The Single Market for trust

ImageLate in the 20th century the early adopter in me wanted an LCD TV. Prices on the (Belgian) high street were astronomical, but I found an offer 25% (€500!) cheaper on a French website.  Could I trust the seller?  It didn’t take much search effort to discover lots of customers frustrated with late deliveries, but it told me the company existed, and the savings were just too significant to overlook.  My TV arrived just under a month later, and my calculated act of cross-border trust was rewarded.

The Internet is a boon for small businesses because consumers have been willing to trust the online environment.  Where has the trust come from? Not from regulation I would suggest, but a system of organised ‘word of mouth’.

It began with eBay (and no doubt before them).  After each transaction, sellers and buyers ‘rate’ each other, and subsequent transactors were comforted dealing with someone with a large, positive record.

The beauty of the system is that it leverages technology and, thus, ‘scales’.  Moreover, it works cross-border by default – ratings use the universal language of numbers, and machine translation is more than sufficient to give you a flavour of qualitative comments.

The systems’ main shortcoming was gaming (paid-for ratings), not least because most users originally used pseudonyms.  But here social networks are beginning to show their real value. Posting and liking make such networks fun, but they put a premium on real names, and Facebook has quietly emerged as an (the) identity verifier for the web.

Traditional rating systems were good enough for buying goods, but are the 2.0 systems with real names sufficient if you are thinking of opening your home or car to a stranger?  That’s the question posed by the sharing / collaborative / Peer-2-Peer economy.  And it is really a question about regulation itself – put bluntly, do new business models need licenses and inspectors if they can be regulated by ‘data’?  Regulators don’t scale easily, but they won’t need to if I can get trustworthy information from peers about my room for the night, or about the person and car taking me there?

The P2P economy is giving us a new taste of how broadly disruptive the Internet is really going to be, and that inevitably includes to government as well.  My belief is that the adaptation of government service provision to the Internet could prove to be every bit as decisive for competitiveness as measures to improve private sector productivity.


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