I hope everyone enjoyed their weekend! I completed all my Christmas shopping in 4 hours on Sunday, which was a first for me.
How much time and effort do you have to put in for a gift to be considered thoughtful? I guess we’ll find out this year.
The last few weeks we’ve talked in-depth about decentralization, and how it represents a major emerging trend. No, not crypto. But the less polarizing, more reasonable examples like Airbnb decentralizing the hotel industry and uber decentralizing the cab industry.
The good news, and maybe the bad news (depending on who you talk to)?
Out with the old and in with the new. We’re diving into another topic that has been the backbone of several major businesses over the past decade: information asymmetry. Sexy, I know.
But I promise, it’s actually pretty cool and still in its infancy.
I know something you don’t
Let’s set the scene.
Information asymmetry is a condition under which one party possesses more information than the other party they are dealing with. Hence the “I know something you don’t”.
This access by one party can result in business imbalances and the exploitation of the other party. Riveting, I know.
More of a visual learner? Same.
Think of it as the Wave of Kanagawa, if the water was information. Looks like the left side has the upper hand. (My third-grade art teacher would be proud.)
Still confused? Just check out this really boring video.
Now this concept may seem old, but it’s not. Its claim to fame came in 2001 when a group won the Nobel Prize for Economics for studying how it worked in capital markets. It’s still wildly young in terms of business and economics.
Most of the times we see this manifest in sales. Think of a car salesperson who knows more about the car’s history or a real estate agent with better knowledge about how to assess a home, and the information that they don’t disclose to their client.
Odds are, if you think of the businesses that most people dread, you’ve probably found one with information asymmetry.
But that’s all changed.
Gimme, gimme, gimme
a man after midnight some examples
Alright, well there’s one guy who has capitalized on this in a big way, building three companies that overcome and capitalize on this knowledge gap. And his name is Rich Barton.
Perhaps his biggest win, is Zillow.
Need an estimate based on the facts and figures of the home? Check the Zestimate.
How hot is the listing? Check the views on Zillow.
Need comps in the area? Check Zillow.
What did it sell for last time? Check Zillow.
Zillow has taken the information, once only known to the real estate agents, and made it public for the consumer. You know, the county sales record, municipal documents, the pre-market listings, and all the other things you would think to check for.
The information that was previously leveraged by these agents, is now used to empower the consumer.
Zillow has tilted the scale so much the other way that people will peruse the site just to look at homes, even if they aren’t one the market for one.
Barton also started Expedia and Glassdoor, both businesses founded on the principle of information asymmetry.
Expedia centralized and publicized flight information and prices that were once held close to the chest of airline executives. This public information drove prices down through competition and empowered consumers to make more informed, more convenient decisions.
Glassdoor provides salary transparency for many positions with nearly any company (although, they are often skewed). This leveled expectations for prospective employees and gave them negotiating power.
So, it’s safe to say Rich Barton gets it. And information asymmetry has made him a billionaire.
But wait, there’s even more (spared ya’ll another Billy Mays meme). Here are some more examples in case you needed some more convincing.
- Robinhood (and other trading apps): historically, financial professionals tend to have far more access to market information than retail investors.Recently, apps like Robinhood have given the user more and faster information, in-depth analysis tools, and options for stocks. All of which were relatively unavailable unless you worked directly in the financial markets.
- Cars.com (and other car sales websites): historically, a used car salesman often had more information about the reliability of secondhand cars than their potential buyers. But now, consumers can see a full maintenance history and even get a fair estimate from sites like Kelley Bluebook.
Where’s the opportunity?
Like I mentioned, just look for the dreadful industries.
One industry that I find confusing and dreadful came to mind quite quickly. Insurance. That’s right, the sexy topic just got sexier.
But really, an insurance worker has more information about the risks than the people they are insuring. They see the big picture, while all we care about is being covered, which can explain why people of a certain demographic are charged counterintuitively high rates.
And it hurts the consumer, this lack of consumer knowledge leads to almost no room for negotiation.
But what happens if this data and information were to be public? Well, I’d guess that rates would both drop, and become more personalized, which seems beneficial to me.
Let’s look at ads. Sometimes ad slots will work through a bidding system, where ultimately the company with the highest bid gets the “privilege” of placing the ad with the platform.
In many instances, you will get bids all over the place. One super high, one super low, and several in the middle, with the highest bid often drastically overpaying.
What if the model/criteria used to assess advertisement value was universal and companies didn’t have to rely on a bidding war? I’d guess that it would save time for the bid accepting agency and reduce cost for the bidders.
We’re even seeing this concept play out live in New York with the new law that requires a salary range to be part of the job posting.
Seventh Son Brewing Co.
ChatGPT is cool, but you know what it can’t do? It can’t go to Seventh Son and get a great beer with you. Seventh Son rocks, I’ve been there for work, and I’ve been there for play, and they’ve got an awesome setup for both. So go check em’ out and then maybe when you’re done you can shoot ChatGPT a late night ~u up?” text.
In general, the internet has done a great job of arming the consumer with knowledge and tearing down these asymmetries. But they still exist, and probably always will. There will be a Zillow-like opportunity for another market. Just have to find it.
If there’s one thing to know it’s that knowledge is power, and the consumers always want the power.