What do you make of this whole high frequency trading scandal?
Personally, I am not surprised. At every turn, we’re seeing more and more businesses using speed (in almost unimaginable ways) to make more money. This past week, 60 Minutes ran a feature interview with Michael Lewis (famed author of Liar’s Poker, Moneyball and many more) on his latest book, Flash Boys. The book tells the tale of how technologists and financial analysts have built computer algorithms and hardware to help game the stock market. Without getting into the intricacies of it, these technologies are analyzing the movement of stocks and then jumping the queue to either buy stock at a lesser cost or run the numbers up post-purchase. They do this by optimizing the speed with which a purchase is delivered to the actual stock exchange (they understand the tubes of the Internet and making sure that they get to the stock first). It’s nuanced. It’s happening within fractions of a second, and these systems don’t hold on to the stock to see how the management team performs in Q2. They’re simply buying and trading stocks based on a computer system with rapid speeds. The types of purchasing and analysis that humans could never do. Ironically, this could be one of the best, biggest and most profound case studies of big data and business. Currently, the FBI is investigating these firms to figure out if anything illegal is happening.
All is fair in love and war and money and speed.
This isn’t about slowing down the pace of change. This isn’t about slowing down the speed with which technology changes our society. It is going to continue, and we will continue to be amazed at just how inventive the human mind can be. With that, brands have to understand the implications. Years ago, the concept of high frequency trading was introduced to me and it became quite obvious that this type of technology is already being used on consumers, as we speak. How much does a copy of CTRL ALT Delete (my second business book) cost at Amazon? The truth is that I have no idea. Some days, there is a significant discount, other days it is closer to the full retail price. The sale price of it has fluctuated so much since it came out towards the end of last year, that when people ask me how much the book is, my response is: "Whatever Amazon says it is at this moment." With that, Amazon will also bundle it with other books to lower the price, so it’s even more confusing.
How can anyone price products like this?
It’s an impressive model that must work much in the same way that high frequency trading technology works. Amazon is probably studying a myriad of disparate data sets from personal usage, to demographics and psychographics to their own behavioral algorithms to see what makes someone click the buy button. The truth is that the average consumer on Amazon probably never knows what the initial price was, and how it has changed over the course of time. This is what digital does that makes the future of retailing so fascinating. In a world where there are no physical shelves, endcaps and stickers, the price of products (and even services) can fluctuate as much as a stock price and consumers will be none the wiser.
The pin that pops showrooming.
What if every product on the shelves at physical retailers had no prices on them, but just a barcode (or a digital price tag)? What would retail look like? You could scan a product and it could suddenly adjust to the right price, because it would know what all of their competitors were charging online at that, specific, time. Smartphones meet smart pricing. No work for the consumer. No feeling like you could have paid less had you gone somewhere else. Competition becomes fierce and suddenly the technology running retail looks more like high frequency trading systems that are customized than anything else. It also means that within a fraction of minutes (or seconds), I could be paying more (or less) than you. Is that fair?
It has to be about more than price.
You could love your investment advisor as much as you want, but if they’re not helping to make your money work for you, odds are that you would switch to a computer-based platform, even though it doesn’t dress as nice or pick up the lunch tab around holiday season. Beyond that, consumers want to be attached, connected and cared for when it comes to some of their goods and services. While they don’t necessarily need to be all the that engaged with their toilet paper company, they may want some kind of connection and loyalty from their supermarket. What we’re seeing – in this world of speed and technology – is that the underlying service, value add and help is becoming an ever-increasing unique selling proposition. The truth is, you can get most things for a little (or a lot) cheaper, if you’re willing to hunt for it and wait for it (plus there are consumer reviews to help you make a more informed decision). As technology removes the friction from that process (which several companies are working on), we’re going to see an entirely new definition of consumers and loyalty come to fruition. While there may not be any immediate need for a brand to react to all of this Flash Boys news, it is something to prepare for. The lesson is clear:
The speed of technology is something we are never prepared for, and most brands find themselves asking what happened instead of planning for the inevitable.