Master of the Agora – Those Who Create Marketplaces, and Those Who Participate in Them

A Parable

Imagine you live in an ancient time – perhaps you are a Greek.  Each morning, you wake up and milk your cows, and then you walk three kilometers to the market, where you sell your milk.  You are not the only milk seller – this market is very large – and there are many.  However, you get enough business to support your family and continue to produce the milk that others enjoy.  You are a contributor, and others benefit from what you provide.

One morning, a band of raiders come to the market on horses with swords and spears, hoping to take what you have created.  Just as you feel death is near, the market’s guards shoot the bandits with their bows.  The news spreads that this market protects its merchants and customers, and soon more milk sellers arrive at the market.  At first, you are afraid because there is more competition – but something funny happens – more customers appear – and soon, you find that you have sold all of your milk in just over an hour and can return home early.  The marketplace, by showing that it could fend off bandits, created better conditions for buyers and sellers – and thus, everyone benefited and the marketplace experienced net growth.

Now, think about the conditions that created the marketplace.  First, there was a wise man with vision.  He saw a crossroads connecting several cities, and saw that merchants from each city passed through these crossroads each and every day, traveling to sell their goods.  He saw that people would ride for miles, passing by the crossroads on their way to another city in order to buy something that they couldn’t find in their own city.  One day this man decided to pitch a few tents and stalls at the crossroads, and hired his friend to stand guard.  When the first merchants rode through in the morning, the man invited them to sell the wares at his market, instead of traveling on to the next city.  The merchants agreed to try, as they knew many people passed through this crossroads each day, and that the road to the next city was often treacherous.  When customers, hurrying to buy salts, wines (whatever) in other cities saw the merchants selling what they needed, they decided to stop and buy there, instead of traveling on to the next city.

Pretty soon, many merchants were coming to the crossroads to trade.  So many, in fact, that a few farmers had started letting their cows graze in the pastures around the crossroads, and had even built homesteads and planted crops there, so that they could sell their milk and crops to weary travelers in the market.  These farmers had need for new shoes on their horses, and soon there was a blacksmith who built his home nearby the market.

Only a few years after the wise man decided to build his market at a well-traveled crossroads, a new city had suddenly sprung up – with his market at the center of it.  This wise man had only asked for 1% of what each merchant sold, which seemed like a bargain for the convenience gained and the safety the man provided – and now, because so much business had been conducted in his marketplace – he was very rich.  Not only that, but because he was not a participant in the marketplace, and it was now well established, the man had time to consider other things.  Soon, he had built an irrigation system to help bring water from the river and help the farmers grow more food.  He built walls, and stocked them with armed men, to protect the citizens of his city and the traders in his market from bandits and invading armies.  Very soon, the people proclaimed the man King – a title solidifying what the man already was in spirit, and had proven in deed.

The man could have been a merchant – and because he was wise and clever, he may have become a very rich merchant.  But at best, he could only hope to become an administrator of his merchant empire – he would never find the time to become king.  Because he focused not on filling the needs of individuals, but rather on creating conditions that would allow individuals to serve each other more effectively, the man was able to spend his time and energies solving problems – and thus, established more than a livelihood – he established a kingdom.

Great Marketplaces of the 21st Century

Today, we can find some of the best direct parallels to this story on the internet.   I would argue that most or all of today’s dominant internet companies don’t participate in marketplaces, they create the marketplace.  Let’s take a few of the most well-known examples:

  • Google: When Larry Page and Sergey Brin created Google, there were plenty of websites around.  Google showed up near the end of the original .com bubble, and now is one of the Internet’s leading brands.  When Google was created, there were many websites which featured search, and even search engines.  Yahoo! had been around since 1995.  Ask Jeeves since 1996.  There were also internet marketing companies, content providers, and ecommerce stores.  Instead of becoming a competitor in an established market, Google created it’s own market by starting with something very simple: an easy way to find information.  Soon, Google had established a potential crossroads, a place where those looking for products, services and information, and those providing them – could meet.  On October 23, 2000, Google released Adwords.  Last year (2010), Google’s ad revenues neared $30B.  This colossal amount of money represents only a tiny fraction of the amount of commerce Google has enabled.  Think about how many merchants buying 1000 ads a year at an average of $1 per click is – 300,000,000!  Think about the type of exponential net gain in economic productivity produced by something like Google being in existence.  Not only do merchants buy ads from Google and customers click them, but entire multi-billion dollar industries have arisen just in training  people and providing services to become more effective in GOOGLE’S marketplace!!!!  ALL competent website developers and designers base at least SOME of their technology and design decisions on how GOOGLE will evaluate their website!  That is absolutely astounding.
  • Facebook: If Zuckerberg is even as half as bumbling as “The Social Network” portrayed him to be, he probably had no idea the heights to which Facebook had the potential to soar when he built it.  For years, Facebook did not even have a method with which to monetize, but over time, one of the world’s greatest markets has certainly emerged through Facebook.  Today - nearly 50% of the US population has a Facebook account!  What’s most enticing about Facebook is that perhaps much of its growth hinged on perhaps two factors: (1) Technology that could support continued growth.  (2)  Allowing 3rd party developers to build applications (such as Zynga and FarmVille) which continued to promote growth.   Now, as Facebook continues to extend it’s platform status, becoming a standard for even website auth, it would not surprise me if soon, Facebook’s reach would extend enough to create a viable competitor to Google’s advertising products.

I could delve into the history of more, but let me just throw out a few names of other sites which have been wildly successful by creating marketplaces:

  • Groupon.com – Connects groups of buyers seeking bulk buying advantages with merchants hungry for lots of buyers.
  • StackExchange (StackOverflow) network – Connects those LOOKING for technical expertise with those who can provide it.
  • KickStarter.com – Connects those looking for funding with those who can provide it.
  • Reddit.com – Knowledge exchange.
  • Amazon.com – Connects those selling goods with those buying them.
  • Ebay.com – Connects those selling goods with those buying them.
  • Flippa.com – Connects those looking to sell websites with those buying them.

There are plenty of (non-web-startup) examples as well (though, I think, fewer good ones):

  • Apple and it’s Ipad / Iphone App Store (and of course others, such as BlackBerry and Android)
  • Programming languages
  • Programming frameworks
  • The stock market
  • Credit card processing
  • Your local farmer’s market (like the example in our story)
  • That street in every town that has like 5 car lots.

This list could go on and on forever, and giving a complete history of each of these companies was not my intent, so let’s move on…

The Point

I believe that perhaps now more than ever, there is a distinct choice available to anyone who reaches working age.  On the one hand, we can take the traditional route – hope to find a great job, most likely working for a company that provides a product or service within an established marketplace, or being a freelance service provider in one of these markets.  Such is the path I went down for the past 5 years, building websites for businesses and startups and helping them compete more effectively in Google (for example).

The other path which can be taken is one that is much more elusive, one that most people will never even know exists – and it is the modern path to Kingship – creating the platforms and marketplaces that make the rest of the economy more effective, efficient and secure.  Once you’ve created the marketplace and you’ve ensured it’s stability, you can pretty much do whatever you want.  If you’re like Zuckerberg from Facebook, you’ll stay focused on making your particular marketplace.  If you’re like Page and Brin from Google, you’ll enjoy the fruits of your labor by continuing to create more marketplaces, buying up companies on a whim, and just creating cool shit in general.

So as you brainstorm for your next startup or business – think about what you really want.  Do you want to be the average merchant, a rich merchant, or a guardsman (ie a Google employee)?  Or…do you want to be King?  If your answer is the latter, you should skip the typical “business planning step” of deciding what product or service you will provide and to who, and jump straight into what type of commerce you want to facilitate between a particular set of consumers and producers.

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4 Comments

  1. tyson
    Posted March 6, 2011 at 12:11 am | Permalink

    Fantastic blog post man.. Where did you find the parable? Let’s create some markets!!

  2. admin
    Posted March 6, 2011 at 3:25 am | Permalink

    I invented the parable ; ) And let’s do it = )

  3. Dan
    Posted March 6, 2011 at 3:44 pm | Permalink

    I was just talking about parables this morning. It’s great to be kind – but what is even greater yet? Just as there is always someone at a higher level that yourself – there is always a path narrower and more elusive then the last. Great thoughts Calvin :)

  4. Dan
    Posted March 6, 2011 at 3:44 pm | Permalink

    I was just talking about parables this morning. It’s great to be king – but what is even greater yet? Just as there is always someone at a higher level than yourself – there is always a path narrower and more elusive then the last. Great thoughts Calvin :)

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