Marketplace Monopolies and the Cult-Like Religion of ICOs




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Summary: <br> As an angel investor, I am always looking for transformational businesses. And marketplaces are arguably one of the strongest and most time-tested business models of all time. From early Rome and milenia earlier, merchants conducted commerce in markets. Thanks to efficiency gains for both buyers and sellers, the market thrived. Sellers could set up shop and instantly access customers. And buyers found everything under the sun, all in one place.<br> <br> <br> <br> While initially these merchants operated caravans to cover more ground, reach more consumers and acquire more valued commodities, the model has changed. Today more and more commerce happens online. You buy an iPad, book a room, grab an Uber and get Ticketmaster tickets to the last game — all online, all in 10 minutes.<br> Everything is conducted online and marketplaces are the means that make this happen. They are the backbone of the modern economy and are constantly changing and evolving, adding efficiencies while stripping out waste.<br> (For more on the dangers of marketplaces and Amazon, <a href="https://thesyndicate.vc/the-amazon-apocalypse-of-ecommerce/">be sure to read how Amazon is killing ecommerce.</a>)<br> Why marketplaces make so much money<br> <br> Marketplaces are like matchmakers. They hook you up with a product or service and take a small commission (sometimes from buyers, sometimes from sellers — occasionally both). Marketplaces are middlemen in the truest sense of the word. Yet marketplaces have replaced many of the middlemen of old. Wholesalers and distributors? Most marketplaces don’t need them. The reason markets have evolved as they have is the reduction of waste. Time, energy and cost are continuously optimized, making the experience better for buyers and sellers.<br> The network effect of marketplaces are known as the flywheel. The more travellers on Airbnb, the more homeowners want to list their properties. And of course more choices and destinations means consumers are more likely to join or refer friends… and so on and so forth.<br> The law of diminishing risk<br> The bigger they are, the harder they fall, normally. The problem with this statement is that it almost never applies to marketplaces. The reason: the larger the market, the more valuable it is for everyone involved. Everyone is winning.<br> This makes displacement and disruption incredibly hard. Up-and-comers must 10x the value to convert the faithful. How can you 10x a system that is ever increasing in value for its users?<br> So unlike most conventional business models where rewards diminish as efforts increase, marketplaces buck this trend. While direct profits are more challenging to impact at scale and individual users add less and less to the overall, every user adds buffer to the business model. Markets become exponentially more defensible — the risk goes down. Hence why venture valuations explode as marketplace companies start to reach scale. VCs recognize that much of the battle is already won in the hearts and minds (and most importantly wallets) of users.<br> NOTE: An important distinction — Almost all two sided networks are considered marketplaces for the purposes of this article and analysis. For example: Uber is a marketplace, and a service.<br> ICOs upset this balance<br> Blockchain business models have blown up the world of traditional VC lately. Startups, many with little more than an idea, a white paper and a vision are raising 10s if not 100s of millions of dollars. The froth is crazy. (To read about the boom, bust and re-birth of ICOs, <a href="https://thesyndicate.vc/the-exponential-boom-bust-and-rebirth-of-the-ico-economy-ie-dotcom-bubble-with-dumber-money/" data-href="https://medium.com/@itsmattward/the-exponential-boom-bust-and-rebirth-of-the-ico-economy-ie-dotcom-bubble-with-dumber-money-d545c02589a9" class="markup--anchor markup--p-anchor" target="_blank" rel="noopener">check out this post.</a>)<br>