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Social Networks for Buyer Power

Markets are controlled by sellers. Think about it. When was the last time you went into a shop and they asked you to make an offer on something? How often do you go into a shop and ask for what you want, rather than taking what they have to sell? It doesn’t have to be that way.

It’s possible to have a buyer-driven marketplace, but until now, there were big problems with it. Buyers can say what they want, but they generally do not band together sufficiently to have enough purchasing power to interest the sellers. (There are exceptions though – there was a tradition of buyer cooperatives in some parts of Ireland for instance, for building and farm materials in remote areas.)

The problem is finding a group of like-minded buyers who you trust to work with. That’s where social networks like LinkedIn and technologies like Friend of a Friend (FOAF) come in. Basically, these technologies give the potential for consumers to find other consumers. Once they find one another, they can begin to band together.

Now, I’m not saying this model is perfect. For low-value or commodity items there is likely to be a lot of competiition between sellers and not much to be gained from stronger negotiating positions. Also, it isn’t enough for buyers to band together; they have to be organized and may need expert advice to be sure they get the best deal. This results in a margin being required to cover overhead costs, the same as with conventional marketplaces. (The difference, of course, is that the overhead is being used for the direct benefit of the buyer, not the seller.)

So here’ my idea: An area where I see Buyer Power being effective within a growing economy is in the area of investments, particularly property investments. A consortium organizer could bring together a group of 20 or 30 people who wanted to purchase a unit, and they could all purchase together, from the same developer. The developer would have reduced cost because he would only have one negotiation to do and would save marketing and agency costs and so could offer a discount; the purchasers could band together to cover the cost of finding an appropriate property and doing a full due diligence.

This is a little like how the very wealthy invest their money- they become part of a consortium set up by a private bank and are charged a hefty arrangement fee. This arrangement would have the benefit of that situation, but without all the expense.

The problem with collectives like this is that it’s hard to get a like-minded group of people together. That’s where social networking comes in. Tools like LinkedIn, weblogs and FOAF have the potential to allow interested investors who have mutual friends to come together to do a deal like this.

It’ a bit like online dating, except for money not love …

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