Of Trade, Trust and Enabling Micro Production

[Originally published on NextBigWhat.com]

The human race has been trading ever since it has existed, either through a tangible barter, a favor, an obligation to return a favor or through currency. The basic premise of all this trading was trust.  A typical trade revolved around trust that the buyer had about the quality of the goods and trust that seller had that what he got in exchange was worth. A favor was extended because there was trust within the community that everyone else would extend favor when needed.

Traditional Trade

With the achievement of traveling beyond the mountains and oceans, humans started discovering others of the same species but different culture. The products that were exclusive to a particular geography saw demand from far off places.

Soon, producers required travelers who could get their goods to far off land for higher margins. With time market dynamics skewed in favor of these travelers. They would act as locals to the producers and as well as to the consumers in the far off land. They added a layer of opacity in the ecosystem but for them everything was transparent and hence they made the most out of the trade. The traveler was not just helping with the logistics but also ‘making the sales happen’. He was now a trader. Even today most of the margin in farm produce value chain is made by the person who brings the produce from the farms to the mandi.

Some of these traders were really smart. They hired local artists and celebrities to talk about their products and tell the consumers how the package that they sold had better goods than the other one. Goods went beyond fulfilling physiological needs. There was more demand created. Technology helped meet this demand but at times the mass production also created over excess capacity, which in turn created demand for more demand.

Birth of Communication Technology

 

Meanwhile, technology was growing fast and it went beyond production. Information was being exchanged between far off lands within a matter of days, then hours and now seconds. The producer was now finally able to see the huge margins that the trader was making but sharing very little of it with the producer. The trader was again being reduced to a logistics enabler.

The trader was being removed from the value chain but then it just wasn’t viable for the producer to produce, market and trade, all by himself. The producer was good at producing and nothing else. It wasn’t rewarding enough to learn new skills to monetize his micro production.

A new breed of connectors are occupying the value chain, they were fondly called Internet Startups. These connectors on the web realized the opportunity and are bringing a different kind of service to the value chain. They are enabling the producers monetize without worrying about everything else. That is making micro production viable enough as a business.

So why is micro production such a big deal when technology can mass produce everything?

Micro production allows you to add creativity and it’s efficient by design. Micro production is human. Most importantly everybody is doing what they love doing, entrepreneurially. Mass production as seen above is an outcome of greed that further creates the demand for artificial demand. Most efficiency and scale around mass production is not to make the production efficient but to make mass production manageable and profitable even when the product is commoditized. The buyer does not need to pay for the over capacity that is mass produced.

Fashion

The fashion industry is a good example of success with micro production. Most designers generally have their own mini-production house that allows them to maintain a boutique of their best creations and keep all profits to themselves. Each creation is unique and customized for the consumer.

Music

In the information age, Apple iTunes was amongst first to allow micro consumption of music. Paying for only the singles that you want and not the whole album was liberating. This also enabled music makers to produce just 1 song and sell it. The cost of distribution of magnetic tape cassettes and CDs did not make it viable to do so earlier. The same is being extended to utility and game apps by app stores. Today ofcourse, this ecosystem of app/music distribution has matured so much that one would find it senseless to having buy a suite of bundled apps or an album of pre-selected singles, unless subsidized.

Publishing and Distribution

This Industry has already seen disruption with the advent of blogs. Large media houses are facing stiff competition from independent bloggers. The very well-known news and content channels would soon be reduced to only a distribution network. The best of reading platforms like Feedly or Flipboard are helping us discover more of the kind we like and they are going to lead the way for micro consumption of content. Social media is helping discover new content, the dependency on a professional distributor is being curbed.

Bed and Breakfast

Watch an old Hindi movie or a mythological series, you would always have this traveler who needs to halt at an unknown village for the night before he can continue his journey through the jungles. He would knock at random doors to find someone offering him free bed for the night and breakfast the next morning before he leaves. Wisdom is exchanged over breakfast and this serendipity sometimes converts into long term relation. Of course, the world is not all that utopian anymore. But that does not mean that everyone is bad either. With services like Airbnb or Oravel it is possible to micro produce as little as just 1 bed night per month for travelers. These services are a great platform for the future of hospitality business.

Soon, it may not be economically viable to mass produce 100 rooms in a single building for this purpose that all look and feel almost the same from inside irrespective of what city you are in. The basic desire of humans to experience something new is not served by them. So what is the problem that these hotels solve? They are predictable in terms of service. You know what to expect at a Taj vs. a 1 star property. This is again defined by the service layer on top of the real estate. The hotel chains might soon be reduced to management services that help independent properties be better serviced.

Local Travel

 

Though services like Uber have made it easy to hire a cab for local travel, the real revolution of local travel lies in ride sharing. Services like HopOn, ZingHopper, Ridingo enable you to micro produce as little as 1 ride and still make money out of it. The other way to disrupt this space is to enable renting of cars that lay unutilized in office parking lots most of the day. Currently the mass produced local commuting lies underutilized and hence the user ends up paying high fees for the service. True liberalization of this space lies in enabling hiring of only the car, only the driver or only a seat in a moving car. All of these need to be owned by individuals and not mass produced to allow efficiency to prevail.

Courier

Any village in India has couple of people who travel to town daily for work. On most days this traveler would be required to bring back something that his family or neighbor asked for. He would do this happily without charging for the “courier” service. There are 2 parts to courier, the long distance carrying and the last mile delivery. Services like DeliverWithMe are solving the first part and there is still lots to be done here.

Ofcourse, anyone pooling in for such service will have to stop and wait but then the environmental cost that we are paying for moving fast is just not sustainable.

Food

Food and cooking is still an unsolved problem for the urban Indian. Most men are yet to learn to cook, thanks to the upbringing they have received, and most working women find it difficult to cook for mini get-togethers. Restaurants have solved this problem partially but ordering for decent food from restaurants at the cost of dine-in is just not a viable option. Good food delivered from restaurant generally comes with the cost of ambience that you did not experience. Startups like Imly, mealnut and HomeChef from Delyver are dis-integrating the cook from the eating place. There are wonderful cooks in every Indian home but it is not viable for them to set up a diner and employ staff for service and cleaning to monetize their ability. They can now micro-produce as little as 1 item on the menu and still monetize it.

Mass producing food the way restaurants do is neither healthy nor economically efficient given the over capacity that they create. This means that the mediocre places that neither have a great ambience, nor justify the prices with only food, are going to have a tough time. What’s going to survive in the restaurant business is the experience of eating out, not the utility of having food.

Loan, Investment and Banking

Traditionally, banks have not only played the role of managing transactions but also investments. The problem is that a typical deposit in the bank makes considerably lesser money for the account holder than what the borrower is paying to the bank. Banks get paid to reduce the risk by taking distributing onus of the loss caused by individual loan defaulters. All deposits to the bank get paid equal interest but the bank charges different interest rates for different loans. This does not quite sound liberal. LendingClub is changing that by allowing you to choose returns based on risk. Managing risk involves identifying potential loss and LendingClub does that well by checking borrower’s credit rating. Traditional banks on the other hand have been heavily underpaying lenders to account for the bad investments they made that convert into NPAs.

Education

 

The changes in education industry that micro-production is bringing seems to be the most disruptive of all. For long, the society has given the power of imparting education to institutions. Writers for books are chosen by publishers and teachers are chosen by universities. Students are required to enroll into single university for all their education so that they can earn a well-recognized certificate of knowledge. One has to buy a full book even when only 1 chapter is useful. Both, students and teachers are limited by the capabilities of the 1 institution that they enroll into.

Coaching classes are a great example of micro-producing education for single subjects and they have been doing well for the teachers as well as the students. Most students do not go to higher education institution for knowledge but for the certificate. And for teachers the institutions have become a platform for marketing their coaching classes through subsidized content. Coursera is killing the need to have education institutions and there is Attano that is doing for course books what itunes did for music, by enabling single chapter purchases, instead of the whole book.

Are these transaction platforms doing enough to disrupt the space and make it big?

A recent report in Forbes suggested building a “transaction platform” as the surest way to achieve one’s goal of making a Billion Dollar Internet Company. While that has been true for Internet until now, it won’t be the case going forward. Enabling transactions was a new new thing until now but has been commoditized lately. Soon individual verticals of transaction will be commoditized as well. 2 sellers, 2 payment gateways, 2 booking engines are mostly different only in their price not in the ultimate value delivered.

The next big thing won’t just enable us to make transactions but save us from making a bad transaction. It should reduce my risk of trying. It should act like a guide against a bad transaction that I am going to make, before I make it. All this without reducing the rewards for the seller or increasing the price for the buyer.

How exactly will that happen?

redBus tells me to not take a certain bus because it is bad. Bus ticketing is a commodity but that cautionary message is my friend. Zomato has to stand up and speak when a transaction goes bad. Phone number of restaurants isn’t a value anymore, separating the good restaurants from the bad ones is what matters. All this because the community trusts these aggregator to reduce their risk.

As the world opens up to trade with anybody and everybody, trust is going be a big deal. If you are in the business of simply selling more, you are going to be out of business, sooner than anyone has ever gone before, thanks to the same web that brought you to the top so fast. If you are in the business of making sure I only buy the good, you are my friend. I trust you. I won’t let you die.

The trust that was taken away from the trade will need to comeback and then it will kill the mediocrity that greed brought in. The business that tells the trustable from the non-trustable is going to be a big business.