The Locust Economy

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.

Wow. This post is a journey. I haven't digested it enough yet, but I'm loving the trip!

EDIT: found http://www.ribbonfarm.com/for-new-readers/. Onto the Kindle you go.

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.

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".

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.

Interesting but rather long. tl;dr version:

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%.

Isn't this just sociology of the masses a la Ortega y Gasset?

This is really intersting stuff.