chrisgilbey

How Flat World Economics Became The Grinch

In Consumers, Convergence, Economy on December 23, 2010 at 3:11 pm
Christmas in the post-War United States

Image via Wikipedia

Over the last dozen or so years as consumers, as global citizens, and as human beings, we have been learning to live with the concept of a flat economic world.

This concept has been made possible fundamentally by the massive computing power being available at our fingertips. We may have forgotten how great it is, or just not realize what it means, so put it in the context of remembering that a new smart phone has more computational power than the first main frame computers that i worked on in the 1960′s when I was a computer programmer at a big insurance company. It is huge.

The computational power that we have also gives us an extended cognition functionality as beings. That ability is massively disruptive to almost everything in our cognitive universe in the same way that the invention of the wheel was massively powerful to the humans who were able to transport their goods on a cart instead of having to carry them on their backs.

Digital tools enable us to efficiently hunt the oceans for fish using digital mapping tools that are able to identify not just shoals of fish, but even individual fish. They enables us to manage extremely complex supply chains so that we can get products to consumers so efficiently that fruit and vegetables grown in one continent in one climate arrive on the other side of the world without spoiling. They enable us to be able to split and modify genes so as to change the disease resistance of plants.

They also mean that we have lost a great deal of what Christmas was about – or at least how I remember it from when I was a kid. When I was a kid in the 50′s in the UK, my parents were pretty poor by modern standards. Each Christmas one of the things I would look forward to was to be taken by my dad to the west end of London to wander through the biggest toy store in the UK, Hamleys. Every year they would have some new toy that seemed to be quite magical to a 6 or 7-year-old kid. I was never going to get one of whatever they were, but I could dream. Back then, it was unusual for most people to have black and white TV, and there was no colour TV. Not everyone even had a phone in their home, and for some (my grandmother for one) there was no electric light – only gas lights.

But what we did have was a sense of wonder. Now we hardly have that anymore.

What we have instead is sensational, I admit. But it makes Christmas into a much different experience. Now what most of the developed world has is access to technology – in the form of toys that make it very difficult to think of what one might actually need as a gift at Christmas…

Flat World Economics has become The Grinch That Stole Christmas.

Meanwhile in Australia we have retailers like Gerry Harvey complaining about how Internet Shopping is destroying his business. He isn’t the only one. And on another front we have the American and the Australian governments wanting to prosecute Julian Assange because of wikileaks. The list goes on – but you get the picture.

The common aspect of all these things is the convergence of digitization and telecommunications technologies

Gerry Harvey is concerned with the fact that consumers don’t pay GST when they buy products from online retailers. Unfortunately he is not getting it. Not only is it a lot cheaper in any event to purchase a book online – the consumer experience is normally superior too. And not only is it superior but it is getting better!That is the real differentiator that is going to do damage to Harvey’s company – not just price.

This morning I had an email from Betterbooks.com (who I have bought books from recently) to tell me that they have changed their shipping costs to make their products more competitive. This, from an online seller, who is already one of the best priced book sellers online! Now they tell me that they are costing their postage based on the weight of a book and that as a result of this some of their second-hand books will be less than half of the price of new ones. How can a local bricks and mortar store compete with that?

The whole concept of selling books online started with Amazon, based on access to the long tail of titles. Then it moved to competing on price with stores like Book Depository cutting shipping out of the equation entirely. But it is now moving into being a customer service offering…

When you think about it the wikileaks story is not too different. The unvarnished truth is a commodity that is hard to come by in politics. In the case of wikileaks because there is so much disinformation available online, the opportunity to access branded, and trusted information is of very high value. The thing that the governments of the world failed to do during this saga is to be able to plausibly deny the veracity of the information that wikileaks released, thereby giving credence to the brand! You would have to say that wikileaks is currently one of the most trusted brands in the world.

Wikileaks has a value proposition akin to that of Betterbooks. It is inexpensive, credible, and relevant. How can that be a bad thing?

In this flat world where products can travel inexpensively and easily from one place to another and where in most cases there are very strong price benefits in purchasing online why wouldn’t you?

In a world where everything has become outsourced and commoditized where is the differentiation? Surely it is in the customer service part of the equation?

So where is value and where is demand?

The demand in the near future is going to be for those things that can’t easily be replicated by others.

So what is the most desirable thing to do now? Go on holiday to a place where the souvenirs that you can find in the local market weren’t manufactured in China and were made by the locals. Find a place where crafts still are available…. That is why people want to go on holiday to out-of-the-way untouched places… That is why people want to go to restaurants where the chefs do things that are unique… Digitization leads to a deflationary value spiral. Everything that is able to be easily and cheaply replicated will go down in value. Everything that can’t be easily replicated will go up in value…

 

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