The blurring lines between investing, collecting and consuming

Technology has massively lowered what economists call “transaction costs”: the cost in making any economic trade when participating in a market.

I’m not gonna re-visit the whole history of the technology industry but starting from the Internet and the networking age, the impact first became visible through the access to information. The cost of creating, publishing, distributing and consuming content dropped. With the likes of Google and Wikipedia, knowledge became pretty much free. Then came the rise of marketplaces like eBay, Etsy, Airbnb and Uber where buyers and sellers could find each other much more easily than ever before. The term “sharing economy” was born and it marked a behavioural shift from ownership to access. The underlying currency for these marketplaces is trust. Many people argue that as technology progresses, these costs will continue to go down and the “sharing economy” will continue to grow. I will talk more broadly about digital marketplaces in a future letter but if you’re interested in this topic, you can read Michael Munger’s book Tomorrow 3.0. Bill Gurley from Benchmark also published a great post last week on how online marketplaces unlock economic wealth.

I think we’re now seeing a new type of marketplace facilitated by lower transaction costs that I describe as the “blurring lines between investing, collecting and consuming”. Maybe we can call it the “collecting economy”. This time, consumers value ownership and the underlying currency is social status. People are increasingly building their social profile by allocating capital to scarce assets (both physical and digital) that match their cultural interests. A number of interesting companies are building on this trend which I think is one of the next big opportunities in consumer internet.

I started thinking about this phenomenon as I read about the activity on Robinhood, the highly popular zero-commission trading app loved by millennials. One of the most traded stock on Robinhood is Tesla. I don’t know this for sure but my assumption is that many Robinhood users don’t analyse Tesla’s numbers. They are buying it as a testimony of their interest in the brand and for what the company and Elon Musk stand. For a millennial, before you can afford or drive a Tesla, the best way to join the cult is to buy the stock. A customer in the waiting becomes an investor first. By making trading frictionless, Robinhood let their users “collect” the stocks of their favourite brands. If Supreme was listed, I bet they would be among the most populars stocks.

Crowdfunding platforms were the first marketplaces to blur the lines between investing, consuming and collecting. Kickstarter, Crowdcube and more recently Patreon let consumers use their money to back projects, companies and individuals. Here in the UK, some of the most popular equity crowdfunding rounds were done by emerging brands with a really strong community: cult craft beer Brewdog or more recently neo-bank Monzo.

While crowdfunding is a horizontal trend, we’re now starting to see the emergence of marketplaces blurring the lines across entire verticals by facilitating the ownership of scarce assets.

- Fashion and sneakers is the category that I think has seen the most illustrative activity. When you buy a pair of Nike x Off White or Yeezys, are you buying, collecting or investing? You’re definitely allocating capital to a product with limited supply while joining a cultural tribe. Stockx is probably the leader here and initially grew by publishing great contentaround this phenomenon but there are other competitors like Goat, Grailed, etc. The underlying economics and mechanisms around these marketplaces are fascinating.

- Rallyrd is trying to apply a somewhat similar marketplace model to vintage cars. It lets members invest in individual blue-chip collector automobiles like Ferraris, Porsches, Lamborghinis and other classic models for as little as $50 per share. So far, they have made 10 cars available and they claim that more than 50,000 members have invested millions.

- Otis is a marketplace claiming that “culture” is a new asset. It wants to allow its members to build a portfolio and collection by investing in collectibles, fine art, and physical spaces for as little as $100. On their homepage, they quote Ray Dalio (who else), founder of Bridgewater: “I learned that if I could have 10 or 15 uncorrelated bets, I could cut my risk by 75% or 85%.”

- Crypto: as an asset class, crypto is a great embodiment of scarce assets blurring the lines between investment and collection. People buying BTC, ETH and other cryptoassets thought they were making a good investment but a lot of them also felt they were joining a tribe. I have said already that I would write a post about the relationship between crypto and culture so more on that later.

We live in an age where there could be a stockmarket for everything. While lower transaction costs and frictionless (micro)payments have facilitated this trend, why is it happening? Why might consumers want this? Why is culture becoming an asset?

As social creatures, we like to find ways to distinguish ourselves. We want to stand out. Eugene Wei published a fantastic essay last week talking about social networks as “Status as a Service” platforms. He starts by stating the following principles:

Let’s begin with two principles:

People are status-seeking monkeys*

People seek out the most efficient path to maximizing social capital

I begin with these two observations of human nature because few would dispute them, yet I seldom see social networks, some of the largest and fastest-growing companies in the history of the world, analyzed on the dimension of status or social capital.

“Status as a Service (StaaS)” by Eugene Wei

I think the same can be said about these new marketplaces as we can look at them under the prism of social capital. Culture has always been a way to stand out and allocating money to cultural assets is a way to build social capital. In the last century, music and movies were the dominant cultural forces but they have now been digitised and as a result are available in abundance. As subscription has emerged as the dominant business model for content, payment has been decoupled from consumption. Spotify or Netflix are all you can eat propositions. You can’t build social capital by watching “Roma” or “Fyre Festival” on Netflix. We can too easily access them if we haven’t seen them. So we’re turning to new forms of scarcity that we can own, embracing brands and collectibles with our money and other cultural movements with our time (after money, what is more scarce than our time?). Owning an iPhone is not really scarce but owning an Apple share is.

As Instagram has arguably become the most influential social network, we’re also going through a shift where visual culture is dominating. Hence, it’s probably not surprising that people have turned their attention to highly recognisable products like sneakers. The impact of Instagram on culture is worth a whole essay on its own.

So where is it going next? Making predictions is a difficult exercise but let’s try.

First, I think we’re going to continue to see the growth of marketplaces like StockX, RallyRd, etc that make it frictionless for people to allocate capital to cultural goods. Some will fail but I think the best projects with the best teams could reach significant scale.

Then I predict a second and potentially more significant evolution will be the growth of digital scarcity. As mentioned above, when things get digitised it creates abundance. Part of the crypto innovation has been to create digital scarcity and it’s one of the main reasons why people are excited about it. While Cryptokitties became the most popular non fungible token, a very interesting project here is Decentraland. An asset like land, that historically has been a great source of wealth, can now be re-produced in a digital world while keeping its scarcity. I can imagine a future where the ultimate social status is not your art collection but the digital estate you build and own. The younger generation is already hanging out a lot in a digital world… I’m looking forward to seeing more businesses leveraging this trend and backing some of them… or maybe we have already :) ?

Thanks for reading!

P.S. 1: I want to insist that these ideas are very much work in progress and I expect my thoughts on this topic to continue to evolve. Please share yours.

P.S. 2: thank you to my friend Ricardo and the LocalGlobe team for providing valuable feedback on this post.