe market devoid of fraud that offers competitive prices and timely delivery, to make sure fans get the tickets in time for the event. Importantly, the larger the market becomes, the more efficient the pricing becomes improving the value to buyers. To sellers, StubHub provides liquidity to fans looking to offload tickets to events that they cannot go to. Similarly, the larger the market becomes, the easier it is to offload tickets. For all fans, the stronger the network effects are, the better the service becomes.
Value Creation to Ticket Originators: StubHub provides value in two ways to ticket originators.
1) Firstly, with regards to sports teams, StubHub has improved the value proposition of season tickets to fans, which are strong sources of revenue for many sports teams. Most season ticket holders find it difficult to go to every single game of the season (for baseball that would be 81 games, for basketball that is 41 games, etc.). As such, demand for season tickets and the prices teams can charge were stymied. By providing a source of liquidity to the market, StubHub has actually increased the value of season tickets to consumers as they have a clear marketplace to re-sell their tickets in the event that they cannot go. As such, demand and prices for season tickets have increased.
2) Secondly, StubHub has improved attendance rates at games and concerts since those who cannot go have an easy way to offload their tickets. This benefits ticket originators as it enables them make more money from ancillary purchases such as food, beverages, and merchandise.
Value Capture: StubHub captures value by charging commission to both buyers (10%) and sellers (15%). Interestingly, StubHub experimented with the use of an “all-in” pricing model to capture value from buyers. As opposed to tacking on the commission fee to buyers at checkout, they would list “all-in” prices including fees (which would range from 2-20% depending on event location, timing, performer, team, etc.). Though consumers hate seeing fees added on at checkout, it turns out they hate having those costs front-loaded a lot more. Less than two years later, StubHub reverted back to its original model due to the decline in market share. Nevertheless, StubHub’s network effects have allowed it to capture value when competitors like Craigslist offer the same service free of charge.
StubHub has benefited greatly from indirect network effects. It has enabled StubHub to create significant value to buyers, sellers, and ticket originators by managing a large online marketplace that empowers fans to buy and sell tickets conveniently/efficiently and improving the value proposition of season tickets to sports teams and attendance rates for all ticket originators.