Trust and integrity are important components of any relationship but are difficult to achieve in a negotiation as parties are incentivized to maximize their bargaining position to achieve their best possible outcome. While the main purpose of a traditional marketplace is the centralization of the acquisition process, an unintended result is centralized intermediation.
Centralized marketplaces unsuccessfully attempt to level set the playing field by providing buyers and sellers with additional information to bridge the knowledge gap. This model has worked for a while. However, some centralized marketplaces abuse their privileged position as a mediator to advance their interests instead of fairly and unbiasedly facilitating transactions.
A centralized marketplace has several disadvantages:
1) Security Risks
Centralized marketplaces’ availability and security have become an issue as incidents have increased over the years including service disruptions and cybersecurity breaches affecting major brick and mortar retailers, online websites, and e-commerce marketplaces. For example, according to Statista , in 2020, the number of data breaches in the United States came in at a total of 1001 cases, where 155.8 million individuals were affected by data exposures. This can be expected to accelerate as more business increase their online presence.
2) Price Allocation
Furthermore, a centralized marketplace is not necessarily equitable in the way the price of goods and services are accessed and published. Buyers tend to trust the marketplace to publish the best offer available, but with the lack of transparency that a centralized marketplace is known to hold,
there is no way to validate the allocation of prices, their attribution to certain vendors, and the availability of certain offers.
3) Transaction Fees
Finally, a centralized marketplace tends to have high transaction fees for both buyers and sellers which leads to a centralization of economic gain for the custodian of the marketplace. A decentralized marketplace may reduce transaction costs as they can be processed off-chain for a very minimal charge.
4) Arbitrary Rules and Guidelines
Centralized marketplaces are not fair by design because they tend to favor the custodian's financial performance over the interests of their marketplace participants. This self-serving interest leads to challenges such as not knowing how the owner of the platform will use transaction data to gain an advantage over the buyers and sellers. Moreover, centralized marketplace custodians tend to implement arbitrary rules and guidelines that benefit their business models with little regard for what is best for the buyer and seller. These very same rules and guidelines are put in place by the marketplace operator to maintain their position as the dominant force in the ecosystem to retain control of the value chain as a mediator, gain competitive advantage, and impose unfair rules to the marketplace participants.
A common occurrence with a centralized marketplace is the inability to negotiate transparently. Buyers are often forced to purchase products or services without the ability to customize the offer to include additional requirements or combine multiple offers into one unified solution. This lack of centralized flexibility to assemble multi-seller solutions is a major limitation placed on customers needing tailored solutions.
6) Composite and Composable Solutions
Centralized marketplaces do not allow for composite or composable solutions since they only publish single offer products and services. In the case of technology business-to-business transactions, the emergence of composite architectures, which orchestrate independently developed applications, data, and devices to deliver a new solution that none of the previously available applications were able to deliver on their own. They offer the promise of a best in breed emergent solutions. These applications, which could be further composed of one or more nested applications, may have divergent data models. As one would expect, supported user interactions resulting from composite applications are beyond those that were previously available to the original application(s).
Our Decentralized Vision
We, at Nebulai, are confident that decentralized architectures can bring massive advantages to the process of transacting business & technology solutions and Talent since our decentralized marketplace solves the challenges noted above. Nebulai proposes a decentralized marketplace where organizations are afforded and benefit from the increased control, security, and transparency inherent in such a marketplace which we believe will lead to higher efficiencies and fairer transactions.