Prescient Markets

One of my favorite phenomena over the past few years — and one of the stories I like to tell most about why the internet is awesome — is something I call “Prescient Markets”.  Marketplaces (or just producers in some cases) that take a large amount of the risk out of producing & selling products by only building what they know, in advance, that people will buy.

The original, and still my favorite example is Threadless. In case you don’t know it, Threadless is a t-shirt making/buying website where users upload the t-shirt designs.  Then, other users vote on the designs.  The highest-scored designs are then actually produced as shirts and put up for sale.  “Winning” designers are given $2500 cash if their design is selected (in advance of any sales, mind you) plus $500 in Threadless gift certificates and $500 every time their design is reprinted.

With this system, Threadless drastically reduces their editorial role in deciding what to produce, based on the assumption that a shirt with many votes and a high average score is likely to sell.  (of course, it’s no guarantee, as the people voting may not actually buy, or may not speak for real potential buyers, but it’s a really good head start).  Then, perhaps my favorite feature of Threadless is what happens when shirts go out of stock — if you see an out of stock shirt that you like, you can sign up to order it in your size, and if enough people do that to justify a run, new shirts are printed and put up for sale.

Another site that takes this approach is Quirky, which is basically “Threadless for stuff.”  Through a structured, crowdsourced product development process, product ideas are honed, and ultimately a final product idea is developed. Quirky employs a presale process that proceeds to manufacturing once a certain threshold is met.

Quirky’s process is infinitely more complicated and collaborative than Threadless’, and to be honest, I’m impressed that they’ve been able to successfully architect, describe, implement and manage their scheme. Revenue is shared with each product’s “creator”, plus a (potentially quite large) group of “influencers” who have contributed to the development of the product in certain ways.  One really nice touch is that when you order a product from Quirky, the picture of the inventor and the names of all the influencers are on the outside of the box.

Another, super high-profile example of a related model is Kickstarter, which crowd-funds creative projects, using a pledge-against-a-threshold model.  The most incredible story coming out of Kickstarter is the TikTok+LunaTik kits that turn an iPod nano into a watch — with a modest fundraising goal of $15,000, the creator Scott Wilson raised $942,578 in pre-sales.  Last I checked he was on a plane to Beijing to scope out manufacturers.

Kickstarter is slightly different than Threadless and Quirky because there really is zero risk for the producers — they’re not committing to build anything unless they get the money up front — and I almost didn’t include it for that reason.  What I think is particularly interesting Quirky and Threadless is that they are using crowdsourcing and community to de-risk a product development bet.

Naturally, I’m wondering how this kind of a process can be applied to other sectors. In particular, it’s gotten me thinking about how it can be applied to the government technology buying/building market, which we focus on with our work at Civic Commons.  Government is under-performing in technologyprocurement is a problem, and cities are running out of money.  So something’s got to give.

Somewhere within all this mess, I suspect that there’s an opportunity for governments, vendors, startups, and civic hackers to make something good out of this idea.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s