Making the Money - the Arbitrageur

Sometimes people want to make money on the trade, but not bring the seller and the buyer together, because the discrepancy of the price between those two parties.  Those people who make money on the price inefficiencies are arbitrageurs.  They can make almost risk-free profits if they handle those trades correctly.

So what arbitrageurs want is not a well-developed market.  In a more general form, the arbitrageur can profit from information inefficiencies.  Information could be anything, such as price information and technology information.

So if you know how to make things better or faster with the same amount of money, or make the same product with less money or in a more efficient way.  You can make money on it.

Another important thing about arbitrage is keeping the information secretive.  Because you don't want to have too many competitors.  Competition usually will make your profit lower.

Making the Money - the Platform

Another way to bring the sellers and the buyers together is by building a platform, such that the sellers can list their products there and also disclose the preferred selling/retail price on the products.  At the same time the buyers can see what the sellers offer, or even bid up the price of the product if the supply is limited.

Usually the platform will charge a certain amount of money on its services, such as referral fees, listing fees, storage fees, or fulfillment fees.  It depends on what kind of services they provide or what services are used.

Platforms can be physical stores, virtual Web services, or mixed.

Making the Money - the Broker

A business or a trade has at least two roles, the seller and the buyer.  Of course, usually the seller who has the goods wants to trade it for money.  The buyer would pay the money and want to get the goods in return.

Sometimes the seller doesn't have a good network to know who want to buy his product, or does not know if there is any potential to get a better price with his product.

The buyer would like to get a good product with his money at a better price if possible.

So another role, the broker, is coming to this game.  The broker charges a certain amount of fee to help making the trade.  Because the broker only makes money after the trade is made successfully.  So sometimes, the broker would recommends the seller to lower the price and the buyer to pay more to facilitate the trades...  Well, if the seller and the buyer are OK with it, that is absolutely fine.

Sometimes the broker will also help the seller to get more return by raising the price if the broker knows people are willing to pay more to compete for it.  At the same time, the broker can make more commissions on the trade.

On the other hand, if the broker knows the market is slow, the broker will recommend the seller to lower the price to get more buyers on the market.  Although the broker gets less commission, it's better than nothing.

Usually the main purpose of the broker is to facilitate the trade, they don't hold inventories for the products.  Those people who hold inventories for the products are more like re-sellers, retailers, or distributors.

Making the Money - the Business power of Technology

I was trained as an engineer, so basically my mindset is more like learning new technologies to get employed and well-paid by a good company.  I am good at problem solving and also reading technical references and datasheets.  But I didn't have much sense on making money until I started my career at a software company.

After I got some stock options from the company, I started researching how the options work, how to trade it.  Later on, I joined a startup with my friends (college-mates).  I got more involved with business related stuffs.  I knew better about the difficulties on selling new technologies to people.

I am putting some of the experiences I learned starting with this article...

The money making business is built on a basic model,

    Money = Technology ^ Business,

so called the Business power of Technology.

If the Technology is zero, the Business is x, the Money is zero.  In this example, the return 0 < 0+x.

If the Technology is one, Business is zero, the Money is one(not a big difference from zero, unless you feel good about it).  In this example, the return 1 = 1+0.

If the Technology is one, Business is two, the Money is still one.  In this example, the return 1 < 1+2.

"Technology is one" means the technology is about normal, not special, Most people know how to do it and can make it.

If the Technology is two, Business is zero, the Money is one.  If you don't know how to sell a product, you almost get nothing in return.  In this example, the return 1 < 2+0.

If the Technology is two, Business is one, the Money is two.  Two is better than one, but you don't get a good leverage on your hard-working technology.  In this example, the return 2 < 2+1.

If the Technology is 2, Business is 2, the Money is 4.  This is a lot better than previous examples, although 4=2+2.  But you get more potential, and you are on the way to make more money.

If the Technology is 2, Business is 3, the Money is 8.  This makes some differences,because 2+3=5 and you get the return of 8.

So a money making business is more like a good join of engineers and businessmen.  To make the join, there might be more roles got involved, such as, venture capitalists, angle investors, and accredited investors.