Thursday, October 1, 2009

Online auctions, feedback and monopoly

One of the fascinating things about the online world is the way it creates monopolies. Almost anyone in the world with access to the internet can create an online auction site. All you need is a web hosting account with Fantastico and its easy to create an auction site.

Of course you will be very lonely on your site because you will probably be the only user. Everyone else will be on eBay or, here in New Zealand, Trademe. Why? Because everyone else is there! In other words these sites are successful now because they are successful and its too late for anyone else to get a look in.

There are obvious problems with monopolies that go way back to Standard Oil. Monopolies can do what they like and don't really need to listen to anyone else. For a long time there, here in New Zealand, Telecom New Zealand was basically an unfettered monopoly. Its share price was huge and competitive entry was esentially a publicity stunt.

But slowly over time the Government stepped in to regulate the market monster.

It began with taking telephone numbers off Telecom. This was a big deal because before then Telecom regarded your telephone number as a subscriber number it allocated to you. The fact you may have spent a fortune advertising it was not Telecom's problem. By introducing number portability the Government effectively said that users had a stake in their numbers of greater importance than the allocation of subscriber numbers by a monopoly supplier.

I mention this because in my view the same principle applies to feedback reputations on auction sites. On online auction sites users conduct transactions and place feedback on one another following the completion of their transaction. The accumulation of positive feedback provides a form of leverage which encourages users to conduct their affairs honestly.

It is also the foundation stone on the auction site's monopoly. If a trader has 20,000 successful trades to their name on one auction service they are not likley to start with one on another.

But why should the auction service provider own the traders reputation. The conduct of the transaction had nothing to do with the transaction facillitator. The quality of the goods, the representations made about them, the timeliness of payment and the carriage and transfer of the goods: indeed all the aspects of the transaction on which the feedback is based has nothing to do with the online auction house. So who should own the feedback?

In my view there is a good case for a feedback data standard and feedback portability. It should be as possible for a trader to shift from one transaction facillitator to another as it is for a person to change their electricity provider or their domain name service provider. The property right of the feedback should be between those who carry out the transaction.

What I am really suggesting is the establishment of an electronic transactions feedback standard that can be implemented by any number of service providers. Customers can register their identities on any of these services and have their feedback accumulated on them. If they desire they could also shift their service to another provider. This would allow any number of retailers or transaction facillitators (online auction firms) to flourish and offer competing services. Retailers could offer their goods across a range of different providers and customers could subscribe to different facillitation services. They could also trade directly.

Seperating out feedback would also allow for a better approach to gathering this data. On trademe feedback is summarised into positive, neutral and negative plus comments. But it could just as easily be different for sellers and purchasers. Purchasers could be rated for timeliness of payment ( with Immediate Average Slow Abandoned ) and then Sellers could be rated on disclosure (with Excellent Average Poor Deceptive) and responsiveness ( with Helpful Average Unhelpful No delivery). The value of the transaction should also be recorded. While obviously this data might be private individually Sellers and Purchasers could have counts for these categories published in aggregate. Comments would be an optional extra.

Great concept huh?

Unfortunately I doubt very much if the monopoly providers are going to rush into the implementation of this kind of facility. Why would they? They have a monopoly. And lets face it online trading is still new and exciting and there is no enormous demand yet.

What will be interesting to see is when it will happen

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