Exchange Business Model Triangle
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A breakdown of why stock exchanges are one of the most profitable and defensible business models, combining multiple moats into a powerful triangle of advantages.
Core Business Model Components
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Network Effects
- More valuable as more companies list on the exchange
- Attracts more traders and liquidity
- Creates self-reinforcing growth
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Enterprise Contracts
- License exchange software to other countries
- Finland and other nations use US exchange technology
- Long-term, high-value relationships
- Compete for major IPOs through relationship building
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Regulatory Defensibility
- Heavy regulations create high barriers to entry
- Only ~15 major exchanges globally
- Regulatory relationships provide competitive advantage
- In "bed with the SEC" creating natural monopoly characteristics
Financial Performance
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Intercontinental Exchange (ICE)
- 60% profit margins on revenue (2018)
- ~$10B in revenue
- $35-40B market cap
- Owns NYSE
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Extremely profitable industry
- Among most profitable public companies
- Consistent cash flow generation
- High margins due to software-based model
- Limited competition due to barriers
Business Evolution
- Traditional exchange model evolving
- Long Term Stock Exchange (LTSE) attempting innovation
- New models exploring longer-term holding periods
- Challenges with adoption of new exchange models
- Regulatory approval process takes years
The combination of network effects, enterprise contracts, and regulatory moats creates one of the most defensible and profitable business models possible.
Sam Parr
Host of MFM and fitness influencer
Sam Parr is a serial entrepreneur and business media pioneer.
In 2016, he founded The Hustle, a business news media company that started in his kitchen with just $12 and grew to eight figures in revenue.
Sam led the charge in making newsletters popular when few believed in their potential.
After four successful years, he sold The Hustle to HubSpot, a publicly traded company. Now operating as HubSpot Media, The Hustle reaches 3 million readers daily, employs a team of nearly 100, and has been the launchpad for dozens of its staff to found their own media companies and newsletters.
Sam remains the host of the popular business podcast, My First Million, and continues to start and sell companies. He also co-founded Hampton, a highly vetted community for entrepreneurs, founders, and CEOs, and teaches people to write better through his platform, Copy That.