Selling goods, services, software (as a service), consumer goods, music, etc. online allows for business models that scale in an insanely more efficient manner than any brick and mortar business. Nowhere is this more obvious than with online marketplaces that are matching buyers and sellers of everything imaginable.
Think about how the concept of a marketplace has evolved:
As marketplaces have evolved, two big changes have occurred:
- The volume of interactions and transactions has increased due to the rapidly expanded reach
- The velocity of interactions and transactions has also increased due to technology-related automation
All these are obvious points, but they’re necessary to mention in order to reinforce what is NOT so obvious: massive increases in velocity and volume bring about drastic changes and increase in the risk profile of running a marketplace.
Here is a really simple way to start thinking about how different the risk profile is:
When a marketplace is nothing more than a small physical collection of buyers and sellers, risk is a simpler concept. Clearly, it is different at scale. Most online marketplace operators are well aware of distinctions like this since class action risk is, by its very nature, a by-product of scale.
So then why do most do such a poor job with respect to how they leverage clickthough agreements to minimize the elevated risk they KNOW is present? Here is the typical approach to “contracts’ vs “clickthroughs”:
How does this lax approach to clickthrough agreements typically manifest itself?
- Cramming a 40 page, one size fits all set of legal terms down throats
- Horrible version tracking and version control
- A complete inability to keep legal terms fresh, updated and relevant
- Clickthrough design that is destined to create enforceability problems
- Illusory terms that purportedly can be updated at anytime for any reason
- Record keeping that is confusing and a time suck at best, non-existent at worst
The typical online marketplace will give less attention to its longest, most complicated, highest volume legal terms, than it does to its much lower volume 1099s and NDAs! What an incredible paradox!
There is a great fallacy to blame for this: the incorrect belief that sacrifices must be made in order to inject legal terms and conditions into high velocity transactions that take place at massive scale and volume. NO NO NO.
I’ll cover more about that fallacy and how online marketplaces can better quantify their exposure in my next post here.