[bali]

Just read this: http://paulgraham.com/start.html

Graham argues if ideas would be worth a lot, there would be a market for them. If you understand how the market works, especially in the US, even more so in the Valley, you would agree, I certainly do...

Or if you don't like Graham's argument think of any established venture's story: it has never, ever been a straight line from the idea to success. Business models change along the way: it's the people that count, their attitude and execution

Would you have thought that coke is a good idea in the late 19th century? A black, sticky drink? Or mobile phones in the 70s? Or messages with 140 characters in the era of emails?

[davidw]

> If you understand how the market works,

If you know a bit about economics, you would see why there are not, and cannot be markets for ideas, unless someone finds a very clever way of making them 'excludable' without hordes of lawyers and contracts and various other very high transaction costs. See my other post above/below.

[bali]

The problem with ideas is not that they are non-excludable or that transaction costs are too high (contractual costs, monitoring, you can cite the whole institutional economic literature from Coase to Williamson). It is not so hard to construct excludability, think of non-excludable goods such as fish, "ideas" for fiction, "ideas" for scientific research. They need to be linked to something, fish: best fishermen, fiction: best novelists like Stephen King get contracts without writing down a single word, research: a professor gets tenure. They just need to be linked to something excludable, e.g. to the person itself, or the service of a venture. (And I am still not talking about regulation, patents, etc!)

There is no market for venture ideas without the founders who are credible in executing them. Not because they are non-excludable, but because in fact they don't exist for a long time: it is very rare that somebody has an initial idea that won't change during building a company. Markets, customers, technology change.

If the world of startups would work like you say they do, it would be enough for the most creative persons to get a long term contract from VCs just to tell the ideas that pop out of their minds every morning.. Have you ever seen that happen? VCs invest in people who execute and are able to adapt ideas as circumstances change.

Btw, I am an economist so I happen to understand economics (to a certain degree :)

[davidw]

I wouldn't argue that ideas are worth a lot, my point is that if the value of ideas is lower than that of various clunky mechanisms that attempt to make them excludable, that there will be no market.

That does not mean, though, that the ideas do not have any value, only that the vast majority if it lies in the execution rather than the idea itself.

For practical purposes, it doesn't change much, but the idea of "there's no market for it, so it's worthless" bugs me and I think it is not good economics. There are other things that we value that aren't directly bought and sold on 'natural' markets, or where markets must be artificially created via things like "intellectual property" or "cap and trade", government provisioning or other mechanisms like that, or where we simply accept that there's no viable way to make a market.

The classic example from economics (added for the benefit of other readers, you're surely familiar with it) is the lighthouse (which is also non-rivalrous): they're valuable to shipping, but generally, governments have provided them, because there was no way to make individual ships pay directly for their usage. They are not "worthless because there was no market for them".

[bali]

I see where you are coming from and what bugs you in the logic of Graham.

None of us denies that there are transaction costs related to operate an "idea market", we just seem to argue about their amount/importance/relevance. I say these costs are not the primary reason behind the absence of the market but rather the fact that there are no stable ideas that can be used to found a sustainable business upon. You say there are stable ideas but it would be too costly to operate or even establish a market mechanism. (Although I am sure there would be a charity organization or even the government that would establish the market if it would be mostly a one-time fixed cost and low running expenses such as in the lighthouse example).

I should go to sleep now, have to wake up in 2 hours.. (but I really enjoyed the conversation, thx :)

(btw, a question - do you really think there is anything that is valuable to people but nobody has ever tried to monetize it if it wasn't banned by authority? Air, love, aesthetics of a building or a landscape, even values and religions... I have seen business models related to all of these)

(btw2, it may be worthwhile to define what we mean under "1 idea" :)

[davidw]

> there are no stable ideas that can be used to found a sustainable business

I didn't mention 'stable'!

What I think is that there are ideas that, at the right point in time, allow people who can execute on them well to do really well. And I think some of those ideas, at least, can be done well by a reasonable number of people. For instance, something like eBay was likely to pop up at that point in time. So for a little while, prior to its inception, it would have been a valuable idea.

However... no, I don't think a market for ideas can be stable due to the non-exclusivity of ideas! Once one is out there, its value drops quite a bit. It's similar to markets for some kinds of information, like knowing the closing price of the DJIA on the 3rd of November. If I knew that today, it'd be worth a lot of money. Next week, it'll be worth nothing.

[bali]

I think we are stuck here, should probably discuss while having a beer :)