CSNY - Almost Cut My Hair
One of my favorite songs ever, Crosby at his most defiant/paranoid. From the new live record.
Nina Simone - Just In Time
I’m staying in a Nina place today, with a reminder for the morning people: if you haven’t yet listened to this...
Can massive companies in the hundreds of thousands inspire innovation and change from a culture of...
This album is perfect! You can listen to the full album on NPR. It’s wonderful! Has to be one of my favorite records of the year...
Lemonade stands may appear on the surface to be simply about selling lemonade, but it is a lot more dynamic when you look deeper. There is producer side which produces the key ingredients. There is the consumer side which buys the ingredients to create the lemonade. Then there is the supplier side which supplies the materials and tools required to support the creation or sale of lemonade.
The reason I bring this up is because I want a tall, cool glass of lemonade. I also think however that is it a useful analogy when examining the sharing economy. Fred Wilson had something to say about this last week when he wrote the following:
I think in time investors will move their capital into the assets that power the sharing economy as well. And that may turn into a very large capital asset class.
We often think of the peer-to-peer sharing economy to be the most efficient means of connecting supply and demand. Like our lemon stand example, you have someone with a good willing to sell it (producer) and someone willing to buy it (consumer). Put a marketplace in between by which to connect the two and you are good to go. But what if the marketplace is not so “efficient”?
Many of the startups driving the sharing economy depend on a good balance of supply and demand. If you go to Airbnb, rarely do you find a situation where there are no decent rooms available. However, many other nascent marketplaces are going through some significant growth pains in sustaining a balanced market, and when you are overweight on either side of the market, people quickly abandon it faster than a bum table on a casino floor.
I experienced this directly with one of these startups that build themselves the Airbnb of experiences. This was just a catchy term for a place to book tours that were hosted by amateur tour guides. The idea is that passionate individuals could share their time and local expertise to people looking for unique activities. I used them for awhile to manage bookings for my NYC dumpling tours and while it worked well due to my heavy promotion and word of mouth, many of the other tours got little traction. Quite frankly, many of the experiences offered were not all that compelling. While it could be said they lacked enough buyers for their offerings, I believe it was the supply that was lacking. Eventually they got bought, which was really the best outcome given the lack of a truly robust marketplace.
Despite the experience, I do believe in the sharing economy. This is what Fred is getting at and what I have been seeing on the ground is the rise of the third leg in this new economy, the suppliers. I think that for startups to ultimately succeed in this space, it is going to take more than simply a marketplace engine or even a strong presence of producers. They are going to need market makers to keep these markets moving with enough supply to keep the consumers coming.
A market maker in the trading world acts as a means to ensure liquidity so that there is always enough bids and offers to maintain pricing levels. They are especially important during sharp spikes in buying or selling, where they help stabilize prices. Without them, some financial instruments simply would not be able to trade.
I believe that we are going to see the rise of similar entities in the sharing economy that will help to keep an orderly and active marketplace. This is particularly true in markets that experience constrained supply or simply do not have a large supply to begin with. Either the marketplaces are going to have to own some of the supply side or third parties are going to provide the supply and act as those market makers. It could also be a hybrid, but whatever the structure, this third leg of the sharing economy is going to be a big deal.