Frank Chimero: I think we're in the lemon stage of the internet

Summary

I’ve been researching a new talk the last few weeks and along the way stumbled across a concept that’s been rattling around in my head. I am writing to share, because I find it a satisfying description for the tech flop era. The idea is called “a market for lemons.” The phrase comes from a 1970 paper by George Akerlof that explains how information asymmetry between buyers and sellers can undermine a marketplace. Akerlof asks us to imagine ourselves buying a used car. Some cars on the lot are reliable, well-maintained gems. Others cars are lemons, the kinds of cars that can make it off the lot but are disasters waiting to happen. The sellers know which cars are which, but you, as a buyer, can’t tell the difference. That information asymmetry affects the average price in the market and eventually impacts the overall market dynamics. The thinking goes like this: if a buyer can’t distinguish between good and bad, everything gets priced somewhere in the middle. If you’re selling junk, this is fantastic news—you’ll probably get paid more than your lemon is worth. If you’re selling a quality used car, this price is insultingly low. As a result, people with good cars leave the market to sell their stuff elsewhere, which pushes the overall quality and price down even further, until eventually all that’s left on the market are lemons. I think we’re in the lemon stage of the internet. I thought about this last week while shopping online for a sleep mask. Brands like MZOO, YFONG, WAOAW popped up, and these seemed less like companies and more like vowel smoke ejected from a factory flue hole, then slotted into a distribution platform. The long tail of generic brands on e-commerce platforms is a textbook lemons market: good products get drowned out by these alphabet soup products, who use their higher margins to buy sponsored placement in search results. Both buyers and sellers eventually lose (and perhaps the platforms win, as long as they don’t wear out their reputation). For s...