Can consumer ownership schemes provide a more democratic financing mechanism for the online marketplace? When it comes to being successful as an online platform, size matters. The network effect, which tells us that the value of a platform increases exponentially as a function of the user base, creates a natural concentration of power, if you’re a vendor trying to sell or advertise products, you will pick the platform with the largest audience. The network effect also creates an exit barrier, as moving to a competing platform without the same reach and user base means fewer potential customers. The consumer ownership scheme that I will be focusing on is the Consumer Stock Ownership Plan pioneered by Louis Kelso. The CSOP is a method of corporate finance that enables consumers to buy an ownership interest in a company on which they heavily rely. It is a democratic capitalistic tool to mitigate the harm caused monopolies or oligopolies. A CSOP does not require consumers to buy the company’s shares in the stock market. Instead, the company acquires its shares in a trust on behalf of consumers and uses dividends to amortise the investment. Shares that are fully amortised are transferred to their owners. In this essay, I make the case that CSOP financing for online marketplaces makes sense for three reasons.
A CSOP does not discriminate against those who lack the capital to acquire shares in the first place;
Users are an integral part of the value proposition of an online marketplace. A CSOP acknowledges this fact by making users owners.
Users’ data generates value, which indirectly flows back to users in a CSOP.