I found myself caught with nothing to read and no laptop juice yesterday afternoon during an airport delay.  After getting bored with Twittering and Facebooking from my Curve, I went in search of a book.

It never ceases to amaze me how much vapidity is for sale in airport newsstands, but (insider tip) SJC has something that passes for a bookstore way down at the end near A10, and, choosing among slim pickings, I came up with a copy of The World is Flat, which I’ve heard much of, had never read, and seems to be in release 3.0.

So far, the thesis is interestingly woven if unsurprising. But it’s the little details that scare me — Indian citizens referring to getting good jobs “at a multinational”, and then attending “accent neutralization class” to learn how to articulate their t’s poorly in order to sound less alien to americans.

Here’s another choice passage:

When you look around at 24/7’s call center, you see that all the computers are running Microsoft Windows. The chips are designed by Intel. The phones are from Lucent. The air-conditioning is by Carrier, and even the bottled water is by Coke.

Regular readers and friends know I’ve spent a lot of time thinking about barter and swap business models. I’ve just caught up with Redeye VC’s opinion piece on this, Thoughts on Swap 2.0, which has some great points on the challenges of driving uptake in these marketplaces, and data & analysis to support it. As the founder of Half.com, Josh commands a lot of credibility here.

My version of the analysis is very simple: The value derived from a barter transaction (net of what you’re trading away), must exceed the cost of buying the item in a simple cash transaction (net of the cash value of the item you’re potentially trading), and - importantly - must do so by a margin sufficient to substantially exceed the costs in inconvenience, uncertainty, and social awkwardness of trading orthogonally with strangers.

These costs are substantial, and in my opinion take away most of the marketplace in small-ticket items. Signing up for a new service, learning its rules, having to go through a process of selecting what I want and setting up umpteen DVD transactions, trusting strangers to mail me stuff, having to ask questions about the condition of stuff, etc., are a pain in the ass. It’s just easier to either sell stuff for cash in a known system or to dump a box of CD’s on the record store counter and take what they’ll give me.

In large-ticket marketplaces, where products are not commodity products, trust becomes a bigger driver of the uncertainty factor. You probably wouldn’t trade your car to a guy you’ve never heard of for equity in his illiquid startup. Where products are commodity, why not sell for cash?

For an online system to work, there also has to be a meaningful efficiency benefit from bringing together and normalizing a market of many fragmented participants. This takes away other sections of the market - repeating trades between known participants, local service provider economies, and farmers’ markets, to name a few examples.

There are opportunities, however, where bigger-ticket items create enough incentive, and where known-commodity items (or traders) can create enough trust. RCI and Interval International, for example, are two multi-hundred-million-dollar barter banks for timeshare inventory, and have millions of participants paying real cash in management and transaction fees in a trusted marketplace. They work because they are high-ticket enough to come out positive in the equation above, because they are known-value and trusted commodities, and because the cash market for condo rentals is inefficient (for part-time landlords at least).

Where else do conditions like this exist? Why couldn’t one create a market for swapping used cars, capitalizing on the consumer-unfavorable conditions on the dealer side and the fact that most new-car buyers pay a huge sales tax penalty when they buy new and sell at 50% of value? (For example.)

There was a throwaway line in my post about Farecast that I’ve been thinking about ever since I hit “publish”. “It” being FareGuard (the Farecast product that is the subject of the post), I said:

Frankly, I’m surprised it’s not illegal (since it effectively is similar to gambling or an unregulated derivative security).

Setting aside the fact that I probably shouldn’t say such things so flippantly about other people’s businesses - I assume they did their legal homework - something about it has been bothering me.

It got me thinking about all the different kinds “bets” you can take against the future in one form or other — and wondering why some of them are legal and others aren’t. Personally, I think it’s stupid that a country’s worth of adults with access to compulsory free education can’t gamble on anything they damn well please, but the state of the social contract is such that there’s a political consensus otherwise, and I’m interested in some of the contradictions.  My full ramble (and quiz) is after the jump.

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As a follow-up to my previous post on Farecast - which seems to have hit the jackpot in terms of attention on this blog, as its most popular post by a factor of several X in just a few days - I’m delighted to note they’ve raised more money. Plenty of chat elsewhere (and some interesting activity in the comments on my post).

I can’t wait to see what they do with it.

Farecast, the airfare pricing prediction service, just announced a new product called Fare Guard. The way it works is simple, but its implications are huge - nothing less than a consumer derivative market for one of our largest commodity products.

So let’s say you search for a trip between LAX and JFK, and Farecast predicts prices will stay about the same for the next 7 days. For $9.95, you can buy a guarantee that will refund you the difference if the price in fact rises contrary to their predictions (with proof of purchase - yes, you actually have to buy the ticket).

It makes mathematical sense on the face of it: if they’re wrong by an average margin of, say, $50 when they’re wrong, as long as they’re wrong less than 20% of the time, they come out ahead on this bet. Over time, they can adjust pricing, there’s some breakage (customers who never buy tickets, don’t bother to check, or fail to submit a claim), and presumably they could bias the system to model conservatively if they really wanted to, since the model doesn’t work in reverse. (It doesn’t protect you if Farecast predicted prices would go up, you buy a ticket, and in fact they go down.) Here’s a pretty interesting blog post detailing their predictive algorithms.

Why am I so excited about this? What this amounts to is in effect a 7-day call option on airfares. I’ve been privately predicting for some time that the travel industry would eventually turn out products like this, given how much consumer pain there is in airfare pricing uncertainty, but I’d always assumed an airline would pioneer it, finding a way to make the revenue earned from price protection (net of revenue lost from “exercies”) exceed the revenue earned from the yield management practices that lead to all that consumer pain.

Frankly, I think overall travel demand would go up under this model, because it could drive more favorable look-to-book ratios across the industry, and pull revenue from non-bookers (all those expired, out-of-the-money options are just free money). Over the long run, Farecast may either want to securitize their aggregate one-way bet anyway, tie it to actual inventory lock-in, or launch a product that lets them take bets the other way - and airlines would make natural partners in these efforts.

But what really excites me about this is the fact that this secondary market is extractedby 3rd parties from published data and can be augmented by social data. Frankly, I’m surprised it’s not illegal (since it effectively is similar to gambling or an unregulated derivative security). It’s not even technically a derivative, since it can’t truly trade independently (e.g., you can’t sell it) and it doesn’t convey control of an underlying asset.

But If Farecast can do this, couldn’t they offer a whole spread of similar products (put options, collars, etc.)? What if Zillow, for $1,000 a month, offered you downside protection on the value of your local housing index falling? What if you could convert any car you owned outright into a lease-like structure, by locking in a residual price option (with adjustments for condition and mileage) with Kelly Blue Book, 2 years before you’re ready to sell it to Carmax?

Car leasing, ARM’s, and cell phone plans prove that consumers can handle complicated pricing & financing models. I’m very excited by the promise of the Web2.0-enabled next generation of that.

Zillow announced a couple of very interesting new features this week that have drawn a lot of attention: the ability to “claim” your home and add user-generated content to it, and a feature called “make me move” that allows homeowners to put an “offer I can’t refuse” price on their home without actually putting it on the market. (One could reasonably argue that the action of publicly pricing one’s home, even irrationally, constitutes putting it on the market, but I daresay the oligopolistic realtors of the world would disagree. . . .)

Josh Kopelman has a post questioning whether Zillow, having raised $50+ million for a consumer play without a visible revenue stream other than advertising, is going to go “that big”, or is simply a rehash of an operatic tragedy we’ve seen before.

As I’ve written elsewhere (see comments), I can’t wait for the real estate market to tip, as though there is significant inertia in the current market structure, there is also significant inefficiency and frustration on the part of consumers. If marketplaces are simply places where buyers and sellers meet by arbitrary convention, I would argue that we are but one such convention away from eliminating realtors completely (much as craigslist has nearly wiped out local classifieds) — or at least from taking away a significant amount of their commission pricing power.

As Josh knows, arbitrary conventions can be created with new levels of efficiency by the internet — and the founder of Zillow has done this before. While I don’t see these new tools as a direct play to dis-intermediate realtors — yet — I do see it as a reasonable attempt to become the defacto spot for consumer-oriented real estate content and to build a lot of proprietary data and user lock-in. Kind of like a craiglist with better authentication tools and structured, incentivized UGC — and completely unlike previous attempts to create a virtual real estate market.

And if this is successful in garnering a critical mass of consumer participation, then it’s an easy step to turn it into the virtual trading post of choice, and even the “real real estate OS”, if you will, potentially enabling all kinds of things ranging from obvious mashups to a real-world Second Life universe.

This is a very big bet — with a very big prize if it pays off. Good luck guys - I look forward to a day when I can I don’t need to pay over $30,000 for someone to type my address into an MLS system, give me self-interested negotiating advice, and fill in the blanks of preformatted contracts for me.

This week, Joel Spolsky (whose book Joel on Software is required reading for web entrepreneurs and product managers) launched a job board. It got me thinking about the fact that TechCrunch has a job board, paidContent has a long-running and successful pay-per-post job blog, and, among other sites I consume regularly, Fred Wilson has, instead, an Indeed.com badge configured to list start-up jobs. So my question is, Why do we need niche job blogs when we have highly searchable, filterable, supposedly better, horizontal sites like monster.com, and aggregation/meta-search models with all the web2.0 technology you could wish for like Indeed.com?

Answer: because they work better! Among the 3 niche sites mentioned above, I can find, without hitting a single “next page” button or filter, listings for Director of Philanthropic Relations at Squidoo (wow!), a Product Manager at Google, design guru at Internet Brands (CarsDirect, etc.), and various other VP- and Director-level positions at startups and large internet players all over.

On the other hand, the most interesting job on Fred Wilson’s badge - which is basically a persistent search of jobs with the word “start-up” in them and do not have the word “engineering” in them, a reasonable-looking proxy for non-technical start-up jobs - promises a position as a product manager at a Sequoia funded company, but links to a dead craigslist homepage. Clicking through the badge to see the full list of jobs, one finds 24,250 results for mortgage loan originators and “start-up opportunities” requiring skills like:

candidates will have 3 years or more of progressive experience in operations and customer service, a working knowledge of DOT safety requirements and superior communication and organization skills. Candidates must also meet the following requirements: Have a CDL Class B w/Tanker and Haz-mat endorsements; ability to install propane tanks; excellent customer service, interpersonal and communication skills; and must be qualified for Propane Tank Installations and Bulk Deliveries.

Sorry guys, the only propane installation I’ll be doing any time soon will be for the BBQ I’m having this weekend! And filtering 24,250 jobs has all the hallmarks of a low effort-to-reward exercise when the sliders are inefficient, non-normalized job titles.

On the employer side of the equation, Joel has a good analysis of why it’s hard to find the best people on job sites (nutshell: because they’re rarely seeking jobs). So you need to find them in the places they congregate for other reasons. . . such as reading useful blogs like Joel’s.

This is interesting because it has everything to do with the social dynamics that are behind social media - there’s a delicate balance they must maintain between selectivity (filtering noise) and value (receiving signal), and that balance differs across social groups and functions. LinkedIn is of value to me in business if most of the people in my network are similarly thoughtful to me about who they accept as contacts (it creates a reputational system), but it is not useful to me in finding stuff to buy from trusted parties like ebay is (because there is no marketplace associated with it). Myspace is of low value in maintaining business relationships, but great for bands with a following. paidContent shows that job boards can scale effectively to large audiences, but only because there’s a pricing engine (and possibly an editorial one) maintaining a filter on the thousands of junk listings that would turn up there if they were free. On the other hand, craigslist is a much better place to find apartments for rent, because you need all the signal you can get there and can efficiently filter lots of noise via parameters like price, bedrooms, and location.

Blogs continue to turn out to be great proxies for niche social networks - if a place that I find valuable for information becomes a meat market for jobs, that’s great for me as both a potential employer and employee. On the other hand, the more spaces like this that emerge, the more I have to spread my job listings and consumption across multiple sites. So how do we aggregate this more efficiently?

Hello friends: how about a feed network for job blog sites? How about a Hype Machine for job listings? How about a utility from technorati or Newsgator or MyBlogLog that can identify sites I’m reading or getting readership from or have audiences like me and then surface me feeds of certain kinds of links (podcasts, job listings, product links, Flickr pointers) from my OPML file or community?

What else?

This is interesting, and highlights one of the critical risks of basing a business on user-generated content and contributions: sometimes the users don’t go along with you.

I’ve always been under the impression that eBay sets a high bar for best practices in engaging seller community influencers and “grass tops”. This guy is clearly a top eBay seller and appears to have been identified by eBay as a community leader (even if his merch is fringe). Now he’s unhappy with some of eBay’s business changes, so he’s auctioning - on eBay no less! - the chance to sponsor him as he goes public with his discontent. Topping that, he’s giving half the proceeds to charity. . . wait for it: the eBay Foundation.

So he’s clearly a true believer, not just a hater. He’s got comments of support from other eBay sellers who clearly agree with him, and has apparently even made the Pulse (eBays’s most-watched auctions) with his listing (which is going for over $1300 as of this writing). I love the image of him mourning over his broken eBay mug (more photos here).

Kudos to eBay for not cutting him off at the knees by taking this listing down, and for allowing this to highlight the fact that, in order to really empower users, you have to empower them to do things that sour your palate.

At the risk of stretching the comparison (because I don’t think community businesses are truly democratic), it’s a bit like a government that empowers a free press, in that you attract more involvement in your system when your system can take self-criticism - and similarly that you risk breaking it if you try to control it.  On that note, I look forward to seeing how the MySpace community reacts to recent changes that do exactly that.

Wagging the long tail to market your existence.

In the case of Saturn, exploiting transparency: have enough guts and faith in your product to show up, toss the keys to some high share-of-voice folks, and take your lumps good or bad.

In the case of Cambrian House, exploiting the flash-mob’s appetite for documenting and reposting geeky tomfoolery qua news by delivering 1,000 pizzas to Google. For those of you like me and thousands of others who didn’t know but now do, Cambrian House is a cleverly conceived crowdsourced idea incubator that has interesting potential (even if I’m a bit skeptical it can execute its full vision).

Nicely done.

This is fascinating - Mark Cuban has more than 900 responses to the following challenge, which he posted on his blog less than a week ago:

How do you get people out of the house to see your movie without spending a fortune. How can you convince 5 million people to give up their weekend and go to a theater to see a specific movie without spending 60mm dollars.

Interesting question, not a trivial one, and one that leads to some interesting discussions. But what amazes me most is the number and variety of thoughtful (and in some cases not-so-thoughtful) responses in the comments, many of which are replicated elsewhere in the blogosphere — producing yet more exposure for this question and its responses. Turns out you don’t need Digg to “crowdsource” a question like this, if you’ve got enough readers (and the promise of an interesting job to boot).

As for the actual question at hand, taking it at face value (i.e., trying to solve the problem of how to get people into movie theaters, as opposed to suggesting alternate distribution channels for media), the movie theater business is a fat pipe designed, much like bestseller-driven book publishing houses, to shove product of a certain size out with a certain frequency. The problem has become how to stuff the pipe full enough, and how to spend enough on marketing to ensure the attendence is there (even if the quality of the content is not), leading to a downward cycle of more and more marketing for ever-safer movies that need more and more sales to break even.

There are several very obvious approaches to solving this problem, many of which have parallels in other industries.

1. Make it like cable tv. Add more content to the pipe, and break up the business model so it’s not so monolithically focused on delivering such a small number of products. Break your multi-plexes into multiple channels - so there’s always an indy film on, and a new chick flick every week. A savvy operator realizes he can sell off this distribution, or at least rent it (like cable).

2. Make it like “appointment” TV. There’s always a foreign film on thurdays at 8, and a Hitchcock classic at midnight on Fridays and Saturdays. Cancel the channels and shows that don’t work after giving them a fair shot.

3. Make it like HBO. Go out and get the very best content, even if you have to bend the medium. Speaking of HBO, why not a weekly showing of the Sopranos, or Entourage, or NFL football?

4. Make it like a stadium / a ski resort / a cable company / a Dell computer. In combination with the above, experiment with the pricing model. Several good suggestions have been made in the comments already, but tying innovative pricing to something beyond “all you can eat” is more interesting. Think luxury boxes, half-share box seats, season passes not good on weekends. Sell channels a la carte or in packages that appeal to market segments. . . let people “build your own pass”.

5. Make it more social. Group discounts and family nights. Neighborhood discounts that rotate by what street you live on. Internet planning outing planning tools, comment publishing tools. Going to the movies is a great American institution. Take a cue from the Celebration, Florida, or the reinvention of classic ballparks, and reinvent this iconic experience around community.

6. Make it like a nightclub. Hire promoters with rolodexes. Encourage private bookings. Have exclusive VIP stuff. Have event-driven nights (think Oscars, Emmys, Superbowl).

7. Make it like Target. Have a celebrity programming host for certain slots and build identity around those personas. “Stephen King presents” has a promising ring to it.

8. Make it like Google’s IPO. Completely reinvent the distribution model — when you have a hot enough hand to do it — by giving the theater a huge incentive to make your film. If a typical model is to spend $10 per butt-in-seat opening weekend, of which the house keeps 50% and for which the average capacity ranges from 60-100%, pay the house $4 a seat (at 100% capacity) to run it free, for opening week only, for as many seats as you want. (You could probably pay even less for late shows given away on a “buy one get one free basis” that helps theater owners sell their other shows and popcorn.) Give the house a bigger (60%? 75%) cut of everything sold thereafter, and make the house commit to: a) significant coop advertising pushing the film for a month; and b) keeping the film open for as many weeks as the theater is at least 50% full (net on the week). If the movie’s any good, there will be word of mouth, and both sides win (less risk for the theater, less marketing cost for you). If it’s a stinker, you just saved half your marketing loss.

9. Mix and match!