A Dollar for Ninety Cents
Copyright (c) 2000 Wade Walker
People aren't stupid.
Okay, I'm lying. People are amazingly fucking stupid, so much so that it exceeds even my capacity for gratuitous belittlement and cruelty. But at least in their capacity as consumers, their elevators get a little closer to the top floor, even if they're still not getting off at the penthouse.
Sure, lots of people make purchases of questionable rationality, like Beanie Babies brand cock rings and Red Hat Linux. But even though you may not agree with their purchasing decisions, the fact remains that these chumps bought exactly what they wanted, right? And if they don't make completely informed buying decisions about every single product they purchase - if they don't check the Consumer Reports web site and notice that those cock rings don't come in size extra-small, say - it's because they've decided, consciously or unconsciously, that the effort of becoming more informed isn't worth whatever they stand to gain by doing their homework. It's not stupidity, it's a choice.
Plenty of people these days are exercising their choice by buying products from online retailers like Amazon.com. Naturally, the founders and funders of Amazon are using this as evidence that their business is a great one for them to be in. And with total losses last year of $390 million they need all the evidence they can get. But they're interpreting it ass-backwards.
Say that the pre-Internet economic model of producers, middlemen, and consumers is represented by a tuna salad sandwich on a toasted poppy seed bun, for reasons which will shortly become apparent. The stalwart producers of actual shit that people want to buy are the unglamorous, slightly soggy bottom bun. The consumers are the fluffy top bun, studded with drug-test-failure-inducing seeds of the demon plant. And the retailers and other middlemen are all that chunky stuff in the middle.
In times past, being the chunky stuff was pretty fucking sweet. You didn't have to actually make anything, you just bought it from some chump who did all that hard shit for you. And since consumers had to actually drag their lazy asses into your store to find out most of your prices, it was usually more trouble that it was worth for them to shop around and try to find the best deal, meaning that you could ass-rape them, economically speaking, without most of them even knowing. The middle of the sandwich was mighty fat and saucy, the economic equivalent of tuna salad made with chunks of rare ahi steak, real mayonnaise, butter, and blue cheese.
Now, though, any ass-monkey can get on the Internet and, in just a few frantic seconds of left-handed clicking, see what the top ten retailers of that bust-a-mad-chubby Sony 18" flat-panel display are selling it for, including tax and shipping. Consumers not being stupid, they normally pick one of the cheapest, as cheap as they can go and still be reasonably sure they'll eventually see that Sony on their desk rather than in the hands of a clever hacker somewhere in eastern Moldova.
Online retailers know this, so they set their prices extremely low. Crazy muthafuckin low. Low enough where lots of times, after you take all the Internet coupons and shit into account, they're selling it for less than they bought it for, which would be a big problem for a normal business. Their genius-like solution to this problem is to raise huge amounts of funding from venture capitalists or the bond market and give each of their customers a little bit of it with every purchase, like a little present from them to you. Lots of these guys are really just money hoses, gradually transferring their investors' cash into the consumers' pockets.
I can imagine the slick-talking founder of one of these companies elevator-pitching this idea to the VC. "Sure, we're going to bleed Benjamins from now until who the hell knows when. But if we hang in there, I mean really fucking hang in there, and lose more money than anyone else can possibly afford to lose, be the best goddamn money-losers this world has ever seen, then we can drive all our competitors out of business. Then we raise our prices enough to make the mad profits and pow, we're the dominant player in the market. All we need is several hundred million dollars of your money."
The only problem with this idea is, it's completely fucking wrong. The Internet cat's already out of the bag, baby, and he just jumped up on the kitchen counter and rolled over on his back, paws flailing in agony, to allow the alien chestburster to rip its way out through his ribcage, pop the top bun off your sandwich and snarf up everything inside. Now all you've got left is a dead cat, a countertop covered with alien goo, and two buns stuck together by a greasy smear of mayonnaise. And you, my dear retailers, are the greasy smear.
The future of all sorts of middlemen on the Internet is to end up as a microscopically thin layer between the people who make shit and the people who buy it. The sooner you accept that, the sooner the investors can go off and waste their money on the next idiotic idea, like starting a company that lets people sell the unused space in their refrigerators over the Web.
"But what about the zillions of customers who are buying from us every day?" cry the online retailers. "They'd never abandon us. We've spent millions on clever Superbowl commercials featuring corduroy-wearing slackers and hand puppets to build brand loyalty. They love us!"
Sorry, but hell no. Is it really so surprising that if your entire business model consists of selling dollar bills for ninety cents each, customers think you're the greatest fucking thing since hot Asian lesbian schoolgirl sex? The really surprising thing would be if any of them stuck around after you raised your prices enough to start recouping all that mad cream you spent suckering them in. They're stupid, but not that stupid. They're going to instantly switch their business to the next guy, who's still charging below-market prices. Then once the gravy train really goes off the tracks and none of these companies can get investors or credit any more, the customers will choose the one who's charging just barely enough to scrape by, because the Internet makes that so easy.
I'm not trying to say that no one will ever make any money in Internet retailing. Investment banks who take companies like this public have already made a shitload. Some of the founders can make out pretty well too, if their stock price doesn't tank before they're allowed to start unloading it. Tons of customers get perfectly good merchandise at below-cost prices. But all this amounts to is a massive transfer of money from the stupid to the not-quite-so-stupid. It's said that a fool and his money are soon parted. I just wish they'd hurry the fuck up so I don't have to watch.
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