Sales happen at the moment when a buyer and seller agree on a price. When customers pay less than they would have, we call it consumer surplus. If you’re the type of person who speaks at shareholder meetings, consumer surplus is a bad thing.
Companies deal with consumer surplus by calibrating their product offerings to match different customer segments. Sometimes the variable pricing is actually a result of variable costs. More often than not, variable cost is just a concept that salesmen will use to rationalize their power grab for every last dollar of consumer surplus. In the auto industry they like to call this ‘optional equipment’. It’s almost universally true, as the price goes up, so too does the margin.
On the opposite side of consumer surplus is producer surplus, which is incremental revenue above the minimum acceptable price. I like producer surplus. It’s what pays for all those nice shiny things I enjoy having around the house.
It’s highly unlikely for a seller’s minimum price to exactly equal the buyer’s maximum price. That means, in the majority of sales, there’s an element of surplus on both sides of the transaction. Enter the broker, the payment processor, the middle man, those surplus-sucking vampires of inefficiency and sloth.
They go by names like Groupon, PayPal, eBay, and AdWords. They use bright colors and cheerful messages to lure you into their cushy walled gardens. They fill your inboxes, and notification trays, search results, and Facebook streams with coded noise that somehow elicits a buy response from your neural pathways. All your surplus are belong to us.
Why do we put up with these marginal services, which feed like parasites on the engine of internet commerce? When will the unstoppable force of a free market economy crush them like so many flies?
Marc Andreessen (coincidentally, an investor in Groupon) says that “software is eating the world.” Well it’s a dog eat dog world out there Marc, and I’m here to put those surplus sucking profit margins on notice.
For those of us who aspire to create this new wave of software; we have nothing to lose and everything to gain. It’s only getting cheaper and easier to write the software, and offer the services, which give companies the ability to reach and convert new customers more efficiently and effectively than these vampires ever will.
At the heart of every startup is a rebel and a dreamer, fed up with the status quo, filled with a vision of the future, and standing ready to disrupt an industry by changing the rules of the game. Game on.