Wednesday, November 05, 2014

Middleman Economy

Article by Kristen Brown in SF Chronicle.  She was kind to let me think out loud a bit, but the story is generally well done.  She came up with some pretty cool insights...

Kozmo, the dot-com era darling that promised one-hour delivery of everything from DVDs to Starbucks coffee, famously went bust after raising $250 million in funding, expanding to 11 cities and filing for an IPO. 

But technology introduced since then, such as smartphones with GPS, has made the prospect of on-demand delivery much more simple — and therefore with more opportunity for profit. “As transactions costs shrink, more and more transactions become 'profitable,’” said Munger. “And there are more and more ways to 'sell’ reduced transactions costs.” 

Companies like Instacart and Curbside, then, are not so much “disruptive” as they are part of a natural evolution of a market economy. Munger imagines that this kind of logic will continue “way down the chain,” with profitable companies emerging that perform even more niche tasks than picking up an order from Target and delivering it to the store’s curbside. 

"A power drill only gets used 10 minutes in its life, for most people,” he said. He can see a day when Uber will carry more than just people. “I don’t need to buy a power drill, I can get one on Uber. Value of the transaction: maybe only $3. But if we can reduce transactions costs enough, that transaction comes in as a money-maker.” The idea that we might not physically visit the grocery store or own the drill is what Munger says could create such a huge shakeup in the economy.

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