The Age of Markets

If you do not read the Park Paradigm, you should.  Anyone who has the guts to name a Paradigm after themselves had better be smart, but this blog clearly delivers the goods.  Along with JP Rangaswami, another former Dresdner one-man think-tank, Sean Park delivers thought provoking insights about the evolution of modern markets.  In fact the number of creatively active neurons per square foot of office at the DrKW CIO Office was always slightly overwhelming.  On that note, I thought about naming my blog Fred’s Lemma but it sounded like "Lemming" which, for a VC, was much too close to home for comfort.  I did keep the fractal picture, how understated :-)  Anyway…

The Park Paradigm, besides asking the $10M question of when a CIO will run an investment bank, is focused on understanding the evolution of markets in a technological world.  Here is its motto:

The technology of the digital age is driving an unprecedented explosion in the ability to create markets in anything. Trade anything.  Not just physical goods. Not just financial instruments. But ideas.  Events. Outcomes.

The emergence of these kinds of markets will -over time – impact how we view and interact with the world in all aspects of our personal and professional lives. They will fundamentally alter the current world economic and social paradigm.

My goal is to highlight and comment on the new phenomena generated as these markets blossom. To question and provoke questioning. To spark debate.  To open minds and change perceptions.

It started with eBay and Google, so it’s not exactly new.  Whether you call AdWords a market given the lack of transparency is not clear to me;  but markets are everywhere and accelerating.  I used to be in derivatives; to make markets work you need standard underlyings, standard contracts, low friction, secure and efficient settlement methods and liquidity.  And a reputation system if the market is to be self-regulating.  It’s fascinating to see how far markets are reaching and how much everything is de facto becoming a tradeable item. 

I won’t try to recreate the excellent body of work found on Park Paradigm.  But think about the following ideas:

  • Are non financial markets converging with financial markets?  Think beyond Betfair here.  As one example, we recently looked at a digital options exchange for P2P (allowing you to take a view on "anything") and one of our key concerns in not pursuing the deal was that the API’s would be used by pro’s to create synthetic hedges and that pro’s might play related underlyings in the real market to make money on the P2P exchange at the barrier.
  • where are hedge funds going next ?  The explosion of hedges has reduced the profits in many of their core trading strategies to slim pickings.  Are they going to arbitrage the price of goods on eBay vs. DH Gate using automated trading tools ?
  • Which of your companies is already a marketplace ?  In our portfolio, Seatwave is a self declared ticketing marketplace (although pricing is "semi static" i.e. adjusted to accelerate inventory rather than dynamically priced) and DHGate is a marketplace for Chinese goods.  What’s the next opportunity for you ?

There are very few segments where the benefits of dynamic and efficient markets cannot be applied. Besides the obvious ones like betting, think through gaming avatars, leads marketing, demand aggregation plays and, why not, ideas.  I will bet you, the next massive European exit is a marketplace of some kind.  The question is, on which market can I place my bet ?

UPDATE: I wrote this a long while back, read Sean on Ticket Exchanges

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