Friday, April 13, 2012

Community & Hyperinflation: Online Marketplaces & Digital Currencies

A few thoughts ran through my mind as I dropped a package off at the post office last evening. I mailed the first dress sold from my 99dresses account.  I received 24 buttons in return.  I am also awaiting the shipment of the dress I bought last week for 19 buttons.  Who knew that an entertaining little website and a $40 beaded frock I've never worn could provoke deep thoughts about community and monetary policy?
1. Apparently, Nikki Durkin, 20, the founder of 99dresses and I have something in common--- we both started Ebay businesses in our early teens. I started mine [deep swallow] 9 years [ouch] prior to Nikki.  [Please wait while I slow my breathing and compose myself].  What was great about Ebay at that time was that it was so new, there was a tremendous sense of community and neighborly, main street decorum.  I remember regularly writing long winded emails back and forth with my customers from around the world, learning their stories.  I would hand write a personal note, and tell the person, by name, to keep in touch and would accept nearly 80% of my payments by money order or check via snail mail.

For a girl who never traveled across an ocean until adulthood, this was my Grand Bazaar, where an interesting, rich, colorful story was only a transaction away.  As Ebay grew over the years, they began to become more of a global powerhouse where less honest transactions took place. Understandably, Ebay became intent on protecting customers from fraud while maximizing their own profit.

So they began restricting contact between buyer and seller, implementing stricter feedback standards, pushing paypal transactions more and more, increasing commissions, sanitizing the handshakes.  By the time they were done, the hand written notes were forgotten, and most of the time, not only were emails never exchanged, but you wouldn't even pick up a first name in the transaction (other than from the shipping label).  My vibrant marketplace became a flourescent-lit supermarket. To me, this was the single greatest blow to Ebay--- the depersonalizing of  the "world's online marketplace" "connecting buyers and sellers globally".  To put it briefly, they took away our community.

My experience with 99dresses thus far has been more of the Ebay Nikki experienced than the one I initially did.  I am still patiently awaiting the dress I bartered last week, but have no real way of contacting the seller other than to email Nikki.  But, I really have no right to complain, as with the holiday weekend and the hassle of getting to a post office, it took me a bit longer than expected to ship out my dress. Nostalgic for the ebay of old, I doodled a dress on the package I sent out with a 'knock 'em dead', but I felt as if I was sending it into the ether rather than to a another girl who would enjoy it.

With eBay in its infancy, you wanted to ship things out quickly to do right by your customer (& pen pal) on a personal level.  If that wasn't enough, you knew you were bound by a contractual obligation. And later in the process, you feared that one negative feedback that would torpedo your business.  In this case, at least as it stands, there are none of those repercussions because communication is so centralized and contractual obligations become fuzzy when digital currencies replace actual ones. 
Don't get me wrong, it's a nifty site to use. And creating what I would call a 'barter capacitor' that allows one to not only trade items with one other person, but to defer that trade for another item is a brilliant concept--- and I would say is  the fundamental basis of our currency systems and credit markets.  I'm sure the economists have a much better name for it though.  However, as David Graeber explains in 'Debt: The First 5000 Years', the act of trade amongst humans is at it's core driven by relationships. 
The 'infinite closet' concept is fresh and appealing to young women. However, I think empowering women to build relationships within this space could have far greater impact than an outfit. My suggestion for Nikki is, as Arianna Huffington recently said, "make community an integral part of everything you do, not an afterthought."  99dresses has the opportunity to do that now.

2.  Digital currencies are a troublesome, if not perplexing, if not intriguing concept for me.  Heck, whole countries have a hard time with monetary policy.  

99dresses provided me with 5 buttons for each dress I put up, 4 dresses later, I had enough in my account to purchase the dress I eyed when I first browsed the page. As mentioned on a back page of the site, the 5 buttons were, supposedly, a limited promotional concept.  However, given the fact that buttons were effectively 'printed', in order to get me started, I see issues with inflation, hyperinflation even. 
And this is where this is not just about 99dresses 'buttons' but most current forms of digital currency.  By purchasing buttons with real fiat you are effectively printing money in a closed economy.  I can't cash out my buttons.  99dresses doesn't 'tax' me in buttons, since they'll need to pay their staff in actual USD.  So now we have a problem.  More and more buttons enter the system and never leave, while I can resell a dress I purchased on the site for still more buttons. 

That might have been an ancillary benefit for the creator and investors.  Say I sell 3 dresses at 50 buttons each, I now have 150 buttons in my account that are useless in any other context but purchasing another garment.  What would have cost me 100 buttons to purchase initially, may now cost me 200 with the ever rising number of buttons in the system.  So rather than having 50 buttons to spare, I have no choice but to ante up the extra 50 in cash, or wait to sell more dresses.  Buying buttons, at least to start, is good for business.

But I would counter, autarkies don't work---  I'm no economist, but I could expound on my recent trip to Burma as a case study. Runaway inflation is a real possibility if you can't 'cash out' your chips and the system never 'taxes' you.  So my second suggestion for Nikki would be to find some way to remove buttons from the system and restrict the growth of said buttons or else we might just end up paying the 'button' equivalent of 6 trillion Zimbabwean Dollars for a cocktail dress.
To sum up, build an infinite slumber party with finite buttons and I think you have a winner.  And I would venture to guess that that advice could be applied to a whole lot more startups than just 99dresses.