When Facebook decided to integrate new application capabilities that were first available as a third-party application from a marketplace participant, they broke the cardinal rule of marketplace meritocracy.
Cheaters
When Getty Images’ staff-photographers allegedly took new pictures similar to previously top-selling images from participants they too broke a fundamental marketplace rule. When Amazon.com optimized sales results based on margins requirements, they also broke many of the free-market regulations as described in “Look, but don’t touch.”
By calling themselves platforms or marketplaces those companies misled their participants and engaged in what I would characterize as false advertising. Not only did the suppliers expect to be treated equally and become successful based on a pure meritocracy, buyers expected to get an untainted view of that meritocracy to make informed purchasing decisions.
Definition
Technology platforms need to obey to a simple macroeconomic marketplace definition:
A marketplace connects unrestricted supply with unrestricted demand through an un-arbitrated and transparent exchange.
Marketplaces thrive because they support free-market principles, and as a result, they level the playing field for all participants. No longer are unfair advantages for participants defined by geographic location, subscriptions, volume or other artificial boundaries, but solely by the value and the price of their products.
Rules
Here is what platform vendors, to maintain free-market principles and thrive, should stick to:
1/ Don’t employ salespeople who sell marketplace content. Salespeople give preference to specific content which violates the integrity of the marketplace. Sell the effectiveness of the marketplace mechanism instead.
2/ Don’t market particular content but sell the efficacy of the exchange. Unfair advantage is an attribute of a premium market, not a free market.
3/ Don’t arbitrate. Anyone should be able to participate, participation fees (that anyone in the target group can afford) are okay.
4/ Don’t hide sales results. Transparency of the effectiveness of the marketplace is crucial to invite new entrants on the supply and buy side.
5/ Don’t participate in the marketplace yourself. Separate yourself from the participants. Platform vendors should build the platform, not the content.
Technology companies that are building platforms should check out our cardinal marketplace rules, and investors should measure their platform companies on compliance with those rules. Investing in a premium market business is fundamentally different from investing in a free-market platform business. Funding requirements and use-of-proceeds differ dramatically.
Macro Matters
I’ll make the point again that investors should understand macro-economics impact before they invest.
Marketplaces are not for-free and still support capitalism, but platform owners will make money from a thin and transparent margin on the exchange (and sometimes carefully applied advertising opportunities). Diligent consumer marketplaces achieve winner-takes-all participation levels and massive exchange volumes and revenues. eBay (and Apple’s AppStore) is an excellent example of a more disciplined marketplace.
Play Fair
Because of the virtually unlimited global reach of the Internet, we have an incredible opportunity and obligation to present the world with free-market platforms that treat all participants fairly and with respect.
Let’s stop whining about the authenticity of our Presidents, and instead, as the creators of the technology industry show the world how we turn authenticity, embedded in our technology, into a massively renewable advantage.
