“Uncovering hidden supply to meet pent-up demand is the magic behind some of today’s most exciting start-ups.”
I read that opening phrase in a Heard on the Street WSJ Article by Rolfe Winkler last week and it stuck with me. It’s not a particularly new idea, but it is elegant, simply stated, and true.
At its core, the internet in many ways is a giant marketplace—a shared global space for socializing, exchanging ideas, buying and selling goods and services, hanging out, observing human behavior—occasionally offering spectacle, always stimulating interactive exchange.
In the simplest terms, a broker brings together buyers and sellers. A broker can be a person or it can be a facility. It is a go-between function for give and take—introductions, descriptive information, negotiation, resolution. The act of brokering can be formal and compensated with paid commissions or informal and somewhat ephemeral.
It was anything but coincidental that discount stock brokerages like Charles Schwab and TD Ameritrade made a beeline to the commercial web in its earliest days, circa the mid 1990s. Some observers eventually came to blame much of the dot-com bubble on too easy access to day-trading by non-professionals. A good many individuals who prior to loading their first browser never met a stock broker found themselves easily comfortable with entering their own trades at hugely reduced transaction fees where professional labor costs were eliminated. We all know that didn’t turn out well for a lot of folks and the overall economy, but the point remains that the excitement of the internet’s adoption was fueled by people using the internet to buy and sell a whole line-up of newly created internet stocks. Marshall McLuhan deja vu, eh? Not sure we will see a self-referential kaboom quite like that again in our lifetime, though the public’s hunger for IPOs built on entirely new business paradigms (proven or not) still seems rather insatiable.
One of the things the internet does well is bring efficiency to the brokering process. Success stories are a virtual Who’s Who of celebrated internet brands—eBay, Priceline, Expedia, Travelocity, Craig’s List, Etsy, Airbnb—any number of much embraced marketplaces where the site of exchange never takes possession of physical inventory on its balance sheet, but instead acts as an agent to connect what is for sale with both new and loyal customers. A myriad of innovative payment models has been developed to compensate these broker-marketplaces for the service they provide, but in almost all instances they have lowered transaction costs, passed those savings along to customers, and increased total sales volume in the categories tackled. This mostly customer-friendly way of doing business is now every bit as normal for us as sitting on the back side of a travel agent’s CRT monitor waiting for him to input an airline seat query into Sabre not even a full generation ago (like, when I was in college). What others used to do for us we now do for ourselves, happily in most cases, and because of the savings and easy access, we do it a lot more frequently.
I have been spending a reasonable amount of time of late helping a number of start-ups get off the ground—formally and informally, no shameless plugs today, but I do mention them often in my tweets—and one of the constants in determining my excitement level is how thoroughly an emerging visionary has thought through a problem of reinvention. If we take it on faith that basic human needs and behaviors don’t change that much—we sleep, we eat, we learn, we love, we move, we fight, we heal, we protect, we shop—then the march of progress marked by improvements in technology finds reward when disruptors help us do those things better.
Returning to the quote that kicked off this post, when an entrepreneur is able to identify an abundance of largely unknown supply and connect it with a steady stream of curiously hidden demand, new business can boom. In the realm of the marketplace, anytime a business can innovate around streamlining the availability and visibility of products and services in need of buyers—and buyers motivated to use these new tools are driven to discover otherwise opaque inventories—a new brokerage is born. This can bring to bear a cruel process of creative destruction on entrenched competitors without the willingness or vision to change, but in our current economic landscape, it can offer a steady flow of more efficient business endeavors that inspire imagination and eliminate unnecessarily inflated costs. Pooled information, often in the form of personal opinions and reviews, is a freely traded currency, a form of entertainment in itself. Add social sharing playfulness along with clever experiments in curation and the fun really begins.
The innovation I am seeing both as an insider and an outsider suggests we are nowhere near maturity in reinventing how sellers find buyers and vice-versa—through digital channels and whatever awaits us beyond mobile, social, and local electronic communities. That should be good news as the availability of previously gated inventory finds its way into the supply chain and into the hands of delighted customers. Each new successful brokering start-up comes with its own spin. Some are truly wacky, some are obvious in hindsight, some too quickly migrate from wacky to obvious. I have little fear that all the people functions of brokering will be replaced—there will always be demand for great customer service and high touch assistance that adds value—but I do know that increasingly over time we will stop paying high fees for anything that doesn’t add much value. That’s the way of efficiency, and a great use of connective technology, where I’m pretty sure we ain’t see nothing yet.