Megatrend of the Century

I just read this article by Luke Lango and found it to be eye-opening. It should be for you as well. 

The coordinated economy shift is already happening, and it's the biggest thing you've never heard about

By LUKE LANGO, InvestorPlace Contributor

Say hello to the coordinated economy. It’s the biggest consumer-facing mega-trend of the era, and yet hardly anyone is talking about it. Why? Because it’s still relatively new, and enterprises and individuals alike are just waking up to its enormous benefits. Nonetheless, this fundamental shift in the consumer economy (which is possible because of technology) has significant long running implications for investors and consumers alike.

What is the coordinated economy? Put simply, the coordinated economy is a modern economic system that leverages technology and incentives to unlock the power of the people. Coordinators, or coordinated economy companies, take oligarchic supplier ecosystems (ecosystems with very few suppliers) and make them democratic supplier ecosystems (ecosystems with multiple suppliers) by empowering the masses to do what only a few were doing before. In turn, they coordinate and incentivize the masses to produce exceptional output, thereby generating optimal consumer and supplier outcomes.

Why is the coordinated economy better for consumers? Coordinated economy principles — when applied properly — generate optimal consumer outcomes. In oligarchic supplier ecosystems, demand almost always significantly outstrips supply. The net result is negative consumer outcomes characterized a low supply, high demand environment — namely high prices and low convenience. By democratizing oligarchic supplier ecosystems (and thereby increasing the number of potential suppliers), coordinated economy principles dramatically increase supply to match demand. The net result is positive consumer outcomes characterized by a market wherein supply equals demand, namely lower prices and higher convenience.

Why is the coordinated economy better for suppliers? Coordinated economy principles – when applied properly – also generate optimal supplier outcomes. Because the majority of coordinated economy suppliers in a democratized system are new, lower prices from the oligarchic norm are not negative (as they are for traditional economy suppliers). Instead, because these suppliers weren’t being paid before democratization allowed them to get paid, getting paid at all is a net positive (so long as costs to provide the service or good are covered). Thus, the net result is positive supplier outcomes characterized by more widespread profit distribution, implemented through novel financial incentives.

What are the key characteristics of a coordinator? The key characteristics of a coordinator include:

? Big demand market: The coordinator needs to operate in a market where demand is seemingly bounded only by population.

? Oligarchic supply market: The coordinator needs to operate in a market that is traditionally characterized by constrained supply relative to the demand, where constrained supply is largely the result of a limited number of suppliers.

? Consumer pain points: The market in which the coordinator operates needs to be traditionally seen as one with consumer pain points as a result of a supply-demand imbalance. Those pain points will most often be high prices and low convenience.

? Power of the people: The coordinator needs to operate in a market wherein the many can produce the same service or good at comparable or better quality as the few.

? The right incentives: The coordinator needs to employ an incentive structure (financial, social, or both) which promotes exceptional output by the many.

? Results: As a result of the coordinator’s democratization and coordination efforts, consumer convenience needs to be higher, transaction price points need to be lower, and supplier benefits need to be higher.

What is an example of a coordinator? The best example of a coordinated economy company, or a coordinator, is Uber. Demand for car rides is largely “unlimited,” bounded only by population and vehicle parameters. The car transportation industry was traditionally an oligarchic supplier market wherein services were provided exclusively by taxis. The result was that unlimited ride demand was coupled with limited driver supply. That low supply, high demand dynamic led to high ride costs for consumers, and a great deal of consumer inconvenience due to lack of supply (namely, not being able to get a ride when you needed one).

Uber changed this entire system. Because essentially anyone with a license and a car can theoretically provide transportation services, Uber was able to leverage the power of the people to democratize the car transportation industry and transform it from a single-supplier ecosystem (taxis) to a multi-supplier ecosystem (anyone with a car). In order to coordinate the efforts of this multi-supplier ecosystem, the company implemented technology (seamlessly connecting riders and drivers through a uniform web/mobile application) and incentives (paying anyone with a car to drive people around) to promote exceptional output of driving services.

The net result is that demand and supply now largely equal to each other in the car transportation industry. Consumer convenience is higher (most urban residents can get a ride whenever they want to wherever they want, within reason). Transaction price points are lower (in major cities, Uber and Lyft prices are way lower than taxi prices). Supplier benefits are higher (people can now get paid for shuttling others around, something that wasn’t possible before).