Internet Entrepreneur

How to do it? It was the big new thing once. Then the bubble burst. But there are still people out there doing all right out of it. There is a still a huge market out there. Lots of us are feeling poor this year [ 2010 ] due to the recession. Offering better value is the way to go. It always was.

Rory Sutherland Explains
Every month or so I am approached by someone wanting to start a new business. Mostly these ideas are interesting and even sensible. On rare occasions, however, they can seem slightly deranged — a website that lets you customise your own wheelie bin, that kind of thing [ Perhaps this one is played out - see Wheelie Bin Storage – Hiding The Ugly Necessity | Home DIY Projects - Editor ]. The pitches for these ideas usually end with the claim that there’s ‘a big gap in the market’.

When you’re told there’s ‘a gap in the market’, there is of course a simple riposte: ‘Yes, but is there a market in the gap?’ After all, markets are always full of gaps, for the simple reason that, even in the internet age, there are plenty of conceivable things nobody on earth will ever willingly pay for. I find myself asking, ‘Is there a market in the gap?’ when I read about the post-bureaucratic age or other ideas that seek to encourage voluntary collective action.

When you look at the way people spend their money, there does seem to be a gap — for while individual consumer spending, state expenditure and charitable giving all account for billions, there seems to be no outlet for collective self-interest. The internet has already performed a valuable role in connecting buyers and sellers to create all manner of new markets (see for an example of this); but does that mean libertarians and anarcho-capitalists are right in believing that technology can perform a similar role in uniting people in collective economic activities in ways that replace or enhance the part played by the state?

Let’s take a simple example. Imagine you live on a housing development separated from the shops by a canal. Most of the 500 residents would find it worthwhile to pay £100 to build a bridge across the canal, and their homes would increase in value if it were built. But, in reality, this never happens: each household ends up spending their £100 on a television for the fourth bedroom or some similar private good and the bridge — a public good — never gets built. Partly this is due to problems of co-ordination, but there is also something called the ‘free rider problem’: free riders are those cunningly selfish people who know that they can sit on their hands, wait for everyone else to pay for the bridge and then use it themselves for free.

Interestingly, an economist called Alex Tabarrok has come up with an idea called the Dominant Assurance Contract (search for ‘Assurance contract’ on Wikipedia for this) which he believes can overcome the problem of free riders. But other legislation will be needed before groups of people on Facebook can confidently engage in collective financial acts, making cash pledges which are only debited from your credit card once support reaches an agreed threshold. These schemes can work locally (if 100 people pledged £100, a rural village could probably get high-speed, fibre-optic broadband, for instance) or nationally (we could co-fund promising television programmes, or even pay annoying celebrities to emigrate).

Will these assurance contracts take off? Is there a market in the gap? I don’t know. But any incoming government should introduce the necessary legislation so we can find out. Britain invented the Joint Stock Company; this is a logical next step. After all, there must be many more things that collective action can achieve besides taking Rage Against the Machine to number one.
Worth thinking about?