THE TUCK SCHOOL AT DARTMOUTH
StubHub’s Innovation Strategy
Taylor Bowman, Mike Cwalinski, Philip McDonnell, Fred Schwarz
Professor Adner, Entrepreneurship and Innovation Strategy
November 12th, 2011
US ticket industry in the year 2000
Ticketmaster circa the year 2000 is a near monopoly in the ticket space. However, even with
this monopoly, the industry was not excessively profitable due to extremely low barriers to
entry. These low barriers to entry and significant supplier power (event promoters), required
Ticketmaster to offer very attractive terms in exchange for exclusive relationships with event
venues. This aspect of the industry allowed Ticketmaster to survive numerous anti-trust
lawsuits, including one brought by the band Pearl Jam in the early 90s. In 2001, Ticketmaster,
which accounted for virtually all offline ticket sales, had $580M in revenues and an operating
profit of $114M.
At this time, almost all event tickets are issued in paper form. Ticketmaster had begun
experimentation with electronic tickets but this was not widespread. As a result, the traditional
way to buy tickets for an event on a secondary market is to find illegal scalpers outside of the
stadium and physically exchange the tickets. There were two primary issues with this process
from the perspective of end consumers, the first was fraud and the second was the legality of
the process. Fraud was extremely widespread in the scalping process and it was difficult for
consumers to protect themselves since purchasing tickets for greater than face value is illegal.
There are 38 states that have laws preventing scalping when it is physically near the stadium.
The remaining 12 states have various legal constraints on the exchange of tickets for events.
Strategic players in this space are:

Customers - both individual event and season ticket purchasers

Teams, venues and event promoters – suppliers to the ticket market

Ticketmaster – which is the primary ticket broker in the market

Ticket Brokers/Scalpers – try to purchase premier event tickets and resell them to
consumers at a premium

Other secondary marketplaces – in 2000 these had not taken off yet

Legislators – who have significant impact on the market through regulations
Below is an ecosystem map of the industry circa the year 2000:
Figure 1 - Ticket Industry Ecosystem Circa 2000
Launch of LiquidSeats
In 2001, Jeff Fluhr was a first year student at the Stanford Graduate School of Business and
came up with an idea for an online marketplace where consumers could buy and sell surplus
tickets. Online ticket sales made up less than 10% of the market at this time. He believed so
strongly in the idea that he dropped out of school to pursue the opportunity and launched
LiquidSeats. The original market entry strategy was to build an online ticket transaction system
that major websites like MSN could use to sell tickets on their site. LiquidSeats also launched
their own website utilizing the transaction system called StubHub but it wasn’t until 2003 when
Fluhr began using Google’s advertising service that he realized how much more revenue could
be generated through operating their own site.
The StubHub Era
StubHub differentiated itself from other secondary markets like EBay by not charging listing
fees and instead charging a 15% commission to sellers and 10% commission to buyers. The
company took no inventory, which reduced its risk. However, this meant that StubHub had to
be creative about driving volume to its site. It pursued multiple partnerships to drive volume.
The first approach was to form a partnership with EBay to allow StubHub tickets to be listed in
EBay search results. However, StubHub quickly began competing directly with EBay and the
partnership was dissolved.
The major approach that StubHub took to drive volume was to form partnerships with ticket
originators. In return for promoting StubHub to season ticket holders of sporting events,
StubHub would split commissions on any season ticket holder sales. That approach changed in
the mid-2000’s and instead of a commission based partnership; StubHub offered a flat payment
for promotion to season ticket holders as well as their contact info.
At this point, the secondary ticket markets were facing a number of technological and
organizational issues. The major technological issue for the secondary markets was verifying
ticket authenticity. This is something that Ticketmaster was able to offer and posed a specific
challenge to a company like StubHub. To address this issue, StubHub attempted to
authenticate the identity of users using technology like Verisign. They also guaranteed
fraudulent purchases to reduce consumers concerns. From an organizational perspective,
StubHub faced a significant logistical challenge dealing with paper tickets. They needed to
ensure the right ticket got the right customer and also that tickets were received by customers
in time for the event. In light of the fraud and logistical challenges, customer service was also a
difficult problem for StubHub. Many tickets were counterfeit and StubHub spent a lot of effort
to make buyers in the marketplace feel supported against potential counterfeits. They
operated two call centers in the US, one on each coast.
StubHub has the ability to dis-intermediate an industry that is deeply backwards. It has
historically been rife with counterfeit tickets, consumer legal dilemmas, and other
uncomfortable situations. The ticket market overall is worth in excess of $40B. In addition to
the standard, consumer-to-consumer secondary market there is a rich opportunity for sports
teams and other venues to engage in yield management and use StubHub to liquidate unsold
inventory. Given that a team’s marginal cost for additional tickets is nearly zero, you begin to
see the profound opportunity StubHub holds.
Competitive landscape
Reviewing the competitive landscape in both StubHub’s early years and today is a critical step in
understanding what ticket customer “problems” were not being solved, allowing StubHub to
enter the secondary market for event tickets with what turned out to be an innovative solution.
There are two broad categories of competition that StubHub faced at its founding and
continues to face today. The first is substitutes. Most of these were formed before StubHub’s
creation, attempting to serve the secondary market for event tickets in different ways. For the
most part, these forms were suboptimal. The second competitive bucket was websites trying
to execute using the same online, consignment market place model as StubHub. When
StubHub was formed, none of these players had created any scale.
We can examine substitutes for StubHub in order of their invention. The clear originator was
the “street corner scalper”. His model is very simple; he builds inventory by purchasing tickets
from sellers with buyer’s remorse or from the ticket originator. The scalper obviously hopes to
make money on the buy-sell price spread. A strength of the scalper is that he provides liquidity
to the market by taking an inventory position. This gives increased certainty of a resale to a
potential seller willing to take the inconvenient step of going to the arena to sell a ticket for an
event they may not plan to attend. An inability to get to the event may be the very reason the
seller is not attending in the first place.
Weaknesses of the street corner scalper model include the fact that, although they can reliably
be found at any event, they are not all on one street corner. This creates pricing inefficiency
because the market makers are not truly in one place, competing against each other. These
realities can limit inventory for the buyer, as the inventory of secondary market tickets for the
event is held by a fragmented group of market makers. Different scalpers may be holding
different types of inventory, such as better seats. Therefore, the buyer cannot compare the
quality of the each seller’s inventory and their associated price against the inventory of a
different seller. Fraud is also a significant issue when purchasing from a street corner scalper.
This risk invariably hangs over the profession and consumers that purchase from scalpers. This
drives down prices due to the lack of a clearinghouse providing a guarantee.
The second major substitute to emerge was eBay. eBay became the go-to online marketplace
in the late 1990s. It brought together buyers and sellers of thousands of different products,
and naturally it became an attractive option for those who wanted to buy and sell event tickets.
However, it was not a ticket specific site and as a result, inventory breadth was not reliably
found. eBay management was not also focused on tickets given the vast amount of products
traded on the site. Furthermore, eBay had no relationships with the ticket originators, and
missed opportunities to form partnerships that would increase inventory. Another weakness
was eBay’s lack of a guarantee of quality and delivery time. It must be remembered that event
tickets have a finite useful life and so timely delivery was absolutely critical. eBay’s time
consuming auction model further added to the potential expiration issue. However, eBay did
provide an online marketplace that sellers and buyers could use remotely, unlike the street
corner scalper. The ticket inventory eBay did have was easily compared regarding price and
seat quality which differed from the many street corner scalpers standing on the many street
corners.
The third type of replacement was the online ticket broker. Like the scalper, the online ticket
broker provides liquidity by holding inventory. If a seller finds the price offered them
acceptable, they can immediately offload their event ticket to a ticket broker. But the
weakness of online ticket brokers was primarily their fragmentation. Online ticket brokers had
little scale, making it difficult for buyers to compare prices. The expense of holding inventory
prevented online ticket brokers from creating a broad selection. This limited the attractiveness
of these sites to end consumers.
In addition to substitutes, there were online sites trying to compete on a consignment model
similar to StubHub’s. However, these sites did not manage to build the scale to crack the
“chicken and the egg” problem. It is difficult to bring in potential buyers without an interesting
breadth and reliability of tickets for sale. At the same time, it is difficult to bring in an
interesting level of potential sellers without an adequate level of buyers to move their
inventory quickly and at attractive prices. This is the chicken and the egg challenge.
StubHub solved a number of problems for buyers and sellers. Relative to the scalper, the site
carried a breadth of tickets that could be compared to each other, driving pricing efficiency.
StubHub also provided a quality guarantee that decreased risk for consumers. In comparison to
EBay, StubHub was focused on a very narrow product set, which allowed it to have a more
targeted marketing message. StubHub’s clear messaging allowed it to create enough network
effects to bring in buyers and sellers. Although StubHub does not provide immediate liquidity
by purchasing inventory, StubHub’s breadth of listed tickets made it the go to spot for those
searching for event tickets. The large amount of buyers therefore eliminated the need for a
central source of liquidity. In comparison to direct competitors, StubHub’s execution was
superior. StubHub created partnerships with event originators like MLB and various NFL teams
to be their “official ticket resellers”. This brand recognition drove consumer confidence in the
site and compounded the network effect needed to solve the chicken and the egg problem.
Entry strategy: innovation phase
StubHub was a late entrant to the dot com boom. Founded in 2000, StubHub did not get much
traction in the market until 2003. This lack of progress was partly due to the fact that Eric Baker
and Jeff Fluhr did not graduate from Stanford GSB until the spring of 2001. Initially StubHub
existed as LiquidSeats and then later changed over to be called StubHub. In the beginning the
organization was primarily focused in the Bay Area and targeted the local season ticket holders
of the Oakland Raiders. Initially, StubHub sought out to prove their concept by engaging local
ticket brokers and getting them signed up on StubHub’s platform. This people heavy strategy
limited StubHub’s initial progress, and it was very slow going from 2000-2002. StubHub’s
leaders initially described their site as a “Ticket Service Provider technology, an online database
engine designed to connect after-market ticket buyers and sellers.” In the beginning StubHub
saw its service as a widget that would be embedded within other websites. StubHub imagined
that there would be thousands of small “stubhubs” all across the web and that stubhub.com
would be the main example of how to run such a system. In 2001, StubHub signed their first
team, the Phoenix Coyotes. While this partnership wasn’t a homerun by any means, it gave
StubHub the opportunity to demonstrate value addition to a real sports team. As part of the
deal, the Coyotes sent a letter to their season ticket holders instructing them that they could
sell their extra tickets through the StubHub web site. At the time, StubHub was charging a 10%
fee to the buyer and a 15% fee to the seller, therefore netting a total 25% commission on every
ticket sold. After this proof of concept with the Coyotes, the StubHub team was able to drum
up angel funding from locals in Silicon Valley, including Steve Young, the former San Francisco
49ers quarterback. This additional investment allowed Baker and Fluhr to ramp up their
operations.
With decent market traction and initial funding in the bank from early angels, StubHub began to
pour money into advertising across a number of different mediums, making investments
primarily in radio and online ads. On the internet advertising, StubHub focused on pay-per-click
campaigns on Google and Yahoo, but also purchased banner ads on most major internet sites.
This campaign was centered on selling the message that StubHub was a “fan to fan exchange”
stating that “fans supply the ticket and set the price.”
Additionally, the founders used the funds to ramp up the StubHub team. They focused their
spending on public relations, marketing, and partnerships. The goal was to build awareness of
StubHub in the general American population and to obtain access to season ticket holders with
the help of sports teams. StubHub’s early focus on partnerships seems prudent on the surface;
however, with only a very small percentage of professional sports teams onboard, it is
questionable if StubHub’s multi-year headcount spend on partner acquisition was smart at such
an early stage.
However, by 2003 StubHub had begun to make headway both in the Bay Area and beyond. By
this time they were starting to approach sports teams about the idea of partnering with greater
scale. According to Stanford’s alumni website, “sports franchises traditionally have been wary
of secondary ticket sales and their shady reputation…but Baker and Fluhr argued that teams
that told their fans about StubHub would boost attendance.” Based on this new pitch, the
Arizona Diamondbacks, New York Jets, and the Stanford and University of California at Berkeley
athletic departments “jumped at a way to put more fans in the stands—and more money in
their coffers from additional concession sales.” The StubHub team also pursued other channels
to acquire tickets, including charity auctions of concert tickets. Musicians such as Christina
Aguilera, Seal, and Jewel donated front-row tickets that were auctioned off through StubHub
and sent the proceeds to the artists’ preferred charity.
Early partnerships: teams and brokers
One question that arises as we consider partnerships is the question of where all the tickets
were coming from. Despite the fact that StubHub had relatively few team partnerships early
on, they were still doing well in most markets with plenty of ticket inventory. This early ticket
volume was driven by ticket brokers. It is estimated that at least 80% of StubHub’s tickets
originate with ticket brokers. Typically ticket brokers maintain data feeds of their current
tickets in order to list them on online auctions and their own websites. StubHub developed a
backend interface that would take these feeds, mark them up 15%, and then sell the tickets to
consumers shopping on StubHub’s website. This integration went deeper than just cross-listing
tickets, however. StubHub supplied their brokers with official StubHub ticket envelopes and
materials to place in the FedEx envelopes that were shipped to customers. This gave tickets
purchased from ticket brokers the same consistent feel as a traditional StubHub intermediated
ticket sale. This also improved the timelines at which StubHub and its brokers could ship the
tickets since the tickets did not need to be shipped to StubHub first under this process.
Logistics
As mentioned above, many of StubHub’s early tickets came from ticket brokers who had an
inventory of StubHub envelopes and other packaging materials that would allow them to drop
tickets in the mail via FedEx pick-up. These FedEx envelopes’ postage would then be paid
directly by StubHub.
For consumers that wanted to sell their tickets, they were required to send their tickets into
StubHub directly. This process was time consuming, but very important. Once the tickets were
at StubHub’s distribution center, StubHub would then put the tickets into FedEx envelopes and
await purchase via online or their call centers. This consignment model gave StubHub the
ability to try and generate revenue at very little risk. StubHub could also potentially list the
tickets before they physically had them at the distribution center, although we have not found
any documented evidence of them doing this.
The FedEx delivery gave StubHub’s tickets a practical safety from theft, but it also gave them a
high-end feel for consumers. In a market rife with scams, fake tickets, and other problems this
seemingly high-end experience was very welcome to consumers.
One drawback of StubHub’s strategy of relying on ticket brokers for fulfillment is the inability to
completely control quality and ensure ticket authenticity and delivery. In our research we
found numerous examples in comments and blogs about individuals who never received tickets
or had problems with their tickets once at the event. While StubHub was not able to verify all
tickets early on, they later developed backend systems to better authenticate tickets from
brokers and fans. StubHub also refused to continue business with ticket brokers who had sold
fraudulent tickets through StubHub or not delivered tickets in time to customers. StubHub
maintained two call centers to deal with customer complaints, and StubHub compensated fans
when any problems arose. This later took the form of StubHub’s current FanProtect Guarantee.
Given the volume of tickets sold through StubHub, it has been impossible to prevent all risks to
customers, but StubHub has attempted to mitigate as much risk as possible.
StubHub’s ecosystem, post innovation
StubHub’s initial innovations of creating an online secondary ticket marketplace, establishing
logistics practices to handle ticket volume, and its partnership and entry strategy brought
StubHub success and growth in its early years. StubHub changed the ticket distribution
ecosystem dramatically. After StubHub achieved scale in the early part of the decade, the ticket
distribution ecosystem looked as follows:
Figure 2 - Ticket Industry Ecosystem Circa 2003 and beyond
StubHub was able to be successful in several ways, both from a supply and demand side. For
end customers, StubHub offered a much more convenient and safe purchasing model than any
of the previous ticket resellers in the ecosystem. End customers faced risks of counterfeit
tickets or fraud when purchasing from traditional street scalpers, ticket brokers, or auction sites
such as eBay. Through its verification processes and FanProtect Guarantee, StubHub was able
to mitigate this risk for consumers and compensate them quickly and fairly when something did
go awry. Similar to iMotors, StubHub internalized the risk to its customers, which dramatically
increased their willingness to purchase through StubHub versus other resellers. The
convenience of StubHub’s online model was also critical for success; consumers could now
purchase tickets anytime of the day. Furthermore, StubHub’s national model appealed to
consumers who traveled or were fans of multiple sports. Finally, StubHub offered a sizable
selection of tickets that traditional ticket brokers and scalpers simply could not compete with.
From a supply side, StubHub offered significant value to ticket sellers, whether they were fans
or ticket brokers. StubHub provided a liquid marketplace that drew national traffic, similar to
eBay. But unlike eBay’s auction format, StubHub allowed sellers to set their own prices, and
change them at any time. Savvy sellers could manage prices over time in order to improve
profits. In fact, StubHub actively facilitated this by offering sellers pricing statistics on similar
tickets at comparable events. In this way, StubHub used its scale and large quantity of historical
transaction data to add value to sellers. StubHub also guaranteed payment for all fulfilled
orders. This decreased the risk for a key player in the ecosystem, the original ticket holder
(often a season ticket holder), and removed a barrier to selling to StubHub, which further
increased the supply of tickets available to StubHub.
These advantages allowed StubHub to grow at a rapid pace, achieving $199 million in revenue
in 2005, and ranking 8th on the 2006 Inc. 500, Inc. magazine’s annual list of the nation’s fastest
growing companies. But StubHub’s early success with its new business model did not go
overlooked by Ticketmaster and other competitors. Prior to StubHub and other online resellers
such as eBay, RazorGator, and TicketsNow, Ticketmaster was essentially the only legitimate
option for many fans looking to buy tickets. But as the new competitors grew, Ticketmaster
became aware of how much money was available in the ticket reselling market. According to
StubHub spokesman Sean Pate in 2006, Ticketmaster “was envious of the prices that tickets are
being sold for on the secondary market.” For every event that was sold out through
Ticketmaster, ticket resellers like StubHub would often re-offer the tickets at higher prices.
Ticketmaster and the ticket originators missed out on all of this aftermarket cash.
Ticketmaster responds
Ticketmaster responded by developing its own ticket resale site, TicketExchange, in 2004. This
was an apparent attempt to compete head to head against StubHub and other online resellers.
TicketExchange attempted to differentiate itself from these competitors by offering 100%
guarantees of ticket authenticity, based on officially partnering with sports teams and selling
tickets directly from season pass holders’ accounts. However, this business never achieved
traction with consumers, for two primary reasons. First, online resellers had already
established their positions in the market and in consumers’ minds. StubHub in particular was
adept at marketing and had built a strong brand and reputation. Secondly, we suspect that
StubHub customers were already satisfied with StubHub’s FanProtect Guarantee.
TicketExchange’s main attempts at differentiation—“officialness” and 100% authenticity
guarantees—were criteria likely viewed as thresholds by consumers, rather than absolute
benefits. If StubHub’s FanProtect guarantee met the threshold required for this criterion, then
TicketExchange simply focused their differentiation efforts in the wrong place. In 2005,
TicketExchange sold less than 10% of the ticket volume as StubHub, and the business never
achieved a significant share of the market.
In 2008, Ticketmaster would continue its pursuit of the secondary market by purchasing
TicketsNow, a leading ticket reseller, for $265 million. At the time of purchase, TicketsNow was
approximately half the size of StubHub. This acquisition has had more success over time, but
Ticketmaster has also been plagued with criticism of misdealings between the primary market
Ticketmaster site and the secondary market TicketsNow site. By participating in both the
primary and secondary markets, Ticketmaster has opened itself up to allegations that it is
merely shifting tickets from Ticketmaster to TicketsNow in order to sell them at dramatically
higher prices, and therefore capture a larger portion of the value created in the marketplace.
StubHub partnership development
During the mid-2000s, StubHub expanded its business development efforts to include larger
and larger partners in the form of individual sports teams and various music venues. While fans
and ticket brokers have always been able to sell tickets for nearly any event through StubHub,
StubHub realized the tremendous value it could create through official partnerships with ticket
originators. StubHub actively signed on partners in order to drive more fans to StubHub’s
website, resulting in a more liquid ticket marketplace and more sales revenues. In a typical
deal, partner teams advertised for StubHub on their own websites, proclaiming StubHub the
“official ticket reseller of team X” and directing fans looking for secondary market tickets to
StubHub. In return, StubHub provided lump sum yearly payments, often in the hundreds of
thousands of dollars. StubHub increased competition in the reseller marketplace and provided
sports teams the ability to advertise that they had the fans best interests in mind regarding
security and legitimacy of secondary market tickets. These official partnerships went a long
way toward legitimizing StubHub as a safe and legal way to trade tickets. Official endorsement
was very important within an ecosystem where the more traditional substitute, a scalper in a
trench coat standing on a corner, had very little trust with the consumer. In most cases these
official partnerships allowed StubHub to provide an additional benefit to consumers by linking
its backend IT systems with those of its partners; this allowed ticket buyers to download their
tickets electronically immediately after purchase.
In 2007, StubHub signed a five year partnership agreement with Major League Baseball,
StubHub’s largest deal to date. While financial terms were not disclosed, StubHub agreed to
pay the league for sponsorship rights. In a first for StubHub, the two entities also agreed to
share a percentage of revenue from secondary market sales. A key stipulation of the deal was
that if an MLB team wants to allow reselling of tickets online, they can only do so through
StubHub.
This deal is interesting for two key reasons. First, StubHub received a significant amount of
value by gaining monopoly status as the official reseller of MLB. Secondly, the revenue sharing
aspect provokes key questions concerning the deal. Revenue sharing aligns incentives between
the partners, by providing MLB a major incentive to drive as much traffic to StubHub as
possible. But it may also indicate a unique arrangement not disclosed in the public terms of the
agreement. Could it be that MLB is providing StubHub primary market tickets to sell as
secondary market tickets?
An arrangement like this would add a tremendous amount of value to both StubHub and MLB.
By selling primary tickets through StubHub’s secondary marketplace, MLB could engage in price
discrimination on a large scale. Rather than lose out on all the value created in the secondary
market when tickets sell for greater than face value, MLB could keep a large portion of this
cash. Furthermore, this presents an opportunity for MLB teams to engage in yield management
and provide them with a secondary channel to liquidate unsold inventories. Given a 162 game
season and overcapacity at many MLB stadiums, these unsold inventories are often sizeable.
Selling this excess inventory through StubHub would allow MLB to capture the entire consumer
surplus for consumers whose value was greater than the teams’ marginal costs. Similar to
movie theaters and airlines, the marginal costs of tickets for sporting events or concerts are
nearly zero. Importantly, MLB could do this without altering the face value of tickets being sold
in the “true” primary market. Furthermore, StubHub’s highly secure online environment and
guarantee that buyers and sellers will never communicate or interact means that consumers
would never know they were buying tickets directly from MLB.
Arrangements of this nature would dramatically increase the value to official sports team and
music venue partners by allowing them to effectively price discriminate; in return, StubHub
would gain volume and likely be able to negotiate a share of the additional value captured by
its partners. Partnership arrangements like this have never been publicly disclosed, either
because they don’t exist or due to expectations of severely negative fan reactions if exposed,
similar to criticisms of Ticketmaster’s relationship with TicketsNow. Either way, StubHub and its
partners must clearly see the huge value these arrangements would create, and be itching to
get into this game if they are not there already.
Value Chain Risks
StubHub faced, and continues to face, several value chain risks from other players in the
ecosystem. While ticket scalping—selling tickets for prices above face value—is legal in 38
states, changes to the law could negatively impact StubHub’s reselling business. However, we
have chosen to not focus on this risk explicitly for two reasons. First, the vast majority of
legislation from lawmakers in the last decade has served to enable StubHub’s business, not
constrain it by placing further restrictions on ticket reselling. Secondly, StubHub’s official sports
team and music venue partners have lobbied strongly on StubHub’s behalf, both to lawmakers
and directly to consumers in the form of public relations campaigns. Despite counter-lobbying
by Ticketmaster, which has seen its business eroded by StubHub, all signs point to StubHub
continuing to gain legitimacy in the eyes of lawmakers and consumers. StubHub’s reselling
model is clearly here to stay. That said, value chain risks are present, and these are
summarized below:
Figure 3 - Value Chain Risks
Conclusion: StubHub today and lessons learned
In 2007, eBay purchased StubHub for $310 million. At the time, StubHub was moving an
estimated $400 million in ticket sales annually through its website. StubHub was the number
one player in the secondary ticket market and was the first to truly crack “the chicken and the
egg” problem. eBay believed that StubHub would benefit from its established community of
users while offering buyers a greater selection. For example, on eBay’s website today they
show tickets listed on eBay right next to similar tickets listed on StubHub. It should also be
noted that eBay saw the acquisition as a way to turn a leading competitor into a friend. By
most estimates the acquisition has been a positive one for eBay. It has been reported that
StubHub moved $1 billion worth of event tickets in 2010, representing significant growth.
However, there are clouds in the secondary ticket market sky. The latest threat to StubHub is
Ticketmaster’s roll out of paperless tickets. These tickets can be redeemed on a phone and
many are marked as strictly non-transferable, requiring the original purchaser to show a photo
ID to use the tickets, similar to airline tickets. The paperless aspect of these tickets allows the
venue and Ticketmaster to strictly enforce non-transferability. Ticketmaster argues this is more
convenient for ticket holders, while StubHub argues this removes the consumer’s right to
transfer a good that they paid for. StubHub argues that events will be hurt when fewer seats
are filled, leading to less popcorn, parking, and T-shirts sold. Both organizations have launched
significant lobbying efforts targeting consumers and the highest levels of the national
government.
Despite StubHub’s uncertain future, there are clear lessons to be learned from its rise. The first
lesson is that when innovating in an ecosystem, firms must ensure that their business is not
destroying significant value for critical players with substantial control. Rather than destroy
value for ticket originators, StubHub created value for key stakeholders such as Major League
Baseball and other sports teams, and established partnerships with these organizations.
However, StubHub has not found a way to make peace with Ticketmaster, another key player in
the ecosystem, and Ticketmaster continues to present itself as a significant threat to StubHub.
A second key lesson concerns marketplace innovation. To solve the chicken and the egg
problem, a market must solve multiple problems for both buyers and sellers—not just one.
Compared to its contemporary competition and the available substitutes, StubHub solved the
problem of location convenience, guaranteed quality, comparable pricing, and a central
marketplace.
Third, if there is seller and buyer anonymity, the marketplace gains an opportunity to partner
with ticket originators and allow them to engage in price discrimination. Ticket originators
could sell some tickets above face value and some below in order to optimize revenue and
capture additional consumer surplus. The anonymity that a market like StubHub’s can offer
helps prevent consumer outcry at blatant price discrimination, allowing sellers to maximize
profits.
Regardless of StubHub’s future, StubHub provides an illuminating example of the birth of an
innovative and successful online marketplace.
SOURCES
Armstrong, Drew; Inc.; “Competition Heats Up in the $10 Billion Ticket Market”; October 9 th,
2006; http://www.inc.com/articles/2006/10/tickets.html
Arrington, Michael; Tech Crunch; “eBay's Place in the Dirty World of Ticket Scalping”; Januarty
10th, 2007; http://techcrunch.com/2007/01/10/eBays-place-in-the-dirty-world-of-ticketscalping/
Belushi, online commenter; Don’tCostNothing.com; “StubHub: The biggest fraud in the ticket
business”; March 9th, 2007;
http://dontcostnothing.wordpress.com/2007/03/09/stubhub-the-biggest-fraud-in-the-ticketbusiness/
Bloomberg Businessweek; “Ticketmaster: Still Stuck on CitySearch”; April 4th, 2001;
http://www.businessweek.com/bwdaily/dnflash/apr2001/nf2001044_610.htm
Branch Jr., Alfred; Ticket News; “StubHub! and MLB Strike Precedent-Setting Secondary
Ticketing Deal”; August 2nd, 2007; http://www.ticketnews.com/news/StubHub-and-MLB-StrikePrecedent-Setting-Secondary-Ticketing-Deal8227
Broache, Anne; CNET News; “Ticketmaster sues eBay's StubHub over sales tactics”; April 20th,
2007; http://news.cnet.com/2100-1030_3-6178001.html
CNNTech; “LiquidSeats helps fill the house, sans scalping”; December 14th, 2000;
http://articles.cnn.com/2000-12-14/tech/liquid.seats.tickets.idg_1_ticket-service-providerliquidseats-stubhub-com?_s=PM:TECH
eBay press release; “eBay To Acquire Online Tickets Marketplace StubHub”; January 10th, 2007;
http://investor.eBay.com/releasedetail.cfm?ReleaseID=225333
Fried, Josh; Stanford Magazine; “Admit Two: StubHub’s founders want to take the worry out of
getting close seats”;
http://www.stanfordalumni.org/news/magazine/2004/novdec/dept/bright.html
Funding Universe; Ticketmaster Group, Inc; http://www.fundinguniverse.com/companyhistories/Ticketmaster-Group-Inc-company-History.html
Lee, Se Young and Bruce Mohl; The Boston Globe; “MLB, StubHub ink resale deal”; August 2 nd,
2007;
http://www.boston.com/business/globe/articles/2007/08/02/mlb_stubhub_ink_resale_deal/
Razorgator; http://www.razorgator.com/
Schonfeld, Erick; Tech Crunch; “Ticketmaster Buys Online Scalper TicketsNow for $265 Million”;
January 15th, 2008; http://techcrunch.com/2008/01/15/ticketmaster-buys-online-scalperticketsnow-for-265-million/
Sisario, Ben; The New York Times; “Scalping Battle Putting ‘Fans’ in the Middle”; July 20 th, 2011;
http://www.nytimes.com/2011/07/21/business/media/scalping-battle-putting-fans-in-themiddle.html?pagewanted=all
Stecklow, Steve; The Wall Street Journal, as republished in the Pittsburgh Post-Gazette;
“StubHub’s got a ticket to ride”; January 17th, 2006; http://www.postgazette.com/pg/06017/639372-28.stm
StubHub; http://www.stubhub.com/
Ticketmaster; http://www.ticketmaster.com/
Ticketmaster and TicketsNow; http://www.ticketmaster.com/ticketsnow
TicketsNow; http://www.ticketsnow.com/
The Washington Post, as republished on StubHub’s Media Coverage webpage; “'Paperless
ticketing' aims to thwart scalping at concerts, sports events”; July 5th, 2010;
http://www.stubhub.com/media-coverage-detail?articleId=11011
Wolverton, Troy; CNET News; “Ticket market meets its digital future”; May 21 st, 2002;
http://news.cnet.com/Ticket-market-meets-its-digital-future/2100-1017_3-918746.html?tag=mncol;txt