The Validation Economy 

And Opportunities for Investment

We pay premiums for validation because validation offers us social signals that indicate safety and assurance.

  • We pay doctors quite a bit, because the path to becoming accredited is hard and expensive and medical degrees make us feel safe.
  • We pay attorneys a premium because of their credentials, their skill set, and the validation that comes with their JD, their bar exam, and the law firm they are employed by.
  • We pay high premiums to universities because of their accreditation, incredibly strong social structures that allocate validation to four year institutions, and to receive a validation ourselves.

If we look at the validation economy from an economists standpoint, we’d see quite a bit of disequilibrium. Many of the services we pay large amounts for are inflated by the “good will” achieved by titles.

Banks execute upon “unfair” business models that utilize economic disequilibrium created by external validation and regulation. So do insurance companies.

People are Beginning to Question Validation in the Pursuit of Value

But people are beginning to question validation. The best example, in my opinion, is the reaction we are seeing in the education space.

Taking classes at General Assembly is legitimately beginning to replace a $200,000, 4-year university experience. The General Assembly community is a strong one, the networking opportunities in the middle of Manhattan are legitimate, and the skill sets obtained are tangible ones.

An argument can be made for the values of a Liberal Arts education, but the discussion is at least being had as to whether or not it’s worth so much money.

The Minerva Project, Development Bootcamps, MOOC’s and other innovative teaching styles are all tackling this “validation-induced-disequilibrium.”

I missed the boat on investing in education, I wish I hadn’t, but I believe there are still many social structures that will start coming into questions. And a lot of them will be based in the service-world.

Uber is tackling the disequilibrium caused by regulation and validation (the yellow-taxi has traditionally validated a car as being “safe”).

Yet New Types of Validation and Accreditation Will be Needed—And Accreditation will Arrive Via New Means

As we begin relying on Internet-based services, or on-demand-services we’ll need to use brand credibility to validate our service providers.

DogVacay will need to begin thinking about how to better validate users, and so will Airbnb.

But we’ll begin relying less on traditional, expensive degrees to achieve this validation, and instead begin relying on the crowd of consumers who will be able to attest to high-quality or low-quality experiences.

The restaurant space has already started using this method. The rise of the popular, yet inexpensive restaurants (Think a top-notch Ramen place in Manhattan) have begun relying less on Michillen stars and more on Yelp reviews, or blog write-ups.

eBay began doing this years ago with the introduction of “Power Sellers” and Super Cuts used brand recognition to validate stylists.

New Styles of Accreditation

So while we begin seeing consumers evaluate the value of validation and accreditation more critically, we’ll also see new types of services use cost-efficient methods to arrive at the same high status traditional institutions have thrived off of.

  • They will rely on identifiable brands
  • They will continue relying on customer reviews
  • Brands will continue trying to foster stronger relationships with bloggers and media (a writeup from the Wall Street Journal often serves as the right kind of validation)

And the important piece is these paths are less expensive, meaning those costs won’t be passed to consumers in the same way.