Interesting observations, but I'm inclined to think that the complex pricing algorithms will have relatively limited applicability. The problem is that they exert a non-trivial cognitive cost on the buyer; most consumers, given the choice, would likely be happy to pay a few percent extra to _not_ have to worry about the futures market for potatoes with each trip to the supermarket.
The key exceptions to this are with goods or services that are both highly perishable and very expensive -- such as airline tickets. An empty seat on an airplane is a non-storable asset which "perishes" the instant the plane takes off; therefore the airline is highly incentivised to sell it at _any_ price -- but obviously as high as possible -- rather than let it expire. Meanwhile, for most consumers, airline tickets are bloody expensive to purchase, and it's worth no small amount of hassle to find a good price. Thus there's significant motivation on both sides to fuel a constantly-evolving algorithmic war between airline pricing schemes and intelligent price-comparison agents.
A seat at the barber's is also "perishable" in a sense, in that any time a client isn't sat in it, the barber is losing potential revenue. However it's only fractionally perishable: unlike an plane about to close its doors, a barber's seat that is unoccupied in any given minute can still get a client the next. So there's not the same do-or-die motivation to fill that seat, which diminishes the need for clever algorithmic pricing. From the consumer's side, meanwhile, a haircut is a relatively trivial expense -- not worth the time or effort to try to scrounge a better deal. Any barber that doesn't simply list its price in a sign on the window is one that wouldn't be getting my business, in any case.
The cognitive simplicity of making a purchase is an asset that doesn't just extend to pricing. One of the major successes of the iPhone and iPad, for example, is the fact that there is effectively only one model being promoted at any given time. Unlike other brands of mobile devices -- where the consumer is essentially asked to balance out their requirements for price, UX/UI, app availability, form factor, memory, camera, battery life, etc. -- the iPhone customer is asked to make a single choice:
Do I want one?
[ ] Yes
[ ] No
The simplicity of this choice has been a genuine factor in iOS's success. (NB: I'm not an iOS fanboy; I just switched from an iPhone to a Galaxy Nexus and am almost completely happy with it. But must give credit where it's due.)
Anyhow, I think that Stross is correct when he says that the disintermediation of tradable goods will cause a price-based race to the bottom. This is probably unavoidable. Furthermore, even for non-tradable goods/services such as locally-delivered services, many of these will inevitably be automated and will also be racing to the bottom. (I fully expect that most fast-food will be cooked and served by automated systems within 10 years; interventions by organised labour my forestall this for a while longer, but not indefinitely). What interests me is how anything non-cheap/automated will survive: it will be, as Stross suggests, anything which creates value in a way that is not based on price. My believe is that the key ingredients in this will be creativity and meaning.
In America, for example, I've seen anecdotal evidence that small local farms are have been withstanding the recession, and even expanding fairly considerably. If this is true, it's certainly not because they offer any price advantage; rather, it's because they form relationships with their customer base that provide layers of meaning that add value beyond the simple raw commodity. Where this kind of relationship can be successfully cultivated, I believe that there's a real future for locally-based retail. Otherwise, the future is all about local automation and disintermediated global markets.
> the iPhone customer is asked to make a single choice:
It's amusing to look at just how complex the iPhone buying process has actually become. You have three different models to choose from, two of which come in two colors. For the newest model, you have three storage sizes to choose from.
But those are the easy parts. Once you've chosen those, you must then choose a carrier and a plan. In the US, there are now three carriers to choose from, none of which have anything like identical plans you can just price-shop. Each carrier then has a variety of options, from talk time (4 different ones on AT&T, I believe) to text messaging to data plans, and they can often be mixed and matched in various combinations. If multiple family members have phones it gets even more fun, as you then get into the various family plans.
Compare this with how the iPhone was originally: there was one model with a couple of different storage sizes, one carrier, and one data plan. You still had different voice and text messaging plans, but it was still substantially simpler than it is today.
The iPhone is certainly still much simpler to buy than its competitors, but it seems that the simple yes/no choice is too simple for the customers.
An example of the simplification of this process. Over the holidays, my dad needed to buy an external hard drive to backup his music collection. He has one of these hi-fi devices that has a built-in hard drive and is slowly transferring his music collection to it.
We bought it from a retailer because he wanted it right then, so he could run the backup procedure and have me fix it if it didn't work (yes, family tech support is a joy). We went into the shop, and none of the USB external hard drive manufacturers actually tell you what speed the drive runs at. That is, they don't tell you what RPM the drives run at. As it is a backup drive, it's not like it needs to be fast (the first run may take all night, but afterwards, it will probably only be a gigabyte or so of changed files every few days). But the fact that none of the companies actually advertise the RPM slightly shocked me. Not just on the boxes either, but if I scanned the barcodes with the barcode/QR app I have on my phone, the manufacturers websites don't list the RPM either.
Apple devices tend to have one primary dimension of choice so that they have products at various price points On the iPhone/pad it's memory size. On computers it's screen size. But it is simpler than others, true.
The key exceptions to this are with goods or services that are both highly perishable and very expensive -- such as airline tickets. An empty seat on an airplane is a non-storable asset which "perishes" the instant the plane takes off; therefore the airline is highly incentivised to sell it at _any_ price -- but obviously as high as possible -- rather than let it expire. Meanwhile, for most consumers, airline tickets are bloody expensive to purchase, and it's worth no small amount of hassle to find a good price. Thus there's significant motivation on both sides to fuel a constantly-evolving algorithmic war between airline pricing schemes and intelligent price-comparison agents.
A seat at the barber's is also "perishable" in a sense, in that any time a client isn't sat in it, the barber is losing potential revenue. However it's only fractionally perishable: unlike an plane about to close its doors, a barber's seat that is unoccupied in any given minute can still get a client the next. So there's not the same do-or-die motivation to fill that seat, which diminishes the need for clever algorithmic pricing. From the consumer's side, meanwhile, a haircut is a relatively trivial expense -- not worth the time or effort to try to scrounge a better deal. Any barber that doesn't simply list its price in a sign on the window is one that wouldn't be getting my business, in any case.
The cognitive simplicity of making a purchase is an asset that doesn't just extend to pricing. One of the major successes of the iPhone and iPad, for example, is the fact that there is effectively only one model being promoted at any given time. Unlike other brands of mobile devices -- where the consumer is essentially asked to balance out their requirements for price, UX/UI, app availability, form factor, memory, camera, battery life, etc. -- the iPhone customer is asked to make a single choice:
The simplicity of this choice has been a genuine factor in iOS's success. (NB: I'm not an iOS fanboy; I just switched from an iPhone to a Galaxy Nexus and am almost completely happy with it. But must give credit where it's due.)Anyhow, I think that Stross is correct when he says that the disintermediation of tradable goods will cause a price-based race to the bottom. This is probably unavoidable. Furthermore, even for non-tradable goods/services such as locally-delivered services, many of these will inevitably be automated and will also be racing to the bottom. (I fully expect that most fast-food will be cooked and served by automated systems within 10 years; interventions by organised labour my forestall this for a while longer, but not indefinitely). What interests me is how anything non-cheap/automated will survive: it will be, as Stross suggests, anything which creates value in a way that is not based on price. My believe is that the key ingredients in this will be creativity and meaning.
In America, for example, I've seen anecdotal evidence that small local farms are have been withstanding the recession, and even expanding fairly considerably. If this is true, it's certainly not because they offer any price advantage; rather, it's because they form relationships with their customer base that provide layers of meaning that add value beyond the simple raw commodity. Where this kind of relationship can be successfully cultivated, I believe that there's a real future for locally-based retail. Otherwise, the future is all about local automation and disintermediated global markets.