Tuesday, February 03, 2009

Certainty of demand

In a demand and supply economy it is the interaction of both sides of the market that sets the price. Adam Smith's 'invisible hand' working with self-interest to ensure the market serves for all. He wrote about the self-interest of the individual but over time, non human entities were given the legal status of an individual and it has been the corporation i.e. companies that have taken up the self-interest mantel and almost made it their own.

While I find the notion of demand and supply economy a historical definition, lets keep with it for now. A corporation makes the goods and services for the demand side? Right? No demand equals no sales, no sales = no revenue, no revenue no cash to pay for wages, materials, energy costs etc. of creating the goods. There is risk and corporations have felt it right to minimise the risk and thus started extending their reach to the demand side and supported it with large sums of resources, cash to people. It is a straight forward logic, if we are taking on this risk, it would be better to have the probability of customer demand at 100%, or as close as you can get it.

New industries emerged, broadly called marketing and advertising and all support the goal of establishing demand. This involves the demand side receiving information for the corporation, how that is done is a topic all on its own. Let just say, the corporations are prepared to pay cash (to a level that keeps them profitable) to a value that will mean, what they make will be sold. Over time economies of scale, compound to produce larger volumes, goods tend to commodities and prices drop dramatically. The corporation make more profit so has more resources to spend on the demand side and for some aspects of life it would appear to be a complete take over of demand. It is a completely self fulfilling cycle and a triumph of self-interest.

Looking from the supply side for sure, but what about from the demand side? The demand side has benefited greatly, abundance of goods at commodity prices. That is a massive improvement from a pre-industrialized society. But corporation have gone past demand now. The self-interest model has no stop button. If the speed of turnover of goods can increase then supply can increase further, then more sales will result and we are off on another cycle. The demand side does not live life solely out of one corporation. Individual demand may use many corporation but much of life is still lived out with supply e.g. meeting with friends. But have no doubt that the supply side knows of the massive opportunities to get involved in those activities too. This is not surprising as the the supply side, while a legal individual is made up of human individuals. Each living life and it is no surprise their experiences of real life bring ideas and opportunities to their work. Entrepreneurs even have the vision to live a whole life doing this.

The blurring of demand and supply exists, I'd argue their is only demand. What is more, the certainty of demand is always going to be a holy grail chase for the supply side. Why put so much energy into that chase when with certainty of demand of the demand side is known exactly every second of every day? The demand side is far from networked let alone perfectly networked but the build out to achieve that started years ago, just watch as demand self-interest asserts itself to control the whole economy.

Thursday, February 14, 2008

A dividend cheque for consuming

I created a t-shirt on www.zazzle.com about 18 months ago and just before Christmas I received a dividend cheque from zazzle.com, why? Because another individual use my base design to include in the purchase of their item. This is the future of shopping, you create products and get paid. Compare the proposition, you get a personalized product at a lower cost than the mass produced commoditized offering already on the shelf. The incentive motive, the more you create, the more personalized your purchase and the more dividends you will receive. Shopping, but not as we know it.

Monday, July 30, 2007

Creation cycles (supply chains retired)

Demand and supply are the vocabulary of the economics of monetary capitalism. An industrial economic model that is so good (successful) at making stuff a whole industry almost as large has been created to help distribute (sell) the stuff. And that is where the supply chain finished, with a sale, OK some service contract tagged on to monetize a financial service commission.

In the abundance economy, lead by the digitialists, supply chains have not end, (nor beginning) they are all cycles, cycles of information creating new information that turn into the stuff we need. And really need, want, desire, necessities etc. etc.

Creation cycles are the new demand and supply.

Tuesday, July 17, 2007

Organising demand & VRM

The supply side of the economy is well organised. Small businesses to the largest corporations have the ability to deploy employees, technology and capital/money to put together their offering in a supply chain. Massive silos of data surround these activities.

All the supply in the world is meaningless without demand. Demand is not well organised today. An individual, yes can have employess working for them, yes has access to technology, yes can have access to capital/money but all not on the scale of a business. Plus the main point is, from an individuals point of view, you would need to create a corporations capability for multiple industries, food, energy, transport etc. Why, life dictates the need for these services and products every day.

There is an industry that wants to solve this multiple service management issue, they call it VRM, Vendor Relationship Management.

Within the VRM framework there will be the need to provide not only this multiple vendor management interface (why would you want a different 'flavour of tool' for every service/product you need to manage?) but also tools that allow individuals to build/find/share information with other individuals i.e. social networks.

Social networks within VRM will look and feel like existing social networks but I don't foresee a world that you belong to a myspace or facebook or flickr sized for all the activities within VRM but you could if you needed to.

This organising of demand is just starting. We can look to the supply side to see what can be done. Demand will become as well organised as the supply side and I don't think it will take centuries to get there.

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In the end of the day, individuals finance all business, so why do we not get a say in these important contract document of exchange?

Friday, June 29, 2007

capitial all becomes flow

In economics we talk about stocks and flows. No more so in terms of describing capital. Capital in the economic sense of providing the capacity to create goods and services. No more so is capital the life blood than in the worlds financial markets. I have listened to the Chairman of the Federal Reserve in USA talk about 'how efficient' the market is at allocating capital. Meaning, switching cash resources from e.g. energy into healthcare or selling Microsoft stock to invest in a venture capital fund etc. etc.

I am not sure I share is 'efficient' claims. Two fold reseaons. Only a minority of the worlds capital is directly traded on the words financial markets. Secondly, any market which requires a stock of capital has huge efficiencies to be gained. Ideally, we want a market with nil capital stock.

We still need capital, just that the capital will be 100% flow. This is what the financial markets want to achieve in theory but I don't believe they have the information flows or property laws or incentive systems to come anywhere close to realising this. A world of 100% flow of capital requires no financial markets. No need for third parties to make capital allocation choices, usually on aggregate for others, no need to incur a needless transaction cost on moving the capital and no speculative flows.

It's not that these processes won't continue to exist. They will it is just that the individuals directly impacting the flow of capital will be participating. It will be too costly to outsource these activities.

To be thought about: the transistion to 100% flow of capital, how financial markets will evolve and then disappear.

Tuesday, June 26, 2007

life transactions

Life transactions, today we talk about monetary transactions. Money has been successful as a currency. A currency allows for an exchange of different commodities, services or even money itself. Acts as a store of wealth and all because society has created/found a way to trust the record keeping associated with money. Such a task that it accounts for twenty odd percent of the market capitalisation of major stock market indexes but even more impressively is bound into every transaction in our recorded economy every second of every day, of every year, year in year out. Such an impressive situation you would find it hard to believe it being so pre its implementation.

Capitalism forces are now ready to expand its ambitions for its currency. Money transactions summaries a much wider set of events. The cost of wrapping those in a monetary transaction are too high. In fact, I read that half the GDP of the world is accounted for by transaction costs. (I have no evidence to support this). There is a transaction framework that has more or less put those costs to zero. The framework, the Internet.

The cost of authoring or publishing information is near zero. For those transaction formed online then we have a new currency able to capture all events that are meaningful in the creation of a monetary transaction. This currency exist today and as time passes more and more of all monetary transaction processes are being authored to the Web. It is just a matter of time before society migrates to this new currency framework.

Society will be comfortable in it the way, we are with money and banking services today. However, life transaction will improve the incentive systems of capitalism. In monetary transaction the legal frame work governing the transaction is the mechanism to create trust. However, this does not lead to a transaction doing the right thing or allocationg resources best, most efficiently or even fairly. Life transaction authored online will have incentives to rewards transactors that deliver the outcomes sought be each party. Life transaction will be complete when what needs to be done is done. This does not need to be the case with a monetary transaction, this disconnect being money Achilles heel.

Capitalism will always need a currency, that name and purpose will change, as society evolves. Timing these evolutions is never easy but from what I see happening in the world, a new currency is in the making.

Friday, June 01, 2007

Creation chains (demand and supply retire)

1991-1995 I studied economics at The University of Aberdeen. If you had said to me then, that in little over 10 years years time, we would start to question and then retire demand and supply curves from the teaching of economics, I probably won't have believed you.

It is clear that this is what the next stage of capitalism will demand. The Internet has given capitalism a new currency to expand its reach with, information. This bottoms up approach to capitalism focuses on creating an economy that focuses on sustaining life. The mechanism it will choose to 'allocate' resources will be creation chains. JIT time applied to the future. Monetary capitalism biased itself towards supply chains, where JIT of that supply chain being the holy grail.

Economies of scale, was a friend of supply chains. In creation chains they will increase costs.

The division of labour led to specialisation, but due to primitive communications those conversation became, in effect talking to yourself. Collaboration will allow all to communicate with all required in creation chains.

Commodity market, created monetary markets, that created derivatives of both to try and model the real word is saw. The Internet sees all that happen when people author to the internet. Money has a competition, its the incumbent but sure to be replaces in time.