July 9, 2017

Two weeks ago I looked at a long term trend of consolidation and concentration. Technology companies now dominate the top spots in the SP500, the number of retail outlets is shrinking, the number of banks is dwindling, and the population itself is concentrating in urban areas. This week, I’ll look at a companion trend – categorization.

The essential business model of some leading technology companies is the selling of advertising to us and the selling of us – our interests and choices – to other companies. We are the consumers and the products. We are the components of the business models of companies like Facebook (FB) and Google.

A business model is a plan to provide and capture value. FB and Google provide value by connecting us to each other and to a vast trove of information, most of which we ourselves provide. FB and Google capture value by selling us. To sell us, the unique composite of all of our choices must be packaged into algorithmic categories.

We consume information and we are information. We are part of the network of information. When I travel, Google Maps tells me where I am and how to get where I want to go. Where is a grocery or sporting goods store along the way? Google knows. Within hours, Google has sold that information to companies who offer me deals on hotels and restaurants. I am part of the network.

Listen to a forty year old song from Pink Floyd, Welcome to the Machine. It is a cynical vision of being absorbed into the dream machine of the entertainment industry. This is a brave new world of information – and maybe some disinformation and some anger and scams and sexploitation but I want to focus on the positive.

As I drive to work or the store, I give a wave to the mobile purchasing unit in the car next to me. Hi, neighbor! I don’t mind that my entertainment, dining and transportation choices are for sale. I do mind that my political and religious beliefs are packaged and sold like commodities. That is the price that I pay for being in the information club.

Talking about travel….annualized sales of autos and light trucks has fallen below 17 million for several months now. On a per capita basis, sales never reached the levels of past economic recoveries. We are buying about 5 cars for each 100 people, and that is less than the 5.8 cars we have bought in previous periods of economic strength. The auto industry would have to sell almost 19 million cars and light trucks each year to meet those per capita levels.

I heard someone remark that cars are becoming like appliances. As I drive down the highway, I see that there are only a few body styles. Engineers have gradually perfected those designs that minimize wind resistance in order to increase gas mileage enough to meet EPA requirements. I drove next to a Ford Fairlane 500, a boat of a car from the era when car designers and advertising guys – always guys – teamed up and let their creative juices flow. Those were the days when a car was a signature. Now I drive down the highway in a category of vehicle. Hey, ma, look at me!

In order to sell me stuff, Google and FB need my attention. Unfortunately, I must devote a lot of my attention to driving. As a mobile purchasing unit, this is an unproductive use of my attention. A self-driving car will be the final step in the appliancification of the automobile. “Google, when will I arrive at work?” “In approximately 8 minutes.” Beam me up, Scotty.

Over a million people in the U.S. die in automobile accidents each year, and approximately 10% of the entire population are injured in a year. The major car companies have committed to having a driverless car by 2020 or soon after. The cost to add driverless capabilities is only a few thousand dollars. Some research companies are predicting (Motley Fool article) a gradual transition to driverless cars with 10% being fully autonomous in 15 years.

I think that the changeover will happen more quickly because Google and FB need my attention. Thousands of vendors want the dollars in my pocket to join the network. For the next 10 minutes only I can get a deal on a fresh pastry and a coffee at the Starbucks just down the street. Say or press “Yes” to accept this deal and my car will drive itself into the Starbucks’ drive-up lane.  Would I like to order ahead?  The car can do that for me. Well, sure.  Hey, I like this new world.

I wrote about consolidation and concentration a few weeks ago. Soon to come will be an integration to package us as mobile purchasing units. A big technology company could partner with or absorb a finance company to help me buy a driverless car in order to market to me. Google could subsidize a better interest rate on my auto loan or lease as a cost of packaging my choices to other vendors. I hear the sound of dollar bills stirring in my pocket. They want to be part of the network as well.

Next week, the stream and the pool…