Markets for goods & services are constantly evolving and are never efficient. Thinking of market efficiency as a milestone is delusional. Efficient markets are defined as markets where buyers are 100% clear about what they are buying, how much of it is available for buying and how much they be paying for it. Being clear about what one should be paying implies a complete understanding of the true value of the asset one is buying. should Though markets for goods & services might have seemed efficient at multiple points of time in the history, thinking of market efficiency as a one and done thing is delusional. Market efficiency is a moving target and the only way to create and sustain a great business is to keep chasing that target. I have been fascinated by the small and big changes that companies make in their push for market efficiency, with the goal of being the “market makers” of their industries. Abstracting away, I have found three ways of thinking to be the most impactful in moving the needle on market efficiency. Build a distribution channel that can drive fundamental change in supply practices Leverage the distribution channel to bring in completely new supply into the market Think about the “Job to be done” to find opportunities to compete Build a distribution channel that can drive fundamental change in supply practices Building a new distribution channel or rethinking an existing one can help create/shape demand, enabling one to push fundamental changes in supply practices, thereby setting the industry on the road of steadily improving market efficiency. For example, let’s look at what Amazon has gradually done in the last couple of decades When Amazon started selling books over the internet, it massively improved the access and convenience of buying books, primarily for titles that were not the hot selling ones. This activated the latent demand for these titles and gave Amazon a reason to procure these titles in bulk for lower price per book than one would pay for to buy the same title at a mom and pop store (if the title was to be found there!). Amazon was then able to pass some of the price benefit to its buyer base. These not-so-hot titles started to be priced closer to their true value, the sign of a more efficient market. As online commerce grew, Amazon opened up into a marketplace, allowing sellers (most of them with warehouses) to be the conduits between the manufacturers and Amazon’s buyers. Not saddled with high real estate costs (unlike mom and pop stores), these sellers were able to sell the goods for cheaper and Amazon was able to push market efficiency in many more categories at once. As the share of online commerce has increased, both Amazon and manufacturers ( )are finding it better to deal with each other directly , allowing both of them to capture higher margins while also offering better experience and lower prices to customers. Nike for example Now with online commerce becoming the preferred way of shopping for a large number of people, Amazon and manufacturers are finding that there is no longer a need to waste money on fancy packaging to draw attention of customers to products sitting on retail shelves. Fancy packaging had also made it hard to optimize shipping package sizes. With its , Amazon is truly demonstrating how a different distribution channel (here online commerce) can change supply practices and really drive prices down. Frustration-Free packaging The net result of all of this is ever decreasing prices. Turns out what might have seemed like an efficient market with Walmart’s “Everyday Low Prices” promise was not efficient after all. Leverage the distribution channel to bring in completely new supply . Differentiated distribution channels can also allow one to tap into a completely new source of supply that can change the market dynamics Take the case of Uber and Lyft. By making it so easy to start driving for money, they were able to tap into the private car market for drivers. These new drivers owned their cars anyways and didn’t have the huge loans/contracts ( ), allowing them to experiment with the new channel. The fact that the rides were subsidized, further helped in creating additional demand and supply. As a result, Uber and Lyft were able to reset the baseline on cab price in all the geographies, some of which might have seemed individually efficient prior to them entering those cities. from medallions for example Think about the “Job to be done” to find opportunities to compete Abstracting away from the product/service and thinking about the Job to be done can help one see new opportunities to bend the curve on market efficiency. Take the case of Uber and Lyft again. The Job to be done is to get from Point A to Point B and there are multiple ways to do that, Uber and Lyft being one of them. While Uber and Lyft are great for medium/long rides, it is questionable if they are the best solution for rides shorter than 5 min (as long as you are not carrying grocery bags!). There should be a way to pay lesser for short rides. While Uber is trying to bring efficiency into this market with , there is an opportunity to reimagine the solution for short rides. and are trying to do exactly that. By introducing a completely different product targeted towards a specific use case, they are driving further efficiency into the mobility market which might have seemed to already be very efficient with Uber and Lyft. Express Pool LimeBike Bird Another interesting example of finding opportunities based on the Job to be done is eBay’s new product page ( ). Its an attempt to show buyers the spectrum of value (i.e. products in different conditions) for them to make a better decision on what to buy. While eBay can’t always compete with Amazon on offering lower prices for new items, by understanding that buyers have different Jobs to be done, they are still able to push the curve on pricing. eBay has been selling phones in different conditions for years but by simply showing its best pick for each item condition, it has simplified the buying decision like never before. While transparent pricing across conditions might not matter to some of us who are set on buying a new phone, it is definitely making the market more efficient for folks who want a good phone and are open to discovering what works the best for them. iPhone example In summary, the idea here is to drive home the point that markets are never efficient. Its wrong for established players to rest on their laurels and think that they can milk money since they are the “market makers” of their industries. Similarly, its wrong for startups to give up on markets thinking that they are already efficient and there isn’t an opportunity. Thinking deeply about the nature of the distribution channel and Job to be done is a good way to find an opening to move the needle on market efficiency.