Back in October 2004, Wired magazine featured the now famous article from Chris Anderson, introducing us to the concept of the long tail. He refined this concept later in his book:
Wikipedia has the following to say about it, with respect to crowdfunding as well:
"The long tail concept has found some ground for application, research, and experimentation. It is a term used in online business, mass media, micro-finance (Grameen Bank, for example), user-driven innovation (Eric von Hippel), andsocial network mechanisms (e.g. crowdsourcing, crowdcasting, peer-to-peer), economic models, and marketing (viral marketing)."
In more visual terms, check out the graph herewith:
Referring to this chart, you could say that Lending Club Corporation ($LC) and Prosper (and others to come) will feature prominently in the green part here, whereas a lot of the future action will squarely be in the yellow part.
New Tech Offers a More Granular Approach to Lending
All this to say that pretty soon, this concept will also hit the “marketplace lending” shelves, and with a vengeance. Right now, the world is slowly but surely waking up to a very disruptive development in basic banking, triggered by the highly visible public offering of the likes of Lending Club and OnDeck Capital, Inc. ($ONDK), to be followed soon by the Prospers, Sofi's and Kabbages of this world. All these platforms are targeting what are essentially very broad asset class categories, like unsecured consumer loans, small business loans, real estate loans, student loans, etc. As this approach and model continues to be refined, it is already clear to me that more granular approaches are all but guaranteed to spring up. There are a number of reasons for why that will happen.
First off, as underwriting technology continues to improve, we will become better at refining that game, and come to a much more granular approach over all. It will enable us to look at some sub markets in much more detail, which will enable us to discriminate more effectively and offer niche products to a very specific audience.
Also, as these larger categories are still so massive in size and growth (opportunity), even when they are being split up in a large number of sub categories, we're still talking big numbers per category, or at least big enough to make it worthwhile to start a business around. And big numbers is what attracts the entrepreneurs, and their financial backers.
- Examples could be along the following lines:
- Critical farming equipment for farmers in the Midwest;
- Secured p2p lending against buy to let properties in specific geographic areas
- Franchise financing (currently being offered by Apple Pie Capital)
- Structured commodity trade finance products focused on a subsector only, like shipped cargo
- Inventory crowdfunding, supporting brands, focused on consumer electronics (kickfurther.com)
- P2P lending focused on second hand car market
And on and on we go.
Explosions, Disruption, and a Brave New World of Finance
These are just a few examples of areas I can think of that could find a number of interested entrepreneurs looking to "platformize" this and build a business around, or have already have done so. Safe to say then that while most of the action in the near future will continue to be in the green area (of the graph), the really exciting stuff is already happening on the yellow side of things. And once you start throwing Bitcoin in the mix, can you imagine the kind of developments we could see coming? Just today (courtesy Paul Rosenberg / Casey Daily Dispatch) I was introduced to some recent Bitcoin developments and concepts like Ethereum, OpenBazaar, SilentVault, Open-Transactions/Monetas - things I had no idea even existed. And when you start mixing these developments and applications with novel approaches on the platform development side, look for some creative explosions, and destruction, coming to a theatre near you soon. Most of them will fail, but maybe just a few of them may redefine how we are going to live our lives and finance our consumption. There is still a brave new world out there, waiting to be rediscovered.
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