Interwebz and Economic Efficiency
Last Tuesday, wute.vc (Washington University Tech Entrepreneurs – Venture Capital) brought Alexis Ohanian, an outspoken advocate of net neutrality and a founder of the massive social news aggregation website Reddit.com, to campus to talk about entrepreneurship and his experience in both raising and trying to raise venture capital. Ohanian’s experiences offered an extremely insightful window into the process of building a website and brand on the Internet today. Perhaps more interesting was his steadfast belief that there is something far more significant happening during the current web 2.0 revolution: a change in the way people use and experience markets. In his talk, Ohanian argued that besides being an awesome place to look at cute cat pictures and talk with friends halfway across the world, the Internet was now matching supply and demand in new and unique ways. The Internet has created novel ways for people to buy and sell goods and services, creating more efficient markets and making individuals better off.
One of the best examples of such a revolution of the market, and one that Ohanian touched upon, is Craigslist. Craigslist is essentially an online, searchable classified advertisements website. While that may not sound at all remarkable, consider the fact that about 50 million Americans visit the site every month, according to compete.com. These people are not visiting Craigslist for entertainment or out of boredom; they’re going there to do exchange goods and services. And they’re exchanging a lot of goods and services, about 300,000 postings per day in the U.S.
Craigslist does something that wasn’t possible before the rise of the Internet; it allows individuals to put an exact value on all the tangible goods they own and even skills they might have, and then gives them a market in which to sell these goods. This makes everyone better off. If you value an old TV you never use, for example, at say $200 and someone else agrees that that same TV is worth $200, then congratulations, you now have money in your pocket and someone else has a TV. That didn’t happen before Craigslist. The Internet allows goods and services to be matched more efficiently, and because of that, everyone is better off.
So sure, Craigslist lets me sell stuff I don’t really need anymore, but it’s easy to wonder how that really make everyone better off. The answer is that people now can put a real tangible value on everything they own. That old couch is no longer just an old couch, it now represents money you could have instead of an old couch. When people can place actual values, or opportunity costs, on their possessions and skills, it makes for more efficient markets. By creating a simple, easy-to-use medium that facilitated the exchange of goods and services, Craigslist fostered a more efficient market that allowed people to extract the true value of their possessions.
So while it might be extremely easy to ignore Craigslist and its infamous personals section, the site is truly doing something remarkable, and it’s not going to be the last to do so. In his talk, Ohanian mentioned half a dozen different websites that matched supply and demand in new and unique ways. From a site that allows organic farmers to connect with those who consume their products to a site where angel investors and those seeking venture capital funding can meet, the Internet is working wonders for our economy and sites like Craigslist aren’t going away any time soon.