Notes on the middleman economy

Description of the middleman economy (introduction, chapter 1 and chapter 2)

Original translator: permission of Tang Rongbin

Release time: 20 18-0 1

The reasons for using the word "middleman" with gender orientation are as follows: a. There is no neutral version of the word in English; B the scope of "matchmaker", "broker", "liaison" and "middleman" is too narrow; C. "intermediary" is the closest to the meaning of middleman, but it does not have the (cultural) connotation of middleman.

Universality of middleman role: Except obvious middleman role-sales representative, real estate agent, financial consultant, headhunter, etc. Many jobs contain hidden middleman elements: wedding planners, lawyers, family doctors, journalists, etc.

The importance of the role of the middleman: mainly lies in the demand for trust-the communication frequency between the middleman and the buyer and the seller is much higher than that between those who try to trade directly through the middleman, and it is easier for the middleman to establish trust with the buyer and the seller.

Internet provides new opportunities for middlemen: middlemen with large transaction volume and high credit value in Yi Bei; Recruitment experts on LinkedIn; Real estate agents on real estate websites; Looking for star agents of online celebrities on Youtube; Sharing economy such as Airbnb, Uber and ZocDoc (online doctor appointment platform).

The proportion of intermediary in social economy is higher than ever before.

For example, in 1999, the middleman economy accounted for 25% of US GDP, and in 20 10, it reached 34% (more than one third).

Nature of work: connecting nodes in the network, reducing some friction or transaction costs, providing value for buyers and sellers, thus enhancing the value of the network.

New problems:

What kind of network will benefit the most from the existence of intermediary?

What kind of nodes should the middleman devote himself to connecting?

How do they establish contact and strengthen contact?

The six roles of the middleman:

Bridging: promoting transactions by shortening the distance between physical space, social life or time.

Appraiser: Get rid of the false and keep the true, and provide the buyer with reliable information about the seller's quality.

Compeller: Ensure that buyers and sellers go all out, cooperate with each other and stick to integrity.

Risk taker: Reduce fluctuations and other forms of uncertainty, especially suitable for risk-averse traders.

Concierge: Reduce disputes and help customers make wise decisions in the face of complex information.

Segregator: Help customers get what they need and avoid giving people a bad reputation of greed, excessive self-promotion and provocation.

Internet Challenge &; The "precarious middleman" hypothesis: the necessity of intermediary existence lies in reducing the high transaction cost of the real economy, which is true, but the Internet has reduced the transaction cost and will not erase the necessity of intermediary existence. Because intermediaries provide more than one service, and the Internet has created more demand for intermediaries.

The basic criteria for evaluating intermediaries: it is not enough for intermediaries to create value, but also to capture the created value. Not only should the transaction cost be lower (more efficient) than when buyers and sellers trade on their own, but it should also be more efficient than other intermediaries.

2×2 matrix model:

Vertical axis: heat (kindness): Do you only care about your own interests?

Horizontal axis: ability: efficiency; Value/cost

Intermediaries who get their energy from people who are ignorant or ill-informed can be classified as predators. Pimps and drug dealers are middlemen of predators, which will cause negative externalities.

A. transaction cost economics, two-sided market, the middleman to reduce information asymmetry between buyers and sellers-game theory-understand repeated transactions, reputation, laziness and deception, and third-party coercion.

B. social psychology, experimental economics-behavior and performance when people act on behalf of others.

C. different forms of opportunities created by social network structure for intermediaries, etc.

Clear up misunderstandings:

A. Excellent middlemen will not cause unnecessary losses by increasing the buyer's cost and reducing the seller's profit. On the contrary, they must cultivate excellent skills and abilities to reduce the hidden costs and take hidden risks in transactions.

B the value of the middleman is not only to introduce the buyer and the seller, on the contrary, it is sometimes beneficial for each party in the transaction to keep the distance between the buyer and the seller.

Role definition: bridge builders promote transactions by shortening the distance between physical space, social life or time. Excellent bridge builders always look for opportunities between unrelated individuals and organizations. Bridge builders also know that they must provide valuable things to both parties from the beginning.

There is no labor in the prison camp, but there is business: first and foremost, bridge builders connect people like islands through unrelated social networks.

In theory, we can trade freely with anyone, but in practice, there are certain restrictions on the trading object: physical distance is really important, social distance is more important, and people who meet only a few miles away will have no contact because of the existence of social distance.

The concept of mutual help among friends helps people who want to be bridge builders overcome the discomfort brought by interpersonal networks to their professional interests.

Your online social graph is often a natural copy of real social interaction, which may overlap with your real social network, but they are not the same thing.

The social distance within a circle is much smaller than that between different circles: there is less interaction between circles and information transmission is slow.

Advantages of circles: Close-knit circles can promote trust and are very efficient-circles can provide a general model for discussing and thinking about repeated situations, thus making communication and solving things more efficient.

Disadvantages of scattered circles: circles will close information and opportunities, because people in the same circle often get the same information. Because of the flow of redundant information, the circle is like an empty box. The same ideas are strengthened over time, and new and better ideas may be drowned out.

For example:

A. the black hole where it is difficult to cooperate between various departments of the company.

B. Job seekers' recruitment information is not obtained from their inner circle (their own circle), but from their "weak relationships", such as people they met in their last job but didn't talk much.

C. follow someone on Twitter. If the SNR is too low, you will stop paying attention to this person and stick to your own circle. The cost of maintaining multidimensional relationships is quite high, even on a low-cost intermediary like Twitter.

High cost of going out of the circle (the upper limit of interpersonal relationship circle): whether to go out of the circle for novelty or to persist in efficiency essentially depends on the balance between marginal income and cost.

Structural hole is the key to the information sharing model: because people tend to stay in their own circles, there is a gap in the interpersonal relationship structure in different circles. It is like the joint between the two sides of the division of labor, blocking the flow of information between circles. (In essence, information asymmetry between circles is the premise of intermediary existence)

How bridge builders play their role: bridge builders fill structural loopholes, transmit valuable information among circles, maintain direct relations with multiple circles, belong to one circle, and at least have close relations with another circle.

The function of interpersonal relationship in an instant cannot explain the causal relationship between personal connections and success. Successful people are not because they have relationships with good people, but because their own abilities enable them to establish relationships with good people.

Bridge builders had better come from within: the key lies in influence and trust. People will be wary of people in the middle outside these two circles.

Opportunities for middlemen in the open market: market makers: they provide liquidity for the market by buying what others want to sell and selling what others want to buy, instead of using real inventory: they will take over when the seller wants to cash in and hope to sell at a high price in the future.

Requirements of the open market for intermediaries: familiar with the market, able to grasp the ups and downs, and have a more accurate grasp of the market trend.

The trick essence of this model is that the marginal cost of time paid by middlemen is lower than that of buyers and sellers:

1, the middleman can take over at any time, wait for the opportunity, and then sell at a high price.

2. At that time, the seller's key factor was quick realization, and the high weight factor here was time.

3. When the middleman sells, what the receiver cares about is the use value, and the time is the one with high weight. He is willing to spend more money and use things quickly. Intermediaries can provide these things quickly, so all three parties benefit.

For example, "I immediately realized that there was a wonderful gap between spending $2,000 to find a nanny through an intermediary and finding a nanny myself, and I could just fill it."

This passage highlights the essence: the Internet is not eliminating intermediaries, but replacing traditional intermediaries, which is more procedural, large-scale, cheap and efficient than the latter.

Bilateral market growth cycle brought about by "indirect network effect": With the increase of one party's users, the attraction of the network to the other party increases, and the increase of the other party's users will attract more users who want to connect with it. This positive feedback loop encourages users to grow rapidly until they reach a critical scale. But it also means that it is difficult to start the intermediary platform for bilateral market business.

The typical way to solve the problem of "giving eggs to each other" is to give first and then take them, and to establish extensive, diverse and healthy interpersonal relationships.

Subsidized play: the middleman provides subsidies to one party and signs a contract with the original user of one party before the other party exists. After the development of the bilateral market, both sides have a large number of users and can charge both users at the same time.

Intermediaries usually continue to provide free services to one party, make profits by charging the other party, and seek sustained growth and profits through cross-subsidy mode. (In essence, which party has greater price elasticity, higher price sensitivity and stronger market bargaining power is related to the free issuance of coupons by Meituan 2C and the deep cultivation of B-side. )

The fundamental problem of bridge builders: Once it is known that someone is making profits by filling structural gaps, people will flock to minimize profits through competition.

Solution: Compared with reducing the cost by refining the professional division of labor, a better and less reproducible profit model is to provide additional services that can be valued by buyers and sellers. (The essence is an unrepeatable and expandable differentiation strategy, which is related to peter thiel's pursuit of monopoly. )

Summary of this chapter: structural hole (information asymmetry) is the fundamental basis for the existence of middleman role. Bridging is the basis of the most basic middleman role/other roles.

Role definition: the certifier ensures the quality of the bought and sold products and provides value for both buyers and sellers by searching and screening the products needed by the buyer. The certifier should devote himself to gold mining in the sand and establish a long-term reputation, so as to make a profit.

Certification bodies bear unpredictable risks, search costs, professional costs and reputation risks.

Authenticator is probably the most common and useful role played by middleman. With solid professional knowledge and hard-won reputation, certification bodies save buyers' time and reduce the risk of being cheated by sellers.

Three steps:

1, search is like looking for a needle in a haystack, looking for potential products everywhere.

2. Choice depends on experience to keep it true.

3. Recommendation is to use your own reputation to ensure the quality of products that are finally presented to buyers.

Finding and choosing is the kind of thing that we only notice when it is missing.

For example, many department managers who need to recruit know what kind of people they want to recruit, but for more important things, they will still hand over the work of searching, selecting and recommending candidates to recruitment experts on LinkedIn.

(Because the recruitment needs are more detailed and personalized, LinkedIn and Pulse can't fully meet the needs, so there is still room for excellent professional headhunters to survive. )

Carefully study the business, understand the demand, and grasp the balance between speed (time cost) and accuracy (effect).

Most people don't study deeply for the needs of low frequency, but the middleman is different. He will always buy the same product. Middlemen have the motivation to invest heavily for themselves, and they hope to gain the ability to distinguish the quality of such goods.

For example, Super Sellers is the certification of the most active and reputable sellers in Yi Bei, which is rated according to the service quality and monthly sales. Super sellers are distributors and retailers. Only 4% of Yi Bei sellers can become super sellers, and more than half of the sales come from these 4% super sellers.

For super sellers, reputation is more important than anything else. In the face of some short-term losses caused by abusing the right to refund, long-term credit investment may be more important.

For example, how much will a seller with high credibility sell more than a new anonymous seller? The experimental result is about 8%.

Research shows that the higher the credibility, the higher the income.

Establishing credibility often means high investment in the early stage, losing money to sell goods, and then letting buyers pay all the costs for high quality after establishing credibility.

It reminds me that knowledge-based paid services are generally not as limited as the price increase space of physical goods, or as long as the price increase cycle. In the early stage of pricing strategy, the loss/meager profit will generally offset the sales volume, and the service providers/knowledge producers with high user satisfaction will be strictly screened out, and the price increase right will be given as a reward. In other words, compared with e-commerce sellers, it is easier for knowledge-based middle class to establish personal brands in a short time by receiving screening and help. And the more you are in an industry that is easy to forge and has a bad reputation, the more famous and long-term value you have.

The importance of maintaining high-quality service: lowering quality can immediately reduce costs, but it takes longer to restore reputation. (In essence, the marginal profit is low and the marginal cost is high. Maintain high-quality service, help new users make decisions, and cultivate the loyalty of old users)

In the market with asymmetric information, only direct transactions are allowed to cause the problem of "bad money driving out good money";

1. When buyers and sellers directly trade, due to the serious asymmetry of information, the marginal cost of cheating and fraud by the seller is extremely low, and the marginal profit is extremely high, so it is difficult to control their thoughts from falling.

2. Buyers share communication after being cheated, and other buyers are afraid to buy things from strange sellers.

3. The sincere sellers who enter the market can't prove their credibility, can't sell anything or can't sell at a good price, so they have to quit the market.

4. The market is full of unreliable sellers, which further erodes buyers' trust and willingness to bid, forming a vicious circle.

(This paper calls it "adverse selection/death spiral", which seems to be mentioned in a series of articles by Chu Xiang Chen, the most famous growth hacker, but the principle is more like the competition problem at the end of the first chapter. )

The lemon (defective) market problem explains why middlemen often appear in the second-hand market: they not only have the ability to judge the quality, but also provide guarantees with their own reputation. We need a middleman in any case where there is hidden information (information asymmetry).

Cheating costs are low and identification costs are high. In addition to government supervision, there are intermediaries: brand endorsement and label certification.

Industries that require extremely high professional standards, such as serious literature publishing, need gatekeepers with high appreciation ability and strong market insight.

(Online platforms with higher distribution efficiency and better evaluation system are gradually replacing this role. )

Misunderstanding and explanation:

A. Gatekeepers prevent buyers from directly contacting excellent talents or good works, but only through selectivity can gatekeepers provide value for buyers and sellers.

B middlemen will collude to resist talented newcomers, but in fact middlemen compete with each other.

A thing must be valuable to find: just working hard as an authenticator can't guarantee success, because you have to make a profit besides creating value. In order to make a profit, we should not only be a respectable certifier, but also pay attention to the cost of realizing the value of what we do.

For example: "it is not because people go to sea that the price of pearls is high;" On the contrary, people go to sea because pearls are expensive. "

If you think long-term and invest in your reputation, you may find a seller without trying to find it. (In essence, the choice provided is of high value and irreplaceable in the industrial chain, thus saving the opportunity cost of search. Successful certifiers will find themselves surrounded by sellers. In order to ensure efficiency, he needs to hire a janitor to do the first round of selection.

(These are essentially the division and grading of middleman roles. )

Chapter III Executor: Ensuring Everyone's Integrity

(To be continued)

Chapter IV Stakeholders: Reducing Uncertainty

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Chapter 5 concierge: making life easier

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Chapter VI Segregator: Taking Responsibility

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