Medium, Publishing and the Lemon Market: January 8, 2017 Snippets
Happy 2017, and welcome to a brand new year of Snippets!
At the end of last year, we were excited to launch Snippets on Medium on our new Social Capital publication. So, naturally, 2017 opened with a bit announcement from Ev Williams about Medium’s future:
Renewing Medium’s focus | Ev Williams
One has to admit; the chattering classes on Tech Twitter are nothing if not predictable. Ev’s announcement was no exception: Ben Thompson says it’s because Google and Facebook are making all the money; DHH from Basecamp says the real problem is the Venture Capitalists. Fred Wilson says we should move to micropayments made of Bitcoin; Jessica Lessin from The Information thinks that’s a silly idea. Pretty much everyone wishes Medium well — the product and the community are wonderful, and everyone wants for their business model to work, whatever it ends up being. But it’s a tricky problem, that’s for sure.
Here’s one way of looking at the problem, which was articulated in a 1970 economics paper that was initially ridiculed, but ended up winning a Nobel Prize. That’s right: the Market for Lemons!
The market for lemons: quality uncertainty and the market mechanism | George A Akerlof, 1970
If anyone isn’t familiar with the Market for Lemons problem, here it is in brief:
Imagine a used car market for secondhand vehicles that vary significantly in quality. Some work just like new, and some are “lemons”: they’re stinkers. However, it’s hard for a buyer to uncover on brief inspection whether or not a car is a lemon: a good car and a lemon may be indistinguishable. Hence, there is asymmetry of information between the buyer and seller: the seller knows the true value of the car, but the buyer doesn’t.
Suppose the true value of a good car is $1000, and that of a lemon is only $400. Only the seller knows if the car is a lemon — the buyer doesn’t. Hence, a rational buyer, knowing that lemons may be present, may only be willing to offer $800 for the car. This means the only sellers who should take this deal are those who are selling lemons: if you know the car you’re holding is worth the full $1000, you wouldn’t sell it. This creates a pernicious cycle: those with good cars will withdraw from the market, leaving a higher percentage of lemons, which in time should lead buyers to offer ever-lower sums.
The core insight of the Market for Lemons problem is that asymmetric information between buyers and sellers disproportionately hurts the high-quality sellers. And it’s hard to imagine a market with any greater information asymmetry, range of quality, and lemon market dynamics than the publishing industry.
The Lemon problem expresses itself at every level of publishing: individual pieces, authors, and publications. Suppose that a typical reader might be willing to pay something for content they really like, but nothing for a piece that’s average or below. Unless one knows and trusts the source to a very high degree, a reader can’t know ahead of time how much a piece of writing (or an ongoing subscription) is worth to them. Publishers may cry foul, saying they’re not deliberately misleading readers the way a used car salesman would, but the lemon market problem holds true: when the reader can’t know the quality of a piece ahead of time, high-quality authors are the ones who suffer. You’re drawn into a downward spiral where the only content worth producing becomes click-y garbage — falling into what Jim VandeHei of Politico calls “the crap trap”.
The good news? Akerlof’s paper offers at least one solution that we could try: warranties. If the buyer is offered a warranty for their car purchase, they can regain the confidence to pay the full $1000 — and re-invite the sellers with good cars back into the market. Could the same idea be applied to publishing somehow? Suppose an author or a publication came out front with a subscription fee, but offered your money back if you weren’t satisfied? The Patreon model of voluntary payments has had some success, but what about voluntary refunds?
Here’s an idea for Medium or anyone else trying to shake things up in digital publishing to consider. Help me, as a reader, overcome the lemon problem. I’m perfectly willing to pay for quality stuff, but a warranty function of some kind would go a long ways towards getting me to pull out my credit card. If uncertainty leads to clickbait, then confidence on my part may well help the high-quality writers. Could be worth a shot. After all, if it isn’t the payment that repels us but rather the uncertainty, then shouldn’t this be worth a try? We can all see how much garbage is out there — but we don’t yet know how many great pieces could be.
Major forces at the start of 2017:
The retreat from hyper-globalization | Bill Janeway
The Edge 2017: What scientific term or concept ought to be more widely known?
Exponential laws of computing growth | Peter Denning & Ted Lewis, Communications of the ACM
Observations on investing:
What is your edge? | John Huber, Base Hit Investing
On where our food comes from:
Podcast episodes to kick off the year:
Interview with Michael Lewis | How to be amazing with Michael Ian Black
History of the iPhone, on its 10th anniversary | Brian McCullough, Internet History Podcast
Lose-Lose: What does it look like when neither player is trying to win? | Radiolab
Other reading from around the Internet:
Little boxes: the suburbs, high-tech, and “The Silicon Valley” | Margaret Crawford
The robots are coming | Simon Wardley
Tendrils of mess in our brains | Sarah Perry, Ribbonfarm
Remembering Richard Adams, author of Watership Down | Eugene Wei
And just for fun, CES EDITION:
Watch Nick Offerman and Casey Newton react to the nonsense gadgets of CES 2017 | The Verge
In this week’s news and notes from the Social Capital family, we’d like to share a great summary from Travis Scher of Digital Currency Group about the state of bitcoin and blockchain technology. Bitcoin has had a pretty wild last month, and Travis helps us see behind the roller coaster exchange rate and into the real behind-the-scenes innovation on the blockchain:
Reflections on Blockchain in 2016, and looking ahead to 2017 | Travis Scher, Digital Currency Group
For anyone not familiar with DCG, their mission is to accelerate the development of a better financial system. Digital currencies and blockchain technology have the potential to spawn decades of innovation in financial services, identity security, distributed computing, and many other industries. DCG sits at the middle of this ecosystem, with direct subsidiaries including Genesis, Grayscale and Coindesk and a wide portfolio ranging from consumer wallets like Coinbase and Circle to Industrial blockchain applications like Filament, enterprise trading and risk management applications like Crypto Facilities, and much more. (You can find DCG’s full portfolio network here.) They also help companies and stakeholders directly in a number of ways:
No matter what your Bitcoin-related needs and wants, DCG is usually first in line to help. To get in touch with DCG, you can find them on Twitter, Linkedin, or Angellist. We’re excited to see what this year has in store for them.
Have a great week and happy start to 2017,
Alex and the team at Social Capital
