Friday, May 18, 2007

Prosper is growing exponentially

I have been following Prosper for quite some time now. In my earlier posts, I have said that the size of the market could be 10s of billions, if not higher. The miracle of exponential growth associated with network effects seems to be kicking for Prosper finally. It recently crossed $60 million mark i.e., the members of Prosper have borrowed and lent over $60 million in last 20 months but the remarkable statistic is that the growth from $40 to $60 million has come in just 3 months.

The growth is not just remarkable, it appears to be accelerating. As Kevin Kelly wrote in Wired (10 years ago):

The Law of Exponential Value Success is nonlinear

The chart of Microsoft's cornucopia of profits is a revealing graph because it mirrors several other plots of rising stars in the Network Economy. During its first 10 years, Microsoft's profits were negligible. Its profits rose above the background noise only around 1985. But once they began to rise, they exploded.

Federal Express experienced a similar trajectory: years of minuscule profit increases, slowly ramping up to an invisible threshold, and then surging skyward in a blast sometime during the early 1980s.

The penetration of fax machines likewise follows a tale of a 20-year overnight success. Two decades of marginal success, then, during the mid-1980s, the number of fax machines quietly crosses the point of no return - and the next thing you know, they are irreversibly everywhere.

The archetypical illustration of a success explosion in a Network Economy is the Internet itself. As any old-time nethead will be quick to lecture you, the Internet was a lonely (but thrilling!) cultural backwater for two decades before it hit the media radar. A graph of the number of Internet hosts worldwide, starting in the 1960s, hardly creeps above the bottom line. Then, around 1991, the global tally of hosts suddenly mushrooms, exponentially arcing up to take over the world.

Each of these curves (I owe Net Gain author John Hagel credit for these four examples) is a classic template of exponential growth, compounding in a nonlinear way. Biologists know about exponential growth; such curves are almost the definition of a biological system. That's one reason the Network Economy is often described more accurately in biological terms. Indeed, if the Web feels like a frontier, it's because for the first time in history we are witnessing biological growth in technological systems.

Do you think this model applies to Prosper? Do you agree that Prosper may get as big as Ebay? Or bigger?


Max Bleyleben said...

No I don't. $60m in borrowed assets is absolutely puny. I don't know what Prosper's cut is, but surely less than $1m on all those loans! I think Prosper's market will be limited to borrowers who are high risk, and the few lenders who are willing to go through the extra hassle and risk for a single percent higher return than they can get from a bank. This will always limit their market appeal.

Anonymous said...

I think they have potential to become big. And I agree with Anshu.

Small loans are similar to Micro-Credit (which is HUGE in Asia). Micro-Credit is high risk loans. However, the success rate of such high risk loans has been phenomenal.

Prosper can leverage a similar benefit. Besides the interest rate charged for the loans is regulated by the lenders (bidding). Its a win-win when a lender carefully selects a borrower (belonging to a group is good security - kinda like credit score) with a likelihood of paying. If you as a lender make twice the Money Market rates - it is good.