Efficient Market

For the entrepreneur, an "efficient" market is a market where all information is known and buyers can find out anything and everything in the market place unencumbered by intermediaries.

Whenever one group or person provides value such that people are enabled to do things they couldn't feasibly do without going "through" that person or group, inefficiency results. Take the travel industry, for example.

You used to have to go to a travel agency to get information about flights because the travel agency controlled access to the data through special software. Consumers could get the data, but the search costs were so high it was simply easier and cheaper to use a travel agent. That's where the value was added, and the inefficiency.

The Internet has created a more efficient market for travel. Search costs have moved toward free, so voila--few travel agencies left. Creating inefficiency is a little like kicking the legs out from under a table.

This added efficiency is what's causing entrepreneurs problems monetizing, or making money from, business concepts. "Yeah, but how are you going to monetize it?" is the question. Intermediaries, such as travel agents, who used to create inefficiencies by controlling access to information about flights, have been eliminated or removed to a significant extent.

In the age of the Internet, they no longer add value, except in certain situations. A travel agency that has specialized knowledge about cruises, for example. Or an in-house travel agency which contracts with a given company because it's easier for the company to control the flights their employees can be reimbursed for.

In this environment, entrepreneurs can make money if they create an inefficiency in the market that adds value to a customer's information search. Once this is found, the entrepreneur has to be very agile because change can come quickly and eliminate the advantage the entrepreneur has built for him or herself.

What do you think about this? Post a comment.

Entrepreneurship informs all of my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com./blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com