A Letter from Brian Cai（Founder and CEO of FORTUNA) #002The Long Tail is a Wonderful Business ModelHello everyone! My name is Liangbin (Brian) Cai, I’m founder and CEO of FORTUNA. I’ve started a series called ‘Founder Blogs’ to share some of the ideas me and my team have, that do not fit anywhere else. Welcome!
After graduating from Yale University, I won first prize at the International Mathematical Contest in Modeling. I worked in various segments of the financial industry all around the world (New York, London, Hong Kong, Shanghai and Hangzhou), in the fields of investment banking, supply chain finance, Anglo-American law trusts, civil law trusts, and private banking. At the age of 26, I was able to work my way up in a state-owned bank. Prior to leaving, I was the general manager of the private bank and was responsible for over 30 billion in assets. After these great experiences, I decided it was time for something new, something bigger. That is when I founded Fortuna.
The Long TailLet’s talk about the long tail! — An interesting business model. What do YOU think when you hear the word “long tail”? I think of a new business model that breaks the fixed mindset of the “Pareto principle”.
People usually pay most of their attention to the best-selling products or services that can bring 80% of their income. The remaining long tail (small sales with large quantities of customers, products and services) can only be kept in the statistics manual.
Since the birth of the new business model ‘long tail’, some fundamental changes have been made. The most familiar example is the search engine, represented by Google. They successfully created a brand new long tail advertising market. It was full of twists and turns during a period.
Whether it is paper media advertising, radio advertising, television advertising, or portal advertising, the advertising itself will always play a huge role in a company.
I still remember in the 1990s, one of the topics that would be discussed every year was; who bought the CCTV advertising standard. The price of bidding is hundreds of millions or even billions. It is shocking but don’t forget that this number is the amount of the 1990s. Small businesses and self-employed people, whose sales are not ideal nor have a high frequency of purchases, are unlikely to appear in mainstream media such as newspapers, magazines, radio, television, and portals. However, after the birth of search engines, everything changed!
A traditional media’s contract allocation model consists of core elements such as a layout and a time period, are divided into multiple contracts. A different approach is using search engines to adapt to keyword bidding transaction modes, the long tail and low frequency search keywords. This can generate more than 70% of the total advertising revenue of search engines.
If a keyword has only one visit every six months, but the word has a high conversion rate, it is impossible for a search company to send a salesperson to sell this keyword. The reason for this is that the income is insufficient (sales income does not cover the cost of sales), this can be solved by an auction-trading model. The cost of sales will be almost zero, and the income obtained is almost always a profit. Yahoo uses the contract allocation model to serve more than 2,000 large-scale advertisers. Google, which uses an auction-trading model, has served more than 2 million small and medium-sized advertisers, opening an incremental market completely. This is the biggest difference between the long tail advertising market and the traditional advertising-market. The demand for long tail advertisements has always been there, but due to the reasons such as transaction patterns, marginal costs, and connection efficiency, there has been a lack of a truly effective market to meet these conditions.
Fortuna will pay tribute to Google and create a long tail derivatives market.
Our plan is to pay tribute to Google and create a long tail derivatives market. Google’s keyword bidding transaction model through search engines has enabled the needs of more small and medium-sized advertisers to meet the marginal cost of nearly zero. It is impossible for these small and medium-sized advertisers’ advertising budgets to enter mainstream media. The only thing that they can do is advertise by the means of; stickers in a corridor and flyers on the street. Similarly, in today’s OTC derivatives market, many small and medium-sized institutions and individual customers are rejected:
On the one hand, this is the result of insufficient funds. Brokers won’t help you under 10M RMB in China. However, the question is: Is there demand for derivatives of 1,000–100,000 RMB? Obviously yes, they are just like long tail advertisements. Due to the trading patterns and marginal costs, there has always been a lack of an effective market to meet these needs.
On the other hand, it is because their qualifications are not enough. I mentioned in my letter “Throw a Stone into the OTC Derivatives Pond (in 483 trillion U.S. dollars)” that although the OTC derivatives market is rich in products and the contracts are flexible, there is no corresponding guarantee mechanism and margin account system. Therefore, the traditional OTC derivatives market is basically based solely on the credit of individuals or institutions. At this time either you have a very good qualification and belong to state-owned companies, listed companies, large private companies, ultra-high net worth investors, or you find a good guarantee agency, which you pay a 6%-7% guarantee fee. The qualification threshold of the former excludes most of the individual investors and small and medium-sized institutional investors. The latter is costly and, more crucially, such a guarantee institution does not accept small businesses. High guarantee costs and high capital thresholds will also reject most individual investors and small and medium-sized institutional investors.
What should we do?FORTUNA will reshape the OTC derivatives market based on the blockchain’s technology system, core concepts and provide everyone with a long tail derivatives market.1. Realize a fully decentralized derivatives trading platform.To achieve a fully decentralized derivatives trading platform, all the derivative contracts are designed and initiated by users, so that market demand determines the market supply, rather than the dictatorial decision of the centralization exchange. Thus, everyone’s right to speak and use are equal.
2. No financial threshold and qualification threshold.Through the Smart Contract and the Utility Based Crypto Token mechanism, the counterparty risk can effectively be controlled and a value-based trading network with zero confidence establishment cost can be established. Bid farewell to the capital threshold and qualification threshold. As long as there is the counterparty, any amount of the contract can be reached to achieve a truly inclusive market for derivatives.
3. No need for any transaction feesIn the state that the entire distributed network node is operating autonomously, Fortuna won’t charge any transaction fees as a blockchain platform. All forms of fees will be charged by nodes in the ecosystem that provide various types of services, such as Delegate nodes that provide block services, Quoter nodes that provide quote services, Market Maker nodes that provide market-making services, and CoT Maker nodes that provide contract template design services. In other words, the platform does not make any money. All profits are attributed to all the nodes that jointly build our ecosystem. All community members can apply to become all of the above types of nodes.
Thanks for reading and see you next time!
Brian Cai.
