Commoditize all the things - with protocols!
This article explores the concept of commoditization and the role of protocols. It touches on barriers to commoditization and why we should all work to tear those down.
Introduction:
In an ideal world, where markets are efficient, we could always trust that if we can name the thing we want, shopping for the cheapest instance of it would get us the best result.
For commodities, this is generally the case. If your business requires electricity, sugar, corn, petroleum or copper of a well-defined quality, buying the cheapest option is best, as prices vary within a narrow band. A 3% price fluctuation is significant when buying at scale. All providers operate at the edge of profitability and entering the market is straightforward if you understand how to produce the respective commodity.
The Power of Commodities:
Commodities not only simplify procurement but also create derivative markets. For instance, if your business relies on steel and you need to secure it at no more than 10% above today's value, you can invest in long-term futures or see in the futures market if there are troubles ahead for your business. Additionally, commodity providers can plan sales far into the future through futures contracts, allowing power plants to sell their electricity for the upcoming year today.
The Quest for Uniqueness:
However, luxury goods and unique items exist at the opposite end of the spectrum. Artworks, for example, may be auctioned at 1000% of their expected value, completely detached from production costs. Nevertheless, all goods and services fall somewhere along this spectrum.
The Dilemma of Brands:
Regrettably, many producers have a significant incentive to distance themselves from commodity status. Companies like Apple have mastered this art by never selling mere "phones" but rather the iconic "iPhone". Even everyday products, like shampoo, strive to avoid mundane labels, making it increasingly challenging to find traditional terms like "shampoo" or "conditioner" on the personal care aisle shelves.
Barriers to Commoditization:
Intellectual property rights, which grant legal monopolies, play a significant role in impeding commoditization. A trivially produced spare part might be illegal to commercialize due to trademarks.
Organized groups often lobby governments to hinder the commoditization of their industries. Taxi cartels, for instance, seek to criminalize or burden ride-hailing apps, impeding competition that could benefit consumers.
The Power of Protocols:
This is where the concept of protocols, and more specifically, nostr, comes into play. Governments favor platforms because they can more easily regulate and tax large entities than individual providers. Platforms are often justified on the grounds that they ensure quality standards, conduct background checks, and swiftly address any issues between consumers and providers. However, this does not mean the platform should control payments, supply-demand matching or many other aspects.
A Protocol-Based Solution:
Imagine a protocol where providers share their products and services, allowing standards to emerge organically. Escrow agents facilitate transactions between parties with low trust. Warrantors verify the fitness of providers and consumers, while governments attest to identity and tax compliance. Matchmakers bring providers and consumers together based on their requirements and fees paid.
On such a protocol, escrow agent, warrantor and matchmaker would not only be distinct entities but also open to competition individually. In the same niche like ride hailing, clients could pay for multiple matchmakers, require any of 12 warrantors to give drivers a certain rating and accept to pay 80% into escrow provided it's one of these 3 escrow agents. And apps could by default hide all these details from the user.
While platforms have a significant advantage due to their massive network effects, protocols can offer a solution. LLMs (Large Language Models) can potentially provide matching services for diverse providers and consumers. Imagine a public display of supply and demand across all sectors, revitalizing local economies and simplifying the process of finding professionals for various services.
Conclusion:
The ultimate vision for such a "trade-net" was eloquently expressed by Mike Hearn in his 2013 presentation, where he envisioned a world where such a network could revolutionize the way we conduct business and access services: https://www.youtube.com/watch?v=MVyv4t0OKe4