Friday, October 22, 2010

"Electronic Market" and "Social Network" Fusion

Rare thinking people like you already have a clear understanding of the differences between an electronic market and a social network.  Fusing them should lead to a new type of platform with all the benefits and no disadvantages. Right?

You would be surprise.  That is sometimes not the case. That is also what happens in the natural world. Atoms with nuclei large than iron (Fe) will not dissipate energy during fusion, and will actually absorb energy.
The fusion of a electronic market with a social network
See the different approaches from Google, Amazon, LinkedIn, Facebook, and Olexe on their electronic markets and social networks fusion strategies.

Electronic Markets

An electronic market (e-market) is an information system, controlled by the market intermediary, where a finite set of market agents (or simple agents) orchestrates a finite set of business processes with the intent of trading of products and/or services.  E-markets  facilitate transactions between buyers and sellers by through the entire life cycle of the process, since it is sold, until it is retired.

1 - Business Processes

A basic electronic market can exist with the agents and business processes shown in the table below:

Agents (both) Agents (sellers) Agent (buyers)
Profile Management
Returns and Refunds

Note: more complex markets include other agents like payers (subsidize or pay on behalf of the consumer -ex: Medicare), accreditors (determine if a provider can participate in the market - ex: Education Providers), certifiers (determine if the the investment of the consumer led to intended results - ex: GMAT), and post-sales service providers (give support to the exchanged item after it was sold - ex: repair shop)

2 - Communications in Electronic Markets

Communications in electronic markets use highly structured formats and use a common ontology. This approach enables high level of automation since it eliminates semantic issues from communications.

3 - Supporting Mathematical Theory

Electronic markets are associated with  Game Theory. Game theory is the study of decision making among multiple agents (human or software). This theory looks at the interactions of agents as games in which decisions are made to maximize the returns and the outcome is jointly determined

A lot of research is put into electronic markets prior to their release using Game Theory because better market designs will do a better job of matching buyers and sellers, ultimately enhancing society's wellbeing.

(Electronic) Social Networks

social network is human structure made up of individuals (or organizations) called "nodes", which are tied (connected) by one or more specific types of interdependency, such as friendship, kinship, common interest, financial exchange, dislike, sexual relationships, or relationships of beliefs, knowledge or prestige.

1 - Business Processes

Social networks were not designed to implement business processes. A much better term would be social processes. There are two basically processes: one to connect two people, and another one to build affinity by sharing some artifact.

A way to make social networks richer is by enabling an app platform.  An app platform is infrastructure that offers developers the ability to develop simple business processes (called apps) with great simplicity and agility.

Apps are social processes that try to promote new affinity points among people with the objective of increasing the connectedness of the network.

Standard Social Processes Extensions
App platform

2 - Communications

Communications on social networks do not have an underlying ontology and therefore automated understanding is very difficult.  That is one of the reasons companies like Bueda are emerging (BTW, Bueda is a start up from my friend Vasco).

3 - Supporting Mathematical Theory

Social networks are associated with Graph Theory.  Graph Theory studies graphs which are mathematical structures to model pairwise relations between objects of a collection.

Electronic Market versus Social Network

Item Electronic Markets Social Networks
EnableExchange Connectedness
Achieving an outcome that all agreeExchange a function between two people
Defined RolesYesNo
Business Processes Finite Infinite (apps)
Defined Roles Yes No
Systematization High Low
Communications Highly structured Ad-hoc
Common Ontology Yes No
Game TheoryGraph Theory
Entropy level Low High
ExampleMedicaid (HIPAA)
Low income population wellness                    
A man and a woman exchange the reproduction function

Market and Social Fusion

I don't know if you have been noticing, but the larger electronic platforms are no longer pure players.  Companies that started as electronic markets are now adding social capabilities, and vice versa.

Option 1 - Fusion

  1. Social networks are a great way to influence behavior on electronic markets.
  2. Market networks are a great way to leverage connectedness of a social network

Amazon has been very successful at building a very successful social network on top of their amazing electronic market (I'm a huge fan of Amazon - their are masters on business process management).


Facebook is on the process of building a marketplace to allow its social graph to sell and buy things. Given the success of Facebook this market will continue to thrive as people start using it more.


LinkedIn is like Facebook, a social network developing an electronic market. In the case of LinkedIn, the exchange outcome will be to allow companies to hire the best staff they can possible can. Accordingly to the grape vine, they will shortly announce something big in the HR arena.


I left Google for last because Google is a more complex case.  They are great at everything but have been making a lot of mistakes in the social aspect.  I believe there are cultural aspects to that but I will leave that for another post.

If you remember, Google started without a business model. They knew what they were doing was great but they came to life when free was the way to go.  It was only after a while that they came up with AdWords. This is in reality, their electronic market. They have a bidding system for ad words.  From there they have been buying companies that had developed social networks, of which YouTube and Blogger are great examples.

They are well on their way to achieving it and eventually will be able to deliver a unified vision of their portfolio. 

Option 2 - Ontology based Social

Certain social networks, especially those like Facebook tend to produce a lot of white noise.  White noise is information without value to the people that produce it (it may have value for other people in the network) that makes difficult to identify valuable  information.

White noise emerges from the lack of clear outcome previously accepted by its members. From a pure market perspective, white noise reflects  an irrational behavior of its members.


Olexe defiens an exchange and a communication ontology.  If an agent communicates a help message "HELP" that is understood as a request for assistance by all. This communication adds values for all involved in the electronic market. This approach leads to valuable exchanges and eliminates the white noise, prevalent in certain social networks.

No comments:

Post a Comment