If there’s one thing that every true capitalist would love to see, it’s “honest” supply and demand in full function. As we know, pricing often fails to reflect the realities of demand and that lack of transparency creates cascading challenges. For example, the long lines we see at Starbucks in the morning reflect the fact that food pricing doesn’t fluctuate with demand. If it did, customers would pay more at popular stores and less somewhere else or might choose less popular times to get their caffeine on (and save some money). Instead, we wait in line to pay the same price whether our demand is as high as the next guy’s or not.
Creating the alternative, dynamic pricing, is complicated, which is why it has only been widespread in the travel industry, where flights and hotels (and now, Uber) adjust with supply and demand. With airlines and hotels, advanced reservations are the norm, making it much easier to judge actual demand as it happens, over days, weeks and months. But what if we could know the demand as consumption occurs and set pricing accordingly?
The Internet of Things and parking your car
The Internet of Things (IoT) allows exactly that. Sensors on freeways now send data that allows traffic flow to be assessed and toll lanes, like those in our Los Angeles, to rise or fall on demand. It has a fairness that makes the new toll road a lot easier to swallow, especially when I’m late on my run to LAX. Without lots of real-time data, connectivity, processing, and my credit card information, the system would be tough to manage.
This week Seattle announced they are planning to deploy demand-based parking meters that will charge more at peak times based on actual usage by street. San Francisco did the same thing as a test over the past two years and found that revenue dropped but on the public service side, lots of other very good things happened:
- Average on-street meter rates dropped by $0.11 per hour, or 4 percent;
- Average garage rates dropped by $0.42 per hour, or 12 percent;
- Target occupancy of 60-80 percent was met 31 percent more often;
- Blocks were full (i.e., no available parking) 16 percent less often;
- Average time spent searching for parking decreased by 5 minutes, or 43 percent;
- Meter-related citations decreased by 23 percent; and
- Vehicle miles traveled, and greenhouse gas emissions from cars circling for parking, decreased by 30 percent.
Those are great benefits and show how the IoT is about to change our world for the better. There are an endless number of problems to be solved and an endless number of ways to make the Things of the Internet work for us for the good of everyone and the planet.
The dark side of the Internet of Things
But the opposite is true as well. Insurance rates are currently based on the characteristics of groups of insured motorists, not the individual driver. That means that a really, really poor driver probably pays less than he (statistically, it’s a guy) should and a really, really safe driver pays more. Good driver discounts are being offered by some companies based on devices that stream driving data back to the insurer. That sounds great, but if applied widely would create such a disparate pricing model that insurers could end up with fewer customers as the good drivers stop subsidizing the bad.
True capitalists may not like that outcome quite as much.