Wednesday, October 17, 2007

Deflationary Abundance

I wrote an article for the BHB and discussed the four stages of any viable technology. I also posed the question as to its relevancy with real estate and the Redfin model. Here's the quote:

Stage One: Critical Price

The price of any new technology is stratospheric at first (the first DVD player was priced over $1,200 at first). Then, as the production increases and the acceptance from consumers takes hold, the price begins to decline to a “critical price” that opens the “flood gates” of demand. This critical price coincides with the efficiencies in production to meet the spike in demand for the product.

Stage Two: Critical Mass

The product was initially very costly to produce, but the increased demand has driven the production costs down to take advantage of economies of scale. The “critical mass” coincides with more efficient production avenues that help drive market share for the product.

Stage Three: Displacement

The product was originally conceived as an alternative to something else (something else that was too costly, too inefficient, too cumbersome, etc.) and that something else is losing market share to the new technology (product). The loss in market share will reach a point where the new product will “displace” the older, inefficient product in the minds (and hearts) of the consumer (i.e.: the DVD vs. the VHS).

Stage Four: Deflationary abundance

The product has displaced an older, inefficient product and its appeal has become ubiquitous throughout the market. The final stage of this “new” technology (product) is its mass appeal and the availability of cheap, mass production. The availability of the product will cause “deflationary abundance” and our $1,200 DVD player is now essentially a throw-away from WalMart @ $69.99.

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