The effect of the Internet on Prices

One of the more neat aspects of the Internet is its impact on prices.

Before the Internet, researching the best price for something was relatively hard. Or, I imagine it to have been hard. The price you got for a consumable, like a car, a house, an airline ticket or hotel room largely depended on who you knew or how many people you called and asked.

One of the impacts of the Internet has been relative deflation in prices as a result of the ability of customers to compare prices easily. This decrease in the cost of becoming un-ignorant has eaten directly into the margin. I don’t think I can argue that the barriers of entry have been significantly lowered as a result of the Internet: a hotel still requires capital to build rooms, and an airline still requires airplanes and people to fly. But I can see that certain barriers have come down. It’s possible for certain companies to compete entirely on price and cost-efficiency models. Customer service is increasingly becoming a relevant differentiator too. Refreshingly.

You also have a whole bunch of aggregator companies these days too who derive their income by making the cost of research to consumer (in terms of time, effort, and ease) come down as well. In way, this represents a refreshing triumph of ingenuity and innovation: how revenue management analytics, web analytics, creative, information architecture, and strategic IT can come together to create revenue streams that didn’t exist before.

We could see still more deflation on the margins. I’m more interested to see how companies discover new values that “consumers didn’t know they would want to pay for”.