Or when are our Internet platform powerhouses like Google, facebook, Airbnb, Uber, twitter , Amazon, Trip advisor going to become our new financial industry giants of the “non dollar” economy?
As a result, going forward we will view markets and market size as a sum of “dollar” and “non dollar” markets.
Previously , I outlined a picture of how Industry 4.0 will shrink “dollar” markets – although “non dollar” value will emerge and to some extent fill this gap. For shorthand – I’ll call the world of money the “dollar” markets or ” dollar” world and the social / sharing world the “non dollar” markets or “non dollar” world.
This time I want to explore this “non dollar” value and “the new gangs of the digital era” that control it. As a result, I will push the idea that these are the start of a new type of financial industry that will emerge to support the “non dollar” markets. (By “new gangs” I mean internet platform powerhouses like Amazon, Google,Tripadvisor , Facebook and so on).
A warning though – this blog is longer and more speculative than the last.
These new gangs of the digital era give access to , and control, the new currencies of the digital age , the currencies of “social” and “sharing” economies ( reputation, followers, likes , ratings, reviews , ..), as effectively as the financial industry control & gives access to money in markets today. Both financial Institutions & these “new gangs” , on the whole, do not directly make the things we want and need , but without them , their platforms & related services , we cannot operate & do our business in the non dollar or dollar markets.
As we begin to place real value on the social & sharing economies emerging in the digital world – the roles the platforms play , it seems to me , look more & more like the roles of financial institutions. Hence the phrase “new gangs of the digital world” taking their cut and charging protection money – a slightly biased view of the financial sector living off others wealth creation work. I understand the argument that these are also essential enablers to wealth creation – but I’ll stick to my metaphor for now.
It is perhaps too early to confirm that we are seeing the emergence of a parallel financial market infrastructure for the digital world, supporting the “non dollar” markets, but we can build up a hypothesis based on analogies to the “dollar” world and use these to predict trends in the “non dollar” world. If we see these trends, then it goes a long way to support the prediction that going forward we will need to view markets and market size as a sum of “dollar” and “non dollar” markets.
If we go back to the USA before the greenback we know today existed ( the story of USA currency before the greenback taken from NPR, Planet Money podcast #421) -we had banks in each city or region issueing their own dollar notes – each note having different relative values in shops based on factors such as how close to the bank you were, the percieved reputation of the bank and so on. Think, for example, of different reviews in different platforms – do you trust the review of a hotel in some web travel site you have never heard of, or do you trust the overall review status af Tripadvisor. It might be that the website review is completely trustworthy to some group of people, but you still discount it in your head – in the same way a shop would discount a dollar from an unknown bank – and for similar reasons – you have no basis on which to place that trust and so you don’t .
Today we are seeing an emergence of agreement or at least “customs” about how to handle things like reputation , likes , reviews and so on. When we see a review or a trending rank for example , we have a picture in our head what this means eg. a review rating is , if in a 5 star format, the aggregation of many peoples opinions who are genuine users of the goods or service in question , and who are not connected to the seller in any way. There is no place where this is written down as the law , but platforms offering reviews converge towards this, as the “custom” is established, and people place their trust in that custom . And those places we think follow best this custom and have scale of numbers (lots of reviews, with well regulated process, as perceived for Amazon or Tripadvisor ) get our highest trust. (This, as an aside, is also close to the explanation why we put value on Money at the end of the day – NPR Planet Money #423). All this is very similar to how a shop would trust a large well financed bank with many customers that is nearby, over one they did not know very well.
To see the power of these customs , it is interesting to see how Facebook makes world news when it is revealed that their ranked trending information is subject to editorial oversight and is not pure trend data . It probably makes sense they should do this , but it is not what we thought was “Custom” so it becomes news , reflecting our unease , even if, as far as I know, no one at all thinks Facebook has manipulated any information in a “bad” way. But maybe they could, and thats enough to undermine a little of our trust.
Back to banks of old- after a while there was the emergence of conversion books as travel & trade grew. How can one shop value a dollar from a particular bank it had never heard of – books were published to help this – complex tables based on how far the bank was , away, reputation and so on. Essentially this was a formalization of informal rules and customs, shops were using to judge the value of a dollar, to enable conversion between different Institutes offering the dollar. We are seeing first attempts of formalised “books” now in some “non dollar” currencies – in particular reputation reviews. Some are trying to build sites that can take reputation from different platforms – attempting to enable people to transfer reputation. Its hard to see these first attempts working, partly I think due to the value of the non dollar currencies in question are not yet trustworthy or consistent enough, and partly because the internet is a place of monopolies, and if 90% of all banking is in one bank (think Tripadvisor) – you don’t need to bother with conversion books. But this is changing, so expect to see more attempts going forward.
So what is down the line ? I don’t think one replaces the other – we will operate with both dollar & non dollar currencies although conversion between the two is not obvious at this time. I am sure some will occur eg I can see ”reviews” and some types of “rating” having some conversion behaviour as they are discrete (ie separate from the object being reviewed and rated) a bit like discrete money units, but its hard to see how you can convert for example , reputation & then reduce your own reputation as a result of “selling” reputation. However, its not so hard to see a trade & markets where different types of “non dollar” exist together with “dollar” & also not hard to see that “value” in the eyes of customers can be a sum of “dollar”& “non dollar” values.
So to predictions
Formalization of trading rules & legal frameworks to handle disputes & reduce “fake currency “. This seems one direction for “non dollar” markets. Already now, we can forge identities & personalities, we can create false follows or false hits to make sure we have presence in a particular “non dollar ” market (think manipulating to push up a google search ranking or fake follows to be impressive on Twitter ). Also people or companies that are deliberately attacked to ensure “bad reputation” or “bad reviews”.. Or the company itself can manipulate its own system. These things are beginning to have significant real word value and financial consequences. In AirBnB , we have two way reputation, so unless you have a history, some rooms will not let you book them, a top Tripadvisor restaurant can have huge increase in bookings, and so on. Today we are at the mercy of the platform company and how it decides to police its own world. When change occurs – it is mass public outcry that forces the platform to take action (think Facebook “panic button” in UK). But today , essentially the platform company decides and no arbitration. Its hard to see this as sustainable, people will demand more fair rules and independent arbitration , as in financial markets. We already see the start of establishment & legal reaction, with for example UK Competition & Market authority investigation into fake reviews in Tripadvisor and Amazon, and with different legislation at local level impacting AirBnB and Uber (eg New York conflict with AirBnB, Uber and Austin).
Emergence of “standard” currencies.The greenbacks & Euro’s of social & sharing economies. Today a review in one platform can be completely different than from another, in the way the review is done (subjective opinion from third party, paid opinion, advertising designed as review and so on). Linked to reviews are ratings. Ratings are more & more valuable – we rate restaurants on Trip advisor. We trust those ratings as honest – now Trip advisor can issue “badges of excellence” and restaurants can then display these in their promotions . But not all ratings are equal. Try giving a bad review on “Trust pilot” – a company that provides ratings to help reassure people if a website is reliable – especially for making purchases. Here the company rules are different and they reserve the right to delete the review if it is not provable to their satisfaction – higher quality ratings? or serving the interest of the companies paying to use Trust pilot. Not sure , but hey, the company can decide its own rules, so whats the problem?.
The point is, we know (or are learning fast ) that a review is not a review . We assign reputation & trust to one source & discount heavily another – in the same way shops of old assigned value to dollars in the story above. We will see the different “non dollar” currency customs strengthen over time and less tolerance by people when they find out a company does not follow that custom. Eventually this will give rise to a “standard” for that currency that people will want enforced. Personally I think for reviews – this standard will be like an “Amazon” standard for many non food consumer goods or “Tripadvisor” standard for hotels, restaurants and leisure activities- but I’m sure there will be more than one in each type of “non dollar” currency . There is nothing in the history of the “dollar” world to suggest nice simple global currencies or rules – More a slow , messy & painful journey with many currencies and many different ways to run markets , just like the financial markets.
Market places to trade & manage trade .Maybe the real value of Tripadvisor in the future is to be the gold standard review trading platform (or marketplace) for all reviews tied to Hotels, restaurants & leisure activities. Anyone needing this type of review goes via here ( trivago , expedia and so on ). Amazon could be another for some consumer goods categories. I am not sure what trading means in “non dollar” currencies – but we can speculate (this is only based on my imagination ) – for example a rating of a restaurant is a lot like a share value. It reflects a consumer assessment of value , in the same way a share price assesses financial value. It varies over time reflecting changing experience, consumer taste , and fashion. It also creates herd behaviour -people tend to go to the top rated . Trip advisor could go down the route of a monopoly bank , or it could also open up its platform & start producing “review” information, trends / performance over time, and any number of “non dollar” financial data that could be used if we wanted, to complement financial data on a company. It also stands alone, as many hoteIs, restaurants, shops, are private so financial data /trading is not public but reviews are available. I have not heard of it yet, but someone in the financial sector must be using this info to help analysis of shares & stocks to give trading recommendations ! (and if not , then please send me a cut of your increased profits when you do, as originator of the idea) – it seems a natural step. Then what – trading in Tripadvisor ratings? – I can definitely see a bank landing money based on strong long term good review ratings – and so we have conversion between dollar and non dollar markets.
As this blog is long enough , I have not tried to explore parallels for “follow” , “like” , search ratings and other “non dollar” areas. But the same thinking can apply – we know number of “follows” and trends in “follow” have real value. Number of views and likes on YouTube already make a few people rich, Buzzfeed is all about finding video clips and other stuff that “sell” and go viral on social media , and so on.
Thoughts & comments welcome
Njal
(NOTE: the views expressed here are my own and do not represent the views of the company I work for)