While I understand the author's point comparing a wave of groupon-only customers as a swarm of locusts moving from deal to deal, I don't agree with lumping AirBNB in there. If a business is offering a groupon at a loss on the hope of spurring future customers, the deal-hunters can act like locusts by breaking that hope, causing a net loss of value.
AirBNB, by contrast, is creating new supply, and that supply is in turn only being sold to AirBNB users. As an AirBNB host, it would be very good for me if I was constantly full of people making one day stays and then disappearing forever.
Similarly, if the businesses offering groupons were still profiting from them at the margins even without assumptions of repeat business, then these "locusts" wouldn't be taking value away either.
OTOH, AirBNB in this mode might be a response to those permit, regulatory, or customer service issues becoming too bothersome and routing around them like a broken wire.
Hotels are a 'meh'-style business.
They are either expensive or shabby. And they don't match modern lifestyle that much.
Hotels are lame.
Why should one back hotels' profits?
That's a wide mischaracterization. There's a very continuous spectrum from eight room highway roach motels to $8,000+/night vegas penthouse suites. It's not either dirt or gold. Most middle-ground hotels end up being okay (Best Western, La Quinta, Holiday Inn, Red Roof Inn: http://www.theonion.com/articles/red-roof-inn-announces-new-... ).
Why should one back SF over-indulgent startupwankers' profits by participating in their closed marketplace (instead of paying for a service employing local workers who are happy to have a job to support their family/drug habit/whatnot)?
Most hotels are an expensive overkill when you want to get somewhere fast and for cheap, do some sighseeing/do some job/visit some event and leave. That's the modern lifestyle: fast, cheap, in bulk yet personalized. Why have one long and expensive trip in a year when you can have five short inexpensive ones?
They are also misguided: I don't need somebody to sneak into my room each day in order to "clean" it (I'm staying three days, is's not that I produce much dirt during stay) but I would appreciate having a small kitchen and a fridge (not minibar, those are like the stupidest thing ever).
Well, AirBNB supports your local populace directly by letting them rent out their propety to support their family/drug habit/whatnot.
That's the operative thought. I'd rather support Rosaria The Housekeeper and Brent The High School Junior Front Desk Clerk helping at a hotel rather than have everything go to Overextended Hipster Douche who bought more apartment than he can afford and now rents it out to cover his high lifestyle (plus, as we've teased out, the Overlay Country of AirBnB fee/taxes go back to a single company for stays all over the world. Convert your thinking into scorn for exploitative capture, not praise for "omg amazeballs sky high rocket local social mobile viral growth!").
At least we agree sneaky daily room cleaning is bizarre and completely unnecessary.
(and this is hilarious: Why have one long and expensive trip in a year when you can have five short inexpensive ones? -- have you seen my profile?)
I would choose supporting Hipster over Rosaria The Housekeeper every time.
Rosaria The Housekeeper consistently votes for scary people every time who then do abominable things. I'll surely try to starve The Housekeeper demographics for cash every time I can.
Or she is an illegal immigrant whose job I do not want to help create.
Overextended Hipster Douche is my Class friend, of course I'll back him.
WRT taxes, it's job of the state to regulate and tax markets. Why don't they do that? Regulate != destroy if they wonder.
P. S. Your travel log is impressive but makes you not representative of general trends. That is, casual travel.
I believe his point about 'meh' style business is that there is a wide range of prices, but that hotels are largely similar at every given price range. They lack real differentiation that might make any of them particularly compelling for a particular type of consumer at a given price level (hence don't match modern lifestyle).
Yes. Color me skeptical. Groupon seems like a mediocre idea in practice (certainly not worth its original market cap) but for the others? We have these services which reduce transaction costs and barriers to entry into the marketplace. Those are the textbook preconditions of an efficient market. These service help deploy capital more efficiently... and then people take advantage of that, instead of lavishing their money on the ever-so-noble "9% / Jeffersonian middle class", and we're going to say that they have the morality of locusts?
Gee, I really like comparing people to insects, because insects have no brains, then I can pretend that I know better than everyone else out there how their money ought to be spent for their own good! Which I guess involves spending extra to support unnecessary capital investments, like hotel-oriented real estate (AirBnB) or cars or what-have-you?
"To the extent that your belongings are a logical expression of your genes and memes sharing them amounts to allowing others to eat them." WHOA DUDE!!! Renting out my house is like HAVING SOMEONE EAT MY SOUL??!? Give me a break. I won't even get into the rest of the tendentious assumptions; that one's enough.
Insects have brains more importantly groups of insects can have highly complex behaviors.
Also, AirBNB feeds off of the community at large by avoiding paying taxes. Consider, hotel taxes are often used to pay for the reason people want to visit in the first place ex: convention hall. That's not to say longer stays have the same issues just part of there profitability comes from people avoiding hotel regulations.
Hotel taxes are almost universally applied because it's one of the only ways for local governments to raise revenue without taxing their own residents. This is not something to laud and praise.
how their money ought to be spent for their own good!
It's not for their own good. It's for the greater good.
I fear for the world if everybody starts modeling their world view based on SF-visionary "me me me only me me me no taxes ever me me me" attitudes espoused around here.
As Retric mentioned, all of this airbnb money transfer is completely cheating local taxes. You pay airbnb fee tax instead of local travel taxes, thereby turning airbnb into some sort of defacto municipal overlay around the entire world.
In the absence of externalities, their own good is the greater good. AirBnB's neighbors are the only ones I know of with a decent case for that (and in multi-tenant buildings, at least, there are surely some provisions for resolving such conflicts already...)
Thanks, if it wasn't for your comment I wouldn't have subscribed. On Feedly [0] he only has 2k subscribers. If anyone knows similar blogs like this, I'll like to know where I can find them. There really needs to be a Discovr [1] Blogs. It would be just as great if they get pinged and they say they're working on it :-). Currently I'm subscribed to H+ [2] and Singularity Hub [3]. I made a Reddit post asking the same question recently. [4]
I do not completely agree with the usage of the term, as Locust economies are economies like in China. When they do not have enough resources of themselves, they will swarm and find these abroad and cause lots of issues. For example with the needed infant formula (milk powder, esp after the milk problems in China with melanine) they will swarm to foreign countries and buy these in massive amounts and cause shortages in the country of origin. This even concerns building materials (steel), energy resources (oil), etc etc.
The milk powder issue for example happened in the Netherlands and in many other countries; partly caused by producers not knowing how to deal with this, but also by people within the country shipping large amounts (seen as smuggling), selling on Taobao.com. Just google for "Dutch milk powder China". This is just one of the examples... There are now even export restrictions between Hong Kong and China for the amount of cans you can take across the border. Just look at some of the pictures on http://badcanto.wordpress.com/2012/07/08/hong-kong-netizens-... related to this.
Note: relating to the article I believe the vision is narrow since it only talks about Groupon... Also, his point is not a survival means as the grasshopper/locust metaphor would indicate.
The more interesting story there is the sort of corruption which allows for a) government-controlled/connected baby formula plant to get away with selling poison while b) being sufficiently protected by import regulations and government interference such that black market importation of baby formula one box at a time is cheaper than Johnson and Johnson hitting them with a container ship full of the stuff to take advantage of the market opportunity.
Government-control kicked in now and they demand 'cheaper' milk powder as the prices had actually been kept unnaturally high due to cartel. Prices have been lowered, Netherlands have been asked to open factories in China (or do quality checks). It is now cheaper, but I still import my Nutrilon from back home to feed my baby-child; cheaper and more trustworthy. Because even the package says Dumex and looks same as in the Netherlands, it is local milk and I am not so sure about the 'real or fake' question.
Take the term "locust" (and Venkatesh's writing style in general) with a grain of salt.
Long-time Ribbon Farm readers know that he tends to declare "local variables" with his terminology, pegging down certain metaphors for the purposes a specific discussion. That need not collide with or invalidate other uses of the same word or idea.
When someone uses a specific, pejorative, widely associated with disaster (plague of Biblical scale, no less) word for a "local variable" he's being intellectually dishonest, or manipulative, or both. One generally can't just read a word locust and think "harmless", "cute", "needed" and such as a first thought - and that's exactly what this rhetoric aims for. That's the reason why I won't read the article. It's perfectly possible to use neutral language for presenting a point convincingly; I can't be bothered to read authors that didn't even try to do so.
[shrug] It's a different writing style, is all. If you read Venkatesh's other essays, you come away with the impression that he would wear the label "manipulative" on his sleeve. All speech or writing is manipulative, and to pretend otherwise is intellectually dishonest. :)
The comments here, as usual :) It's a habit of mine to read through all the comments before reading the linked article to decide whether it's worth reading.
If you think that my conclusion is wrong and you can quote a bit of the article to back it up then that's good, too!
With regard to the word "locust" being used pejoratively, I think that's a bit off the mark. Fairly close to the top of the essay, the author says "I've used (and continue to use) these services and don't feel entirely terrible about having done so [...] Why? It's because, like most of the working class, I've developed a locust morality."
I'm not sure if this invalidates your conclusion, but hopefully shed a slightly different light on things.
Personally, I'm not greatly taken with this particular essay. My favourite essay on that site is from a few years back: "Strategy, Tactics, Operations and Doctrine: A decision language tutorial" (http://www.ribbonfarm.com/2007/09/24/strategy-tactics/) He makes a rather telling remark about his primary interest being in doctrine. This might explain some of his modus operandi: I suspect he devices theories and makes analogies more to see how they will turn out than because he believes them.
See that's the 1% vampire behaviour. Relying on HN readers to comment on an article before deciding to read it. So those of us who read the article would be the 90%. Aha who's the 9% then, mods?
The 9% would be the bloggers - in particular those that left 'real jobs' to become part of the new wave of commentators.
Yes, they can produce huge volumes of readers when they get an HN hit, but once they've thoroughly exhausted the pent-up ideas that had been percolating for the previous decade, they realize that the only way to sustain themselves is to become increasingly sensationalist (since it's almost impossible to have earth-shattering ideas on a strictly weekly basis).
Look guys, this author just falls in love with his own analogies and leaves reality far behind. The Jefersonian Middle Class (as he calls them) isn't made up of a bunch of Groupon-client failures. They don't survive on business that has been aggregated by swarming platforms like Groupon and Living Social. Small businesses are built on relationships, consistent delivery of value, and return customers. The author seems to understand that there are business that don't give a shit about Groupon ... but I can't understand we he treats them like rare special birds. I don't know who he is, but maybe he is an academic, or some sort of isolated professional that doesn't have much experience or contact with small businesses. People don't abandon their usual vendors, partners, and suppliers for some Groupon deal that they know isn't sustainable. Also, people don't abandon the local cafe, diner, restaurant, and bar, because they occasionally use a Groupon deal. These swarming platforms might be a problem for non-performers or those that don't deliver a good product or service, but for those that do, businesses isn't like the horror story the author describes. This is the case of a bullshit story, well written, and designed to climb the Hacker News ranking ... while having absolutely no relation to reality. A lot of fancy analogies ... and absolutely no substance. This guy clearly wants to coin some term that gets picked up by the press and by the community, so he can have some fame as the guy who coined "The Locust Economy" or some shit like that.
So don't offer discounts and avoid the swarm? I won't lie, a huge portion of my grocery spending is under coupon books and the like, or in the long term pattern matching when stuff is cheapest, but this is another case of, as an individual, I can exploit mechanisms in the system to be better off. And hell yes I will take advantage of any economic mechanism I can to save money.
You have to, or else you are less prosperous than your peers that don't. It is charity to spend more than you have to on something, and the end of the day bottom line of your business interactions isn't your personal concern. It might be a long term societal concern of unsustainability low prices strangling businesses but they can't increase them in the short term or their competitors, who are also suffocating, get all the customers.
So you can't blame people for swarming. It is a natural economic process, and I don't think it is as do or die as the grasshopper metaphor. Even my rich relatives will jump at discounts just to feel like they are "winning" or "saving".
Well, there's two other things to consider: the opportunity cost of the time you spend couponing (vs taking your business to somewhere that offers everyday low prices and no coupons, like Trader Joes instead of Safeway in the supermarket sector), and the tragedy of the commons that results from unsustainably low prices. That's not just a long-term societal concern (ie not an individual's one), but a quite present one, because once margins fall too low for a small merchant to profit they'll rationally just exit the market. This leaves you as a consumer with less choice and competition than you had before, in addition to the increasingly bimodal income distribution that plays out over the longer timescale.
It's entirely plausible they still profit from your couponed purchases, just not as much as if you had paid full price. Price discrimination is generally the motive behind issuing coupons (which still have marginal profits), as a "loss leader" strategy can be more effectively done through means other than coupons
Which, incidentally, is one reason why you shouldn't be offering things at a loss on groupon.
"It's entirely plausible they still profit from your couponed purchases"
A lot of this depends on the social conditioning that "coupons are a below market price". This is, of course, not universally true. Last time I checked groupon the local market was dominated by ridiculously overpriced services marked down "on sale" to almost reasonable prices, although still too high.
There is a major regional clothing retailer where I live where about 1/4 of the store is "on sale" at any given time, up to 50% off, in a random rotation. The other 3/4 of the store is marked up well over 100% over "reasonable market prices". This is how to make money in a locust economy, market yourself as a locust feeding frenzy location, and financially manage yourself to handle a larger inventory and smaller cashflow than a "normal" store. So one week per month, sell socks at a normal market price, yet advertised as a "half off sale" at $10. The other three weeks per month mark them up to about twice market price $20 and eat the zero sales volume. The zero volume is OK; you probably needed the break to reorder and ship and restock anyway. Its sustainable and it works.
It's a pretty obvious business strategy to offer low prices with the goal of putting competitors out of business, in order to monopolise and ultimately drive up prices.
(as long you have the deepest pockets)
As such, I try to patronise businesses which I think provide value to the local community: businesses that I personally like and want to stick around. Even if their prices are slightly higher, I find that paying the cost of sustainability benefits me greatly more than saving a few pence. (I do feel grateful to have sufficient economic power to exercise this choice)
I felt like the 9% were unfairly painted as the victims of the way our economy works, but almost everything mentioned were vulnerabilities that the 9% deliberately opened themselves up to. By putting a deal on Groupon, they invited the locusts to swarm them. By opening up a cheaper coffee shop next to Starbucks, they made the business assessment that there was a market for cheaper coffee (or whatever experience they are trying to sell). If they were wrong, then they have fallen victim to what is normal business. If they can't operate without using a self-defeating service, they probably shouldn't be operating.
But there's plenty of room for smart business at the Jeffersonian level without making yourself vulnerable to swarms. It's one of the reasons my area has almost as many family owned diners as it does chain restaurants.
I fail to understand what Zipcar has to do with the sharing economy. Zipcar provides short term car rentals. The "sharing" bit is pure marketing genius, no actual sharing is involved. If I were to be incorrect here, then hotels would be part of the sharing economy too.
Sounds to me like the converse of the left arguing about the evil of companies who have the gall to try to minimize labor costs, especially as new laws drive the cost of labor up. How dare consumers look for deals! Let's give them a label with nasty connotations.
If making Groupon/DealChicken/etc. offers is as self-destructive for businesses as the author says, it will be self-correcting.
Maybe I'm missing it in the bulk of the article somewhere, but I thought this claim could have used a little more support:
In a locust economy, the Jeffersonian middle class is a terrible place to be. It is no accident that the worst-hit victims of the locust plagues of the 19th century were small farmers living the Jeffersonian dream handed to them by the Homestead Act of 1862.
I can see how music scene can be an example of the locust economy:
There is more and more bands, each of those have smaller and smaller listener base to the point that most listeners are musicians. Therefore musicians consume each other ("eat each other") and not much money is involved. This leads to proliferation of musical styles (I particularly like something loosely described as female frontend fantasy rock, a tiny niche obviously), which is a good thing; but we don't get universally recognized good hits from good bands anymore, which is a bad thing.
Anyway, locust economy is a call for Basic Income.
90% of people are like locusts/zombies, always preying on the best deals.
9% are Jeffersonian middle class - “small, local and independent” entrepreneurs. Whenever they offer anything less than the best deal, locust swarm will retreat, for example to Groupon and Starbucks. As such, small non-scalable businesses are most often loss-making and generally not sustainable.
The 1% of people are like vampires, it's implied that they manipulate the 90% against the 9%.
AirBNB, by contrast, is creating new supply, and that supply is in turn only being sold to AirBNB users. As an AirBNB host, it would be very good for me if I was constantly full of people making one day stays and then disappearing forever.
Similarly, if the businesses offering groupons were still profiting from them at the margins even without assumptions of repeat business, then these "locusts" wouldn't be taking value away either.