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Choice and Price are Just Data

Posted By Barry Ritholtz On April 26, 2004 @ 12:19 am In Finance,Web/Tech | Comments Disabled

nytimes.bmp [1]

Virginia Postrel [1] buys into MIT Professor Brynjolfsson [2]‘s somewhat false dichotomy of the issue of Variety vs. Price on the internet:

“When I first started doing work on how the Internet is affecting commerce, like a lot of people, I was really excited by this nearly perfect market,” said Erik Brynjolfsson of the Sloan School of Management at Massachusetts Institute of Technology.

His early research found that prices on the Internet were 6 percent to 16 percent lower than prices off-line. But when he thought about how people actually shop online, and what they find valuable, he realized that low prices are not the big story. Selection is. The Internet offers variety that is simply impossible in traditional stores.

I have to take issue with Brynjolfsson’s somewhat false dichotomy of Variety vs. Price [3]. Its not an either/or choice; You get to do both very, very easily on-line. The more cogent issues — and more interesting challenges — arise when we look at on-line versus off-line shopping.

At the risk of oversimplifying this interconnected ‘net thingie, its all about the data: On line shopping is all price, selection, product information, relative comparisons, opinions/reviews, etc. — all a click or two away. These are simply data points which merely reflect the internet as a massively relational data base. (Google just adds another interleaved layer underneath it all).

Price and/or variety are just different aspects of the same unifying thread: More information about consumer items. Business purchases also, for that matter. (Just ’cause the B2B stocks cratered doesn’t mean that B2B itself isnt alive and well.)

Compare the information-based shopping experience in the virtual world with the real world: Shop in a physical store, the experience is tactile. You can touch, smell and feel the items you are considering buying. You are also out in public, often socially engaged.

Price comparison shopping in stores is a time consuming chore. So depending upon where you shop — discounters, upscale mall, specialty stores, etc. — price may be more or less important to you. Inf act, where you do your shopping is largely determined by where in your hierarchy of values you place “Price.” The “shopping experience” is a variable part of what you are paying for in your purchase price.

Indeed, “sport shopping” (as my wife and her sister label it) is less about retail acquisition and more a form of modern consumer entertainment.

Online shopping, on the other hand, can be far more of a cerebral experience. Most of what shoppers do on line is data processing: It’s primarily about searching, finding, sorting and digesting data. Once the right data points are located and processed, a transaction can occur. Compared with the more social store experience, it is a much more solitary, geekier event.

Data knows no geographical boundaries, where physical shopping does. Its broader, more global. Where Postrel is correct is in the observation that there is a value in choice: “The Internet offers variety that is simply impossible in traditional stores.” That’s true, we all have access to stuff that simply wouldn’t be feasible otherwise. On line, I buy BBQ sauce from Syracuse [4], I order shaving cream from Portugal [5], I get t shirts designed in Canada [6], I buy bath bombs from London [7], hot sauce from Vermont [8], Coffee from Greenwich Village [9].

Variety and price are each different aspects of that thing called information. Whether you want to find it cheaper or look for a greater variety is really quite irrelevant . . . What we do on line is pursue specific data about that certain something — a purchase, a song, a factoid — which we desire.

Indeed, as I sit in my home just outside of NYC writing this, I am listening to a streaming broadcast of Bob Harris [10] on BBC 6 Music [11]. His Sunday afternoon program is awesome. Its another example of data coming to me through a fat pipe, providing what couldn’t be done (at least not practically) prior to widespread internet adoption.

Look, I don’t want the job of fisking [12] everything that comes off of Virginia Postrel’s keyboard. Her prose is usually interesting and some of her ideas thought provoking — even if she is often wrong. In the present article, she is (mostly) reporting on MIT Prof Brynjolfsson’s research.

Where Brynjolfsson, and for that matter, Postrel seem to turn wrong is in not recognizing that Variety and Price are different aspects of the same easily accessible thing on the internet: Data.

Source:
Choice Trumps Price on the Internet [1]
Virginia Postrel
New York Times, April 22, 2004

http://www.nytimes.com/2004/04/22/business/22scene.html


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URL to article: http://www.ritholtz.com/blog/2004/04/choice-and-price-are-just-data/

URLs in this post:

[1] Image: http://www.nytimes.com/2004/04/22/business/22scene.html?ex=1398052800&en=714e85a1bea27f35&ei=5007&partner=USERLAND

[2] MIT Professor Brynjolfsson: http://ebusiness.mit.edu/erik/

[3] Variety vs. Price: http://ebusiness.mit.edu/erik/WorkingPapers/ConsumerSurplus.pdf?abstract_id=400940

[4] Syracuse: http://www.dinosaurbarbque.com/

[5] Portugal: https://ssl1.northfork.net/SSLH/BCSecure/cfm_files/shaving.cfm

[6] Canada: http://www.geekculture.com/geekculturestore/webstore/tubesrock.html

[7] London: http://www.lush.co.uk/system/index.html

[8] Vermont: http://www.davesgourmet.com/insauces.html

[9] Greenwich Village: http://www.portorico.com/index.html

[10] Bob Harris: http://www.bbc.co.uk/radio/aod/6music_aod.shtml?6bob

[11] BBC 6 Music: http://www.bbc.co.uk/6music/

[12] fisking: http://bigpicture.typepad.com/comments/2004/02/saved_by_manicu.html

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