Hold market makers accountable for their duplicity.
Market maker business are all the rage today, but they are dangerous in the wrong hands.
Amazon’s primary value proposition comes as a market maker. They exist (or should) exist to provide a win-win environment for connecting buyers and sellers. Amazon started the trend, it took off, and now it is the largest selling category of business. Second only to technology platforms (which hold all markets now in some way), these market-maker businesses are overtaking the company mix, and for good reason. Market makers help us move and innovate faster, but they can be easily corrupted.
It is time we realized that we all have plenty of “stuff”. There are millions of people trying to sell you hundreds of products or services each day, and consumers have an ever-increasing need to have tools to sift through the mountain of nonsense that is peddled to them. Now that we are beginning to realize we have too much stuff and therefore too much waste, we have also realized there is tremendous value in running our businesses leaner and making our markets more efficient. We are now in an optimization phase of the internet economy. Just a few examples are provided below that highlight how these market makers are quickly becoming the new bedrock of our economy and drive the way business is done:
Zillow, Redfin, Apartments.com, AirBnB, Vrbo
Uber, Lyft, Tesla’s direct to consumer model, Turo, (dealerships still have a vice grip on most of this, but I bet that changes soon)
Apple (their app store), Google Play
Upwork, Guru, Indeed, Linkedin
Udemy, Edx, Coursera
There are some companies in here that pose some real risks that we must keep in mind as we shop and decide on what we buy in this new era of allowing a singular company manage an entire market. The risk comes when companies become successful market makers get greedy and realize they have the power to flood the market they manage with their own products to make some extra cash. This is not a new practice, as grocery stores have been doing this for years, but they didn’t have near the amount of influence of which products are “pushed to the top”. Grocery stores often offer in house product alternatives, but they do not have much ability to manipulate reviews and throw the product to the very bottom of a search list of millions of offerings. So although we have seen similar behavior, this is an a new ballgame because these online retailers have a much stronger vice grip on the consumers because of the increased gravity of network effects.
Gaining marketshare in new spaces is easy when you run the market. Price gouging is the big long-term problem you will see, but not after they capture the majority by undercutting the prices of the very businesses that propped them up. Apple charging 30% just to be on the App Store when there is no other option, Doordash orders touting a $3 delivery fee and then totaling near $30 for an $11 burrito, AirBnB being just as expensive ($150 per night, plus $75 cleaning fee, plus $50 processing fee, plus $30 taxes), if not more so than traditional hotels depsite much less overhead, Uber underpaying drivers and skating their way out of considering them as employees. The list is endless and you will see the difference between responsible market makers and the greedy bunch. These problems are expected and symptoms of them having the control of the market to squeeze their providers out of more cash than they should.
There are so many risks and problems with these companies that threaten consumers and small business, but the solutions are not that complicated, it just takes decisiveness and some coodination. For example, when you price gouge that will force people to start on your platform, gain customers/clients, and then perform the rest of their business of the platform because you aren’t worth the fees. This is most obvious in the gig economy market makers such as upwork, guru, indeed, and even LinkedIn. The one that actually does a good job at being fair but also request vlaue is LinkedIn. Unlike every other job site, LinkedIn premium is a flat $30 per month, and it is well worth it. On the other hard, companies like Upwork and Guru are leaving so much money on the table because it is so easier to perform the transaction outside the platform when you charge 30% of the workers revenue. That’s absolutely ridiculous. By the end of it all with taxes and fees, they take home less than half of their earnings. These companies are begging to lose, likely because of short term greed.
With a the tech we have out there, we need to be thinking of ways to combat out of control and greedy market makers that decide to play in the game they are reffing. Most entrepreneurs default to saying that more competition is the answer, and that is true to an extent; however, the real solution lies in educating and empowering consumers on how much power they really have and to incentivize them through education and gamification to exercise their power more. Amazon is only as power as it is because people like the convenience but are not taught about the long term consequences. Consumers can start with not buying their stuff! That same day shipping is enticing in the short term but costs so much more than two days of extra anticipation. It costs over-worked warehouse workers, the reaming out of small business, and eventually, the lack of diversity in employment and wealth distribution. As a consumer, your long term costs are just as palbable as the short term benefits. Short term, you get same day delivery; however, you pay with a more homogenous market to shop from, with reliance on a singular company for all your needs, and with less price control in the long term. Amazons product mix will follow a similar behavior to Google’s search result depth. Yes Google returns millions of results, but they longer they exist, the more homogenous their results become. This is because their PageRank algorithm is popularity based, and Google explicitly curates content on top of that for maximization of ad revenue. What used to be an endless array of results (products) is now a masked regurgitation of the same top 10 results that Google deems most relevant, and you have no control over what their definition of relevance is. The company now decided what you care about.
Amazon has a thin line to walk, and it could do much better. One on hand, Amazon takes competition seriously. Their boldness in entering new markets is the lifeblood of capatalism, and that should never be stifled. Yet, on the other hand, a company with hungreds of billions of dollars has no excuse to stab their own vendors in the back by undercutting their products, or to treat their warehouse workers with an entirely different set of standards than their six figure a peice corporate staff. For one of the richest companies in the world, it is their ethical responsibility to decide if that 2 day delivery is worth the decision to shame warehouse workers from taking bathroom breaks while their corporate peers make 200k per year in a nice office. That line to walk is clear: yes, be aggressive in keeping markets innovative, but not at the expense of human decency. The chickens will come home to roost.
What Amazon does is amazing, they just need more aggressive leadership in the ethics department. And all market makers will eventually face the consequences of their muddy ethics if they overstep.
Long term the winners will be the entrepreneurs that building businesses that target this ethical weakness in these behemoths. These entrepreneurs will build services and markets that change the way a consumer decides on a product. They will gamify and reward sustainable business practices, and they will empower consomers through their product by educating them, not performing a bait and switch. The other winners will be the consumers that refuse to overpay for something just because it is new and shiny. Since we are in an era of optimization and analytics, consumers now get to be more scrupulous with their purchases, and they are beginning to realize that quality will beat quantity and speed when it comes to their quality of life.