Does Your Marketplace Expand the Market?

There are a lot of “marketplace” technologies out there.  Marketplaces make things more transparent.  Good marketplaces show better bids and offers and help people make good decisions.  They have liquidity and a tight bid/ask spread.

However, if all a marketplace does is take something that exists online without expanding the market, it might not be sustainable.  Great marketplaces make it easy to enter and exit.  They democratize the space allowing more people to get access.  When you analyze marketplaces, the transition from “how we used to do it” to “how we are going to do it” is always interesting.

What is really interesting is “who else can do it that isn’t doing it now”.

The cool thing about marketplaces is they are sticky once they get traction.  For example, look at commodities. Is anyone ever going to wrest trading US Treasury bonds from CME?  Is anyone going to take away Cotton trading from ICE?  They have little to no chance of doing it because all the network effects accrue to those providers.  It’s difficult for one exchange to take a marketplace from another exchange without a change in regulation or a revolutionary technological change.

Building sticky marketplaces is super difficult.  It is a chicken and the egg.  Who comes first, buyers or sellers?  Who will make markets?  Do you have to pay them to take risk?  There are a lot of questions.

One thing I know is that if a market already exists, and that sort of thinking exists, it’s easier to find a core group of users to build off of.

Thank you, Russ Roberts, for tweeting this out today.  It’s a wonderful poem for those that don’t understand markets.  The Wonderful Loaf.