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2008-04-12

Devaluation of Entrecard Credits  

The following is a long response that I posted in the Entrecard Community Forum (in a thread entitled "Devaluation of EC currency") that I felt would be useful to post here, too:

"There's really no way to accurately compare the two price systems as the changes were accompanied by changes in market behavior. Prior to the change there were dozens--if not hundreds--of sites that were displaying their own Entrecard because people could tell that it was a "stale" account and wouldn't advertise on it. This fact hampers any comparative analysis of system average prices because today there are virtually no accounts with less than 3 ads on them, even if they are "dead" accounts. I have a bunch of these dead accounts and prior to the change I switched the advert status to "not accepting ads" so that people wouldn't waste their ECs on them, knowing that there would be a feeding frenzy at the lower end once the new prices kicked in.

Unless Entrecard implements a system to remove dead accounts and place stale accounts on ad probation, bargain hunting folks will continue to waste their ECs on these inactive sites. Some of those people seeking cheap ad spots don't visit potential ad spot blogs or even read the profile info before they toss their ECs at them. I went so far as to put a warning in my profile text that my site's traffic is solely a result of Entrecard and that someone shouldn't spend more than 128 EC, if that, to advertise on my widget. The result: 3 people purchased ads at 512EC. This is part of the reason I favor being able to set our own prices to a degree so that I can provide a good value to those who advertise on my widget and create a core group of loyal advertisers.

It's fun to speculate as to why this and why that, but I don't think we can ignore the unexpected delay in the rollout of the Credit Exchange when discussing ECs, at least as far as their cash value goes. It was surprising when the first ECs were sold on ebay for about $20/1000. I had plenty of ECs and thought I would lend them out (bad idea) and soon thereafter started the Entrebank on the same day the Entrecash.com (good idea) was launched. Just a little while later Turnip posted the first Paypal widget selling ECs at $15/1000, with several others following suit. Before long the Ebay auctions were going for $6.50/1000, which price likely would have been lower had not Turnip, myself, and other credit vendors bid them up knowing we could resell them. In a sense we made the market and maintained a higher price for ECs than would have occurred had we not been buying them wholesale. I don't know if any of the credit vendors actually purchased any ECs via Ebay, but our bidding for them did ensure that no one else bought them for "cheap."

Then Graham announces the Credit Exchange is coming and it is intimated that ECs will be sold at $10/1000, a price I suspect was chosen in part due to what 3rd party vendors were able to get at the time. Competition had driven the price of ECs down to around $10/1000 as more and more 3rd party vendors entered the market. At this point my Entrebank account was merely listing 3rd party EC vendors and their prices and I was selling ECs privately to a favored client at $6.50/1000, which was the Ebay rate and as they were my own ECs I felt I had a sufficient profit to justify this "lower than market" price. I didn't publicize these sales because I didn't want to adversely impact the reselling market. Again, the market price was being kept high due to our bidding up the Ebay price and the difficulty in getting good info about EC availability.

I suspected (and blogged about it) that the price of ECs would drop down to under $5/1000 and likely end up lower than that once the Credit Exchange was in place and functioning well. There is a real cash value to ECs in that some business-minded folks are willing to pay for them rather than spend the 20 minutes to drop 300 cards themselves. While this idea is anathema to many Entrecarders, if ECs are being sold at $5/1000 and you feel your time is worth more than a couple of bucks an hour, it is a really good option. Of course, Phirate has implemented security system changes that have increased the amount of time it takes to drop 300 cards, and it makes the prospect of buying ECs even more attractive to some people.

There is no question that the Credit Exchange will increase the amount of credits being bought and sold, if for no other reason than improving market knowledge and making it an easier and more trustworthy process than using a 3rd party vendor. Aside from the expected grumbling about the "high price of ECs in the Credit Exchange" and "Entrecard is making money off of us, the bums", there is a distinct advantage to having a solid cash value for ECs as an incentive to being a member of this community. Hence, while those who understand economic theory better than I do might enjoy the discussion of the devaluation of EC currency in the context of ad purchases, my focus is on the real dollar value of the EC and what I am going to do with my inventory of 47000 ECs."

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2 comments: to “ Devaluation of Entrecard Credits

  • Turnip
    April 12, 2008 at 2:58 PM  

    I'd assume you would sell your credits on the exchange, same as I would do with my 50k credits. Which makes anyone selling on eBay either a scammer or a complete idiot, seeing as the exchange would be automatic. Now if the exchange is a complete bust, then the price cutters will be right back and start driving the price down again. I'm guessing additional security measures including the closing of some credit farming splogs will help stop some of these types. Entrecard should have acted sooner to have prevented the markets from being established, instead they chose to brag about how many blogs per day vs total blogs they had, and now they pay the price.

  • biz beacon
    April 12, 2008 at 5:09 PM  

    Turnip,

    Of course...you assumed correctly. It's been 5 weeks or so since the exchange was announced and I had sold off my entire inventory soon thereafter. The ECs I have now are what I have accumulated since that time and frankly I'm hoping the exchange does open and lasts long enough for me to sell them off at $9-$10 per thousand. Or, I might just sell "The Entrecarder" with the ECs, Entrecard accounts, domain names, usernames, popular page ranking, etc. to anyone who is willing to pay a fair price.

 
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