Entries in e-commerce (7)


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



E-commerce gaming finds a new target: travel deals

In an online marketplace already rife with distortions of limited time offers, opaque pricing schemes, deal aggregators and misleading hooks, a new online entrant offers yet another time-sucking deal variant: variable auctions. The web savvy traveler already operates in an online world where travel deals abound, but the deal is rarely exactly what he hoped for. You can sacrifice certainty on Priceline, stress over price trends on Kayak, and accept suboptimal pairs in the name of bundling on Expedia.

But if you're willing to add more stress and uncertainty to your travel planning, check out Off & Away, a Swoopo-like platform to auction off luxury hotel rooms at bargain pricing. As in Swoopo, the hook comes in the form of costly bids. In order to raise the price of the room by $0.10, you need to place a "bid" which costs you $1.00. As the clock winds down, each additional bid raises the countdown by 30 seconds, so theoretically it could go on forever, in reality, the last couple of minutes take about 45 minutes, from what I've seen.

I've discussed my opinion (hint: it's negative) of Swoopo before and most of that analysis applies here. While I generally love online markets that open up new buying/selling opportunities, the Swoopo and Off & Away model is market distortion, not market efficiency. Bidding is more of a game of luck of getting in at the exact moment than a mechanism to determine true market value.

Click to read more ...


Gilt Groupe and its clever e-commerce pull

Lately I've noticed a resurgence of new e-commerce destinations practicing clever tactics to once again make online shopping fun, since the amusement of eBay has made way for the practicality of Amazon. Swoopo is cashing in on the trend of integrating of gaming to other online activities (although I still believe that it is a scam); while Groupon uses daily deals that expire at midnight and become free for you if you get enough of your friends to buy (a truly addictive site). Both sites have been wildly successful lately.

Another site seeking to be your guilty pleasure: Gilt, a "by invitation only" site to gain access to very high-end luxury items at great discount. Once inside, you have the opportunity to click as fast as you can every day at noon, when a new set of items are made available. CEO Susan Lyne describes it as "like a sample sale online" except of course, you don't have to wait in line at 6 AM or fight hoards of other shoppers to grab the last size 4. Similarly, the refined Ms. Lyne is clear that "it's not just because it's discounted that it's fun; rather, there is a competitive aspect (like the early eBay) only you get instant gratification." The best items do sell out quickly, so you should arrive prepared, say knowing what parts of the Oscar de la Renta herringbone collection you want to hit first:

So how to gain an invitation to this elite private shopping network? Go to website. Request invitation. Receive invitation the next day. Register. Or you can go to Yelp and see the type of clientele who is "obsessed", "addicted", and "in love" with this website, many of whom claim to hold access to a coveted invitation.

This site is a smart addition to the e-commerce scene. Rival Ruelala was recently purchased for $350M, while prime competitor Vente Privee is expecting to do $750M in sales this year. Gilt Groupe, meanwhile, grew four fold this year as is expecting to do $500M in sales next year, up from $200M this year and less than $100M the year prior. The site is pretty and fun and does a good job of feeling rich which is a nice change from the cheap feeling of eBay or Zappos.


My favorite websites for self discovery; still looking for the integration

I love recommendation engines. My 2009 purchase history was notable in that I *nearly* managed to do all of my Christmas shopping online and that a large number of sites got to "know me" extremely well over the year, becoming near friends in their accuracy of what I would surely like to purchase. My favorites:

Pandora's Music Genome Project causes me to discover and purchase more music than traditional radio or MTV videos ever could. I have 39 fairly well-refined stations, about half of which were born from the initial artists that I chose.

Etsy's "handpicked items" while not at all reflective of my past purchases or browsing habits, still send me down a path of discovery of new artists that could amuse me for hours and nearly always ends in a purchase.

Amazon's "Recommendations for You" is always my first stop for new books to purchase.

Last.fm makes me understand crazy facts about my own music collection, such as the fact that my most played song of all time is one that was introduced to me 3 months ago (too much "repeat" clearly) and that my music tastes have evolved considerably in the past few years (with some embarrasing legacy artists still in my most played).

iTunes's Genius Recommendations make me buy almost as much music as Pandora, mainly because of the convenience.

Bluefly's recommendations on designer handbags lead me effectively from one that is not quite right to the perfect bag that I am more likely to buy.

Facebook's network effects let me type in the name "Greg G" for example and in the top few hits I will see the Greg whose last name I forgot, but who I was looking for.

Mint's My Financial Summary and pie charts make me far more self-aware of little expenses (ATM fees) and large ones (vast fortunes spent at Whole Foods).

Bandsintown scans my Pandora tastes to find the best upcoming concerts in the area for me.

My6Sense I'm just beginning to experience, but I am impressed so far at how it filters content to determine what is most valuable to me.

Now I have sites that know me inside and out in so many domains: music, crafts, books, designer bags, friends, concerts, financial transactions, blogs. I'm still looking for a good recommendation site for restaurants (don't say Urban Spoon; it's too random and while I love Yelp to check out restaurants, it doesn't recommend well). So far the best substitute is Tyler Cowen's Ethnic Dining Guide, especially because we share the same favorite Korean restaurant (Seoul Gool Dae Gee (Honey Pig Restaurant)). 

But most of all, I lament that I can't take my well-refined music preferences honed on Pandora over to Amazon to recommend cross-domain purchases. What additional factors could my eventual universal ID recognize that would make the connection between my recent purchases of the Horse Feathers collection on iTunes; Jeff in Venice, Death in Varanisi on Amazon; a handmade alligator skin wallet on Etsy; and a designer leather hobo on Bluefly?

I'm looking at you, MyType.


Prohibiting web capitalism

Cuba's only internet cafe, where browsers are under constant watchThe United States may not be the most forward-leaning in terms of broadband penetration, but perhaps I should be less critical. Here's a sad fact: only 13% of Cubans have access to the internet.

And after recently blocking Skype, the government is now restricting access further, blocking the popular Craigslist-like classified site Revolico.

In Cuba the internet is controlled by the state monopoly ETECSA, a joint venture between the Cuban government and Telecom Italia. Their reasoning for blocking Skype was simply commercial: to reduce competition for long distance phone calls.

The reason to block Revolico is less clear. I've argued passionately before why web capitalism is important to driving growth, community, creativity, and other goods here and at my Ignite talks here and here. For a society that is supposed to be opening up and that the Obama administration is making overtures toward, this blocking of a basic e-commerce destination is an ominous sign.


Mobile Payments for E-commerce and P2P Lending -- Cut out the bank

One of the most exciting trends in banking and commerce is the rise of mobile payments. The effectiveness of mobile payment solutions, where individuals can purchase items directly through their cell phones without needing to go through a bank, is well-established in Africa where it has helped bring millions of unbanked citizens into the formal economy.

The United States is now getting in on the action. A few days ago, Amazon announced its new Mobile Payments Service, a one-click payment option to purchase items without needing to enter in any additional payment or shipping information. Boku launched earlier this year and facilitates micro-payments, especially for virtual goods for games like Mafia Wars, through cell phones.

Other notable examples:

  • Absa, a South African bank, just won the award for "Most Innovative Bank in Africa" for its cutting-edge services including Cash-Send, a card-free banking solution, as well as banking the disabled.
  • Splash Cash is beginning supplant Western Union as the preferred method of transfering funds between individuals in Sierra Leone. Customers can purchase credits on their phone and transfer money directly to another phone without ever touching a bank. And with a fee of only $4 for a $300 transfer and the ability to cost-effectively (only 16 cents) transfer sums as low as $1.50, the price gouging of Western Union may become obsolete.
  • We've covered earlier MGive, which lets lets you text money immediately to your favorite non-profits.

Finally, MoneyAuction, a Korean P2P lending company is now allowing borrowers and lenders to seek and bid on loans directly from cell phones. This seems like a great direction for U.S.-based p2p lenders to take. The infrastructure isn't quite there yet to support it, but with their emphasis on cutting out the bank, p2p lending companies could take the concept one step further by enabling mobile loan payments and lending.

Flickr credit: Lorianne DiSabato


Not your mother's coupon -- Groupon taps into collective purchasing power online

Groupon is a surefire approach to help jumpstart a consumption-driven economy. Amazing deals on a diverse set of things that aren't necessary, but totally desirable. Things like facials, which normally would seem luxurious, suddenly become so reasonable that you can't help but say, "at this price, I can't resist!" There goes $50 when you were really perfectly content spending $0.

The company leverages collective purchasing power, offering a daily deal to a business in your area (selling anything from paintball to eyebrow waxing) that only kicks in if a sufficient number of people commit to the deal. Buyers are thus encouraged to spread the word to their friends, providing exceptionally quick word-of-mouth marketing to the seller. Many sellers agree to the deal not because they make money on it, but because it provides such good exposure. Each deal expires at midnight, forcing buyers to make quick decisions rather than wait and think about.

The site has turned close friends of mine into near-spammers, forwarding the daily deals to all of their friends. Amazingly, they do this not to help secure the deal, but because they legitimately think that this deal is so awesome that they just want to share it.

The deals are all pretty high end (well-recommended spas, innovative theaters) but they are often fairly new (hence why the businesses agree to the deal) so the site offers an great way to experience an up-and-coming business before it gets hot, at a discount. The deals also encourage you to try out something you've never done before or have been meaning to try, but have put off.

This is a clear part of its success -- Groupon makes coupon collecting cool. Its staff does significant due diligence on companies -- hence why it is only rolled out in certain cities -- beginning in Chicago, but now with representatives on the ground elsewhere discovering new spots. I've always hated coupons. I was slow to adopt, but now I admit that this site is mildly addictive.

By facilitating the interaction of new companies and experimental consumers, Groupon provides a great service to each. As an added benefit, Groupon actually makes money, too. It's one of those rare web companies with a natural business model that made it nearly immediately profitable -- it takes commissions, sometimes as much as 50% on deals for referring new business. This marketplace actually functions in the best interest of the business, the consumer, AND the middleman.

Flikr credit: .Uvitra