First Site – It’s a Free-Market(s) Economy

A look at three new free markets on the Web: the anti-auction market, the de-commodity market, and the fantasy market

If you were trying to introduce the Web to someone who was totally unfamiliar with the whole Internet phenomenon, you could do a lot worse than to say, “It represents the expression of the free market.” Isn’t the Web the most free of free markets? Doesn’t it let the customer get what he or she wants — whenever, however that might be? The Web makes the market visible, fast, and accessible.


But the Web also creates a lost-in-the-fun-house medley of multiple markets — with an emphasis on multiple. The Web isn’t one new market but a compilation of markets that includes group-buying forays, old industries that are rapidly going digital, fantasy markets that are in the process of shaping reality. For an accurate introduction to the Web, you’d have to say that it represents the expression of not one but of many free markets. We’ve sorted out three of the most compelling varieties: the anti-auction market, the de-commodity market, and the fantasy market.

The Anti-Auction Market

Not only can you have any product the way you want it, but you can also have any market the way you want it. Eager to pay more? Participate in an auction on eBay and watch as your fellow bidders drive the price of that treasured item through the roof. Eager to pay less? Join a Mercata or an Accompany buying group and see the price of the object that you’ve been coveting get driven into the ground.

In what can only be described as an anti-auction, consumers are banding together to form buying clubs. Consider it a “we-market.” In fact, Mercata Inc. ( has trademarked the term “We-Commerce.” Tom Van Horn, 37, president and CEO of Seattle-based Mercata, launched the site in May 1999. “A store is a building with four walls that contains products,” he explains. “Unless customers come inside and part with their hard-earned cash, they don’t get to walk out with a product. The store has all the control. So we asked: ‘What if we had something that gathers consumers together? We could aggregate demand rather than supply, and give consumers control.’ ”

Accompany Inc. ( is a variation on the same theme. The San Francisco startup prenegotiates prices from manufacturers or suppliers based on the number of buyers. Then the more users who sign up to purchase a product, the more the price drops. According to Jim Rose, Accompany’s cofounder and CEO, “We connect communities of buyers and sellers. But we’re not trying to create a destination site. We take our environment and plug it into existing sites that have already aggregated eyeballs, so those people can then choose to buy.”


The De-Commodity Market

“Steel is not a commodity,” says Michael S. Levin, 49, founder, chairman, and CEO of e-Steel Corp. “Brand matters. In steel, one cold-rolled coil is not the same as the next cold-rolled coil. So the idea of anonymous selling and auction-based selling for prime steel doesn’t work.”

Whether or not steel is a commodity is a topic for future discussion, but what is indisputable is that steel is a symbol of the old economy — and a prime candidate for its own de-commoditizing market. “You can go to the New York Stock Exchange to find out what IBM is trading at. You can also find out what a barrel of oil is selling for. But,” Levin argues, “that’s not true for steel. Steel is sold to the usual customers unless someone else shows up. There’s no objective marketplace where you can find out whether you’re buying or selling competitively.”

In September 1999, the e-Steel Exchange ( opened its virtual doors and changed all that. Its first trade took place between Worthington Industries Inc. and Cargill Ferrous International. Like any good market, e-Steel makes buying and selling faster and easier. Phone calls, faxes, and days of delay have been replaced by instantaneous, Web-enabled transactions. E-Steel is open to members only. But once an application is approved, that company is free to buy or sell prime (first-quality) and nonprime (second-quality) products.


The Fantasy Market

The market for fantasy is flourishing on the Internet — no, not the market for erotic fantasy but for such fantasy markets as the Hollywood Stock Exchange.

The story of the Hollywood Stock Exchange (HSX) is the stuff that movies are made of. While on an artistic retreat in Paris in 1995, Max Keiser got the idea of turning movies and film stars into tradable securities. So he founded the Hollywood Stock Exchange ( with Michael Burns. The business started out as a fun way for movie buffs to follow the entertainment industry. Now the site has morphed into a power-house of public opinion that shapes the decisions of top executives.

HSX has more than 350,000 traders (registered users). Each day, 100,000 trades are placed, and more than 500 million shares change hands. Twice a week, 500 top industry executives receive a report from HSX that shows how a given movie is trading against others. In an industry that runs by the numbers, numbers like these are sure to get attention — and create a viable business.

So argues David Herman, who serves as HSX’s president and CEO. “We have the opportunity to create a real exchange,” he says. “By using the economics and efficiencies of the exchange, we could create a real market of people’s ideas and sentiments. Wall Street is a broker of securities. We are a broker of awareness. And awareness really matters in the business of entertainment.”