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Wednesday
Dec082010

The Transcapitalist swan song: a summary of two years exploring the technology & free markets intersection

After 177 posts spanning nearly two years, Transcapitalist is going into hibernation. I have loved writing here, most of all for the opportunities to meet other people who think like me (and those who didn’t and told me why). Highlights of the experience were co-hosting Tap the Collective with Inkling Markets, participating in Ignite DC and Ignite Baltimore with my talk Web Capitalism Doesn’t Need a Bailout (a summary of the Transcapitalist philosophy), and having the opportunity to interview people at many of the companies that I most admire.

When I got started, there were three emerging constructs that really excited me: social lending, peer-to-peer e-commerce, and prediction markets.  As this was late 2008 at the height of anti-market fervor in DC, what struck me about these platforms was that they were essentially distributed marketplaces, largely self-policing, transparent, efficient, community-driven, and enabled by the internet. At a time when much of the political rhetoric focused on how the market had failed, these seemed to be constructs that offered a purer and non-exploitative example of how market capitalism could and should work. Transcapitalist began with this idea – to explore the intersection of technology and free markets – with the presumption that the former had the potential to transform the latter and for the better.

My viewpoint evolved through the course of writing here and discussions with others, but I still think that web capitalism has a lot to offer our traditional view of market dynamics. I’ve summarized my thinking on these topics below, linking heavily to previous posts with more detailed coverage.

In the face of tightened financial conditions, new investing and borrowing mechanisms are emerging ranging from the “personal IPO” to crowdfunding. Peer-to-peer lending remains a viable alternative to banks for both borrowing and lending at small scales with better rates for both sides of the transaction.

Largely in response to the credit crunch and the restrictions of the current financial marketplace, interesting financial innovations emerged over the past few years. We were particularly intrigued by the new concept of selling a percentage of your future income in exchange for a cash investment up front, which I referred to alternatively as the Personal IPO, or “taking yourself public” or “selling your personal equity”.

Another emerging construct which holds promise is crowdfunding. We came out early with enthusiasm for Kickstarter, a platform to match creators and artists with funding through, and we’ve been thrilled to see it take off ever since. The first real example at scale was set by Trampoline which sough to crowdsource its Series B funding. We loved the trend for mobile payments like Square for merchants and Venmo for repaying friends. More troubling financial innovation is on display at eToro which aims to create a “Zynga for real men” in the world of foreign exchange trading.

However the most prominent innovation is in p2p lending which experienced great change over the past two years as they sought to create an entirely new financial product and asset class. The original innovators Lending Club and Prosper Marketplace made it successfully through the SEC process (which at the time was far from certain as Prosper alternatively opened and closed), while promising privacy-focused hybrid upstart Pertuity Direct folded.  What began as a platform to browse individual profiles prone to adverse selection is now a more scalable steamlined dashboard experience to select target characteristics from vetted borrowers in order to create a custom portfolio. Since opening my Lending Club account, my discussions with their team and continuing healthy returns (~10%) encouraged me to expand my portfolio, and I plan to keep up my investments there for some time to come. The appeal of p2p lending is that it is simple and commonsense: by cutting out the middleman of the bank and lending directly, investors earn better returns and borrowers pay lower rates. Why give that spread to the bank? However, even with high interest rates and the credit crunch, p2p lending has not gone mainstream. Uncrunch America was an effort by a coalition of non-traditional finance platforms to encourage people to look beyond the bank, but it’s not clear that the message was heard.

More niche markets also emerged to mixed results. Yadyap (“payday” spelled backwards), which aims to provide an alternative to the payday lending market, has yet to get off the ground.  On the other hand, People Capital has secured significant financing and during my interview with them, they impressed me greatly with their concept of a Human Capital Index to replace the FICO as the credit evaluation metric for young people. Unithrive seeks to connect Harvard students with alumni who can provide interest-free loans. Vittana targets helping students in the developing world.

Internationally, internet-enabled market-based practices are introducing new concepts to traditional international development approaches.

Muhammed Yunus, godfather of the microfinance movement, pointed out that Grameen Bank’s microfinance investments performed steadily through the financial downturn where other lending arrangements failed and could be a means to “return the economy to health”. I keep a small amount of money with MicroPlace, interest-bearing investments in microfinance institutions in Nicaragua and Uzbekistan, which each send me $0.50 or so every month.

In China, p2p lending is a nascent movement, as  CreditEase offers a p2p lending platform to institutionalize informal lending practices, and Qifang employs clever cultural pressures for repayment, including posting the pictures of family members to shame defaulting customers.

I greatly admire Acumen Fund’s approach to international development, which seeks to invest in targeted local ventures, providing an example of a free market solution providing social good. And one of the top startups of the past couple of years is socially responsible outsourcing nonprofit Samasource which encourages you to “give work” through paying the poor to do online tasks.

New e-commerce platforms have the potential to cut out the middleman to directly connect small-scale sellers and buyers, but many remain in the realm of gimmick.

Etsy remains one of the most amazing and promising sites on the web. A destination for handmade goods which defied the odds to become the fastest growing e-commerce site, I covered it a full 20 times. It’s a prime example of an open marketplace, from its open API to the Community Council that brings the buyer and seller community together to talk about the future of Etsy, and it serves the artisan community well. Its blog encouraged me to join the outcry against the Consumer Product Safety Improvement Act, and I argued that the community-enforced handmade standards of the Etsy community were an approach to support, not smother with regulation.

I was an early fan of Groupon with absolutely no idea of how huge it would become just a year and half later, but my opinion now is considerably tempered. Also out there with innovative selling platforms are  the cleverness of Gilt Groupe and the fast purchase decisions made through online sample sales, the scam-like approach of Swoopo, and gaming travel deals on Off and Away.

Crowdsourcing is opening up problems sets previously thought as being too complex for non-“professionals” resulting in more efficient and open approaches.

Netflix set the model for challenge competitions as it successfully crowdsourced the improvement of its recommendation algorithm, setting off a trend within government to procure technology and approaches through contests, saving taxpayer dollars.  Other crowdsourcing projects we enjoyed included:

However, when I was ambivalent about its application in crowdsourced design sites such as 99 Designs, I received an unexpected outpouring of support from the design community and a simultaneous beatingon HackerNews by those who believed that this was simply a more efficient marketplace. I was less sympathetic to the artists’ cause when they rallied against the Australian government’s decision to seek citizen photos for its website rather than professionals’.

I was generally unimpressed with crowdsourced Q&A sites like Yahoo Answers, Mahalo, and Aardvark; however, Quora seems to be on to something.

Crowdsourcing was also applied in dumb, troubling, or useless ways, including:

///

And finally, the two posts that didn’t fit into any clear bucket, but which were the two most read and commented upon posts on Transcapitalist …

After the first release of classified documents, I came out strongly against Wikileaks with “How Wikileaks threatens transparency”, arguing that its actions threatened transparency where it really mattered: between government agencies. All commenters both on my site and on HackerNews disagreed strongly, but I still stand fully behind my original opinion: with the latest release, we see exactly the closing down of information channels that I feared.

Markets at Burning Man” explored my personal experience of the gift economy on the playa and the contrast of the commercialism that is in the outside world before and after the event. The post started a fascinating thread on HackerNews by fellow Burners and Burning Man novices alike.

Thanks for reading and keep in touch.

Melody & Anita

 

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Reader Comments (11)

Nice post. I've enjoyed reading the blog.

December 8, 2010 | Unregistered CommenterTim

Your perspective will be missed!

December 8, 2010 | Unregistered Commenteranon

Thank you. Your posts have been informative and educational. Transcapitalist will be missed.

December 8, 2010 | Unregistered CommenterBen

Sorry to see you go!

December 8, 2010 | Unregistered CommenterKurt

I'd list "Tap the Collective" as a highlight of ours (mine) as well. Thank you for all the interesting posts, most of which I agreed with, some I didn't, but all were thought provoking which is kind of the point of it all, isn't it? I know you're on to big things which is in part why this blog is going away, but regardless it's always a mixed bag to turn the page to new things after caring and worrying about something for a long time. Until your next one... ;)

December 8, 2010 | Unregistered CommenterAdam

@Tim, anon, Ben, and Kurt - thanks so much for reading!

December 8, 2010 | Registered CommenterMelody

@Adam, hope we can collaborate again :) Thanks for the nice comment.

December 8, 2010 | Registered CommenterMelody

Hi there,

Overall I enjoyed your article very much, however I still don't really understand what is so troubling about eToro. Making trading social is our way of providing an open channel for traders to get more information on which to base their trading decisions, and user-friendly design, as well as free educational tools, never really troubled anyone before :) I don't really see what it has to do with the other financial products you discussed so eloquently in your article. In times of financial trouble, people are right to seek investment alternatives, and forex trading is a good one considering that it is the one market that can't crash.
Thanks again for the interesting perspective!

Best regards,
The eToro Team

December 9, 2010 | Unregistered CommentereToro Team

Hey eToro team,
It's true - I appreciate the opening up of new markets to new participants. Generally it serves to make them more transparent, so kudos for that! Your UI is indeed clean and you provide a lot of good information.

What "troubled" me about the site (and its marketing) is its emphasis on gaming. I think that's the attitude that has gotten us into trouble in financial markets. FX markets are seriously business with serious consequences for nations. Having a company investor describe them as a "Zynga for real men" undermines that.

Still, thanks for the comments and I should probably temper my description! Will do.

Best,
Melody

December 9, 2010 | Registered CommenterMelody

Thank you so much for your passion and vision! I can't tell you how much it means to me to know their are bright folks such as yourselves out there animated by a vision of ethical capitalism and technology-enabled transparency. I know you guys will be continuing your investigations into market mechanisms somewhere, and I look forward to finding where you land so that i can learn from you there.

December 12, 2010 | Unregistered CommenterJack

Jack,
Thank you so much for the really kind comment. I love the way that you describe what we have been all about. I'm grateful to have had you as a reader and we'll keep people posted here about our new adventures :)

December 19, 2010 | Registered CommenterMelody
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