“What information consumes is rather obvious: it consumes the attention of its recipients. Hence, a wealth of information creates a poverty of attention…”
— Herbert Simon, Nobel Prize Winner and Economist
Basic Economics of the Internet
I learned this week that eBay will now offer a price match to ensure they can meet the lowest price in the marketplace (FORBES article). Strategic moves like this by major retailers are not new or uncommon these days but seeing eBay do it certainly earmarks a new page in internet commerce. eBay, after all, was born out of a bidding system where an item’s price was never dictated or measured by anything accept a ticking clock and the highest bidder. Value for each individual product was dictated by the marketplace and its perception of supply and demand. Each transaction was a miniature display of capitalism and free market.
Price matches are old news for brick and mortar retailers. After all, Best Buy, headquartered here in my home state, and the world’s leading consumer electronics retailer, has basically stayed alive because of their price match. Best Buy has a new mission these days, however: seeking to become the major supplier for interconnected devices, AKA the Smart Home. More on this later though. At the least, price matching ensures that companies do not lose to competitors based on price factor alone. Best Buy was in danger of bankrupting because of Amazon’s pricing undercut. The price match saved them.
Yet the intriguing thing about price matching is that it simplifies the value of a purchasing transaction to only one factor. It seems like a new era of buying has rolled in and the old ways are gone. Gone are the days of loyalty to SEARS or to a small town shop owner. Gone are the days of visiting a store because it was the cleanest, friendliest, or provided the most enjoyable overall shopping experience. Gone are the days of committing to a high-quality brand like Ford or Buick, simply because quality prevails. No, rather these days, most items are reduced to a “how low can you go?” analysis, seeking the lowest rate without giving much thought to quality or customer service or company history. Gone are those days because of the dangerous power of instantaneously aggregated information, which comes to us through fiber optic cables pinging off of datacenters around the world, all at our finger tips 24/7. The internet.
This new way of shopping, this new economy which is transforming the world’s commerce is only possible with the internet. Without the internet, there is no way to have information about pricing from all of the available sellers in the market. Without the internet, decisions would be made slowly and companies could persuade us based on other factors such as a smiling clerk or a friendly salesperson. But the internet reduced consumerism to an ugly simplicity that makes transactions feel cheap. On an individual consumer scale, this was first disrupted by Amazon and others like it, but is now even being disrupted at the manufacturing level by Alibaba.
As an example, the internet busted the antiquing market the same way, making it virtually impossible to find hidden gems in small town antique shops that offered hope of maybe redeeming their value at 10x or even 2x returns. With the internet’s transparency, not only have antiques prices been moderated but so too has the hobby itself and the fascination with antiques as furniture or decoration. Why would a person pay $200 for a vintage 1913 Singer sewing machine when he can click a few buttons and have a $20 knock-off vintage-looking sewing machine delivered in two days?
The internet has created the most capitalistic market in history. Capitalism is when an industry is controlled by the competition within a market. Various factors dictate a capitalist society, most commonly being supply and demand. The flip side of capitalism is when a government or organization dictates the prices and distribution channels of trade and commerce. Depending on your age, you may think of Russia or China as being the opposers of capitalism.
The Price of Eggs in China
My late grandfather, Herschel, was a retired Army WWII veteran. He was stationed in Germany at the end of the war with another two-million-or-so U.S. troops that were sent there well after Hitler was captured for the purpose of helping to protect and rebuild what was impacted by the invasion. The Army and its allies helped secure Germany, Poland, and surrounding areas to ensure the Nazis could not uprise again, but they also did a lot of good in those areas like rebuilding schools and community centers.
My Grandpa was a smart man, quick witted. Often heaving humor and fun challenges at his loved ones to test their knowledge of various languages, foods, or cultures – basically the things he prided himself in knowing. Partially he was poking fun and partially he was showing off. His favorite question, which he would ask me nearly every time we were together was “Christopher, what is the price of eggs in China?” to which I would typically reply that I had no idea, and why was he asking me such a question? But as I grew older I began relishing in this banter and anticipating questions like this one. Sometimes I would answer that “the price of eggs in China is only one penny,” and other times I would try to convince him that they cost a million dollars. Before my grandpa passed when I was twelve years old, I remember having a small debate with him about this question. I asked him if it were a dozen eggs or two dozen, chicken eggs or some other animal, and many more questions.
It took me more than ten years to realize that my grandpa didn’t care at all whether I knew the price of eggs in China. He himself didn’t even know the answer to the question. The point in asking the question was twofold: to get me thinking and to have fun.
What’s so funny now about this “cost of eggs in China” question is that my grandpa probably would have never been able to imagine a world twenty years later where this question could be so easily answered in a matter of seconds from anywhere in the world. Do a quick Google search and you will find that the cost of eggs in China is not too far from the cost here in the U.S., about $2.00.
This availability and transparency of internet pricing might seem extremely obvious to everyone else reading this, but it hit me especially hard recently when I went online to buy a pair of shoes. The last couple of months I have been wearing the Nike LunarEpic 2’s and I wanted another pair because I like them so much. I searched online for the shoe and found this in the Google search results:
Basically what you see here is Google showing analytics on the new lowest price and how it compares to the average price across all online retailers. It shows that the price is down 25% from what it has been in the last 90 days. This is similar to what Kayak, Expedia, other travel websites have done for a few years now. By helping customers understand trends and historical data they can feel they are truly getting the best price. But having this for sneakers? Now that I did not expect. Cap-i-tal-ism.
I suppose the internet has reached this new level in reforming our economy and will stop here, right? Well of course, we all know that isn’t true. We are at a “hockey stick” of progress and the next big movement is not the internet, its the internet of things. Yes, I know what you’re thinking: “who is the genius that came up with this term?”
The Internet of Things, or “IoT” is a fairly new concept which explains “the interconnection via the Internet of computing devices embedded in everyday objects, enabling them to send and receive data.” (I found that definition on the internet, go figure.)
Well, really the IoT isn’t that new. In 1982, someone rigged up a Coke vending machine at Carnegie Melon University into the internet. The machine could report the inventory and when new drinks needed to be replaced.
Simply, the IoT is all about connecting devices, machines, systems, or appliances, to a network, allowing them to communicate to each other. To understand IoT think of a crazy mash-up of technologies like Siri meets Alexa meets refrigerator meets car meets calendar meets doctor’s office meets… it is never ending. Basically, the IoT will connect every technology system of your life so that everything is interconnected. The various hardwares and softwares will pass data to one another in order to make life more efficient, effective, and convenient.
My favorite article that I’ve read about the IoT is actually a pessimistic one from wired.com. Since I have a weak-spot for getting overly excited about new and trendy technologies that don’t always live up to their hype (virtual reality, 3D printing, etc.), it’s quite refreshing to read articles that think these new technologies will actually fail, or struggle in the least. It brings me back to earth. The article starts:
“there are three things in this world I hate: 1. Articles about buzzwords; 2: Irony; and 3: Lists. Let us therefore proceed with all due irony to list our derogations of one of the buzziest: the Internet of Things, known to aficionados and curmudgeons alike as the IoT.” – Jason Bloomberg, 7 Reasons Why the Internet of Things is Doomed
In his article, Jason Bloomberg gives six reasons why the IoT won’t work. But whether you are like Jason and believe the IoT is doomed or you are like the executives of Google and Facebook who are betting their futures on it, one thing is certain and that is that devices will most certainly be interconnected moving forward. It’s already starting. Google Nest and Smart Lightbulbs are easy examples.
Deeper into technology even, we are seeing this in the software engineering API movement. API stands for Application Programming Interface and without getting too complex I will say simply that APIs are a way of connecting disparate data sources into one user interface that is easy to use. One simple example, which I heard explained by an IT executive recently, happens when you log into one system, such as Pinterest or Venmo while using your facebook username. Facebook is a master in the API space, connecting their backend systems to multiple other companies’ front ends. These systems are being connected through an API, even though you only see one interface on your screen. Through advancements in software development, the connecting of disparate systems is becoming easier and more common.
To understand APIs deeper, you can watch Mulsesoft’s video below. I love this video!
Consumerism and Attention
So what does the Internet of Things have to do with economics? If you haven’t figured it out yet, the IoT will make buying things easier, cheaper, and faster. Think of the Coke vending machine example but in your own home. You open your refrigerator and grab the milk to pour over your cereal. When you pour the last drop from the carton you toss the carton into the recycling bin. Typically you might stop and write MILK on your grocery list but instead, your recycling bin sends a message to your refrigerator that you’ve finished the last of the milk. Then, your refrigerator sends you a message prompting you to order more milk with the touch of a button. Or even more likely, it may even order the milk automatically, depending on your settings.
Another example could be a scenario like the following. You wake up on your SmartBed which quickly tells you that you tossed and turned all night and never quite entered REM sleep. Your Google Home or Amazon Echo device greets you “good morning” and explains your schedule for the day while slowly brightening your room from dim to bright. You hear your shower turn on in the bathroom because your SmartShowerHead knows to begin heating the water when you sit up in the bed. During your shower, a retina scan in the SmartShowerHead senses you are still feeling groggy and so it plays an upbeat song such as “Crazy” by Gnarls Barkley while simultaneously signaling to your SmartCoffeeMaker in the kitchen to add an extra shot of espresso to your morning joe. Your coffee supply is running low and so a purchase is initiated by Amazon for a refill. Your schedule for the day has “big client meeting” marked at noon and so, of course, your SmartCloset rolls out a suit and tie pairing rather than your normal khakis and flannel. As you are rushing out the door you spill coffee on your tie and a camera sensor sees the spill happen so it immediately orders you a new tie for a two-hour-delivery to your office, right before your big client meeting. While in the car you set the car on cruise control and it takes you to your office without touching the steering wheel.
This example can become as far-fetched as your futuristic-movie-mind will allow you to go. The point is that devices will all be attached to the internet and that these devices will speak to each other in an attempt to make purchasing easier. Through every interaction, your devices will be lobbying for your attention and your purchasing needs. This will prove problematic for our checkbooks but will also become an incredible value for our time. If we use it the right way it could give back minutes or hours of tedious shopping and purchasing that we would have otherwise done. If we use it the wrong way may become another attention suck.
And because these IoT “smart” decisions will happen in an automated environment, we will not make the decisions for many of our own purchases. We won’t evaluate how many layers the toilet paper has – our computers will do it for us. We won’t read the story of the organic coffee company and pick their beans even though they are a more expensive option – no, our computer will make that decision – probably based on lowest price. It will be another new era of capitalism, thanks to the internet.
Personally, I am excited about the Internet of Things. The more convenient it becomes to be a consumer should mean more time spent on the things that I value most: family, friends, hobbies, thinking, etc. There are obviously personal security concerns which I won’t belabor to write about, but the positives are worth being excited about.
The catch with the Internet of Things and its intuitive consumerism components will be to control our spending habits and to dictate our buying decisions rather than letting those things become part of an automated process. It will become increasingly more challenging to control a budget and to live below our means when our “things” start telling us how and when to make purchases. And furthermore, when computers have more access into our lives and can interrupt us more frequently.
The disparate systems that will integrate into each other will no doubt make living our urban lives more convenient, but what will they take away in the process? They may continue to take away our attention, finding new ways that we don’t even know about yet. We can’t even begin to imagine how companies like Snapchat and facebook will continue to fight for our attention. Today it is scrolling News Feeds and getting sucked into games like Farmville, but once our devices can connect and share data they will be smarter. Fighting to stay in the moment and focus on real life will be increasingly challenging.
I mentioned antiquing as a piece of American culture that has since been disrupted if not even eliminated. The IoT may also eliminate other great parts about life as we know it such as strolling the farmer’s market on a Sunday afternoon, Registering for gifts with your fiance, interacting with your neighborhood barista. Sadly, it may even disrupt business relationships that transform into lifelong friendships, which is my favorite part about working in corporate America. It may replace our ability to make decisions, think for ourselves, and remain self-aware.
Regardless of the changes ahead, whether because of the IoT or otherwise, there is little we can do except to remain optimistic and continue to live life according to our convictions such as treating people well and living for greater purpose. Convictions like our ancestors, like the ones in the WWII generation, seemed to have.
I wish my grandpa Herschel were still around today so that I could tell him what the price of eggs in China is now. Or to tell him that his probing questions and silly banter instilled a thoughtfulness inside of me that guides my interest in the world around me. But since he isn’t around now, I’ll just continue to write more thoughts like these here at It’s Me Chris, and maybe someday I’ll be able to ask my kids challenging questions like “what are the cost of eggs on Mars?” Then again, maybe they’ll be able to find that answer just as fast.