Saturday, July 01, 2006

Arms race in the market: Dynamic vs. predictive pricing

Airlines price seats on some combination of supply, demand, and psychology. Dell does this with their large and short lived "specials". Amazon has tried dynamic pricing too, though I'm not sure they're still doing it.

Well, as sure as night follows day the market has produced a countervailing force. The evolutionary arms race continues:
Airfares Made Easy (or Easier) - New York Times

.. Mr. Etzioni helped to create Farecast, an airfare search engine that also predicts how much the price of an airline ticket will rise or fall over the coming days...

... Farecast could become a great tool for consumers because it uses much the same techniques that airline computers have used to extract the maximum amount of money from the flying public. It is the latest Web site to harness cheap computing power to hazard predictions on all sorts of everyday things and make the data available to consumers.

One such site introduced this year was, ... It mines data in county land records to hazard a guess on the value of 65 million homes across the United States...

Inrix, based in Kirkland, Wash., crunches data to predict traffic....

... "This is Shopping 2.0," said Hugh Crean, Farecast's chief executive. It goes one step further than Web sites like Kayak, Sidestep and Farechase ... that search the listings of the airlines..

A traveler picks the dates and destination of the trip just as he would at any other online airline travel site. (The Farecast site has flights only to and from Seattle and Boston, but promises to have all the major American cities by year-end.) Farecast generates a list of the scheduled flights, listing them from cheapest to most expensive.

What's different is that at the top of the screen is an arrow that points the direction Farecast's computer predicts fares are headed. Farecast even specifies how much it will change.
I'll have to add these links to my Firefox bookmarks -- much handier now that Google syncs them to all my machines, and to my business travel web page.

I suspect the big money for Farecast will come from corporations, at the very least they'll use the threat of Farecast to get a better deal from airlines. Airlines may try to game the system, or they may find it's easier to reduce dynamic pricing -- which would put Farecast out of business.

Where's it going to go? The "military computer becomes sentient" is a staple of science fiction. Skynet is the best known popular example. Maybe, but maybe it'll be predictive pricing, or games. When predictive pricing software starts incorporating neural networks from rats (as in that infamous F-22 simulator rat brain) and it's time to start digging ... :-) Oh, wait, it's too late ...

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