Why Open Inventory Transforms eCommerce
At the heart of the Public Market protocol lies a concept that runs directly counter to today’s eCommerce marketplace models: open inventory information. In closed ecosystems like Amazon and eBay, inventory data is proprietary and leveraged to extract rent and exert price control. In Public Market’s open ecosystem, inventory data is public and shared across any storefront built on top of the protocol. Whereas closed inventory creates competitive moats and leads to less competition and higher prices, open inventory obliterates competitive moats and creates new incentives for competition that drives down prices.
What’s old is new again: marketplace models in historical context
Marketplaces have always been in the business of aggregating and matching buyers and sellers. In the second half of the twentieth century, this happened in physical locations through malls and big box stores. For the last 20+ years, the dominant marketplace paradigm has shifted to the Amazon-style world bazaar, taking advantage of internet technology to radically expand the variety of goods available to the average consumer.
Across these paradigms, marketplace intermediaries have leveraged inventory data to create competitive moats. This happens first by luring customers with the promise of one-stop shopping, and second by locking in sellers who don’t want to lose out on a customer channel. As seller lock-in occurs, marketplaces inevitably exert market power in the form of higher economic rents and price controls. The direct impact of these rents are, of course, that the end prices that consumers pay go up. See our piece on the Extraction Imperative to understand how consumers ultimately foot the bill for marketplace rents.
While the extractive, for-profit marketplace model may be the norm today, it has not always been so. The ancient Greeks, for example, viewed fair and open marketplaces to be a public good, essential to the proper functioning of economy and society. As such, the agoras of Greece were a publicly financed infrastructure, bringing buyers and sellers together in an atmosphere of transparency.
With Public Market, the infrastructure for a new agora is here. Information about products and services has never been as easy to organize as it is today. Consumers everywhere operate in a global digital commons. The only thing necessary is a business model that builds in open inventory at its foundation rather than using closed inventory as a competitive lever.
(Inventory) information wants to be free
In 1984, Whole Earth Catalog founder Steward Brand famously said that “information wants to be free.” In fact, the best known part of the quote was just part of a larger sentiment:
“On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.”
This certainly describes the reality of inventory information in eCommerce. As the success of Amazon shows, marketplaces have found that making inventory information expensive and exclusive can yield valuable results.
On the other hand, inventory information wants to be free. More specifically, sellers want information about the things they sell to be available as widely as possible. For most sellers, every action they take that would either restrict the availability of information about their inventory (such as listing on Amazon despite hefty transaction fees; massive restriction in how one markets one’s products; price parity agreements that limit price differentiation across the web and a host of other onerous terms) is part of a Faustian bargain to try to capture a share of attention from the large commercial holders of that attention: the marketplaces.
To date, the problem for marketplace sellers is that they haven’t had a realistic alternative to access customer attention at scale. No one has yet designed a marketplace business model that is capable of aggregating customer demand without creating an extractive intermediary.
Open inventory enables the attention economy
Open Inventory creates a different opportunity with regard to aggregated attention. Rather than having to follow a traditional model of customer acquisition and audience building, open inventory creates totally new possibilities to integrate with the existing attention economy. In Public Market’s model, for example, we empower anyone to build a storefront full of items available through the universal public inventory. An Instagram influencer known for their music tastes could curate a collection of records — without owning any of those records. A gamer known for their passionate takes on Sci Fi could curate a collection of classic books, movies and games that have pushed Sci Fi through the decades.
Importantly, these are people/firms who have already done the hard work of aggregating and building trust with their audiences. Open inventory gives them a business model that doesn’t require them to sell that trust and audience to advertisers.
The impact of open inventory on competition and price
So what happens when you have many different people and publishers building storefronts based a shared, universal and open inventory?
For sellers, it is a dream: their inventory is exposed to consumers wherever they are by the sources those customers already trust and deem worthy of their attention.
For consumers, it’s even better. When inventory becomes open, shared, and universal, it once again empowers storefronts to compete for consumer loyalty on the basis of fundamentals like price.
In the extractive marketplace era, competition to capture buyer attention has been reduced to an attempt to game the search algorithms. In a world where inventory data is open, storefronts once again get to be creative and thoughtful in how they promote their items. Moreover, whereas closed marketplaces reduce competition and drive prices up through extractive fees, the open inventory context creates information parity about price, rewarding storefronts with the lowest prices and in so doing, driving prices down across the market.
Conclusion
The transformation from closed to open inventory is inevitable. When inventory is open, universal and shareable, buyers and sellers both win — the only loser is the extractive middleman. Once a global open inventory protocol is built and populated, extractive marketplaces will no longer be able to maintain the competitive advantages upon which their business models are based. Once open inventory is unlocked, like a genie out of a bottle, it will be an unstoppable disruptive force — transforming the eCommerce landscape by restoring the competition necessary for healthy and efficient markets.
