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| As measurements go, price is pretty crude. Think of everything that can determine a price: time, effort, craftsmanship, innovation, fashion, status, rarity, long-term value, aesthetic gratification, and on and on and on. Yet all the possible factors get boiled down to a single number. Now, pricing is being reinvented. Although the basic system of pricing hasn't been altered much since the world moved beyond barter and adopted clam shells or chunks of metal as units of exchange, the way that a value gets assigned to something is finally changing—and quickly—more than it has in centuries. The reason is the spread of information technology that lets sellers express the value of their products and services more fully. Likewise, technology is helping buyers state their interest in a much richer way than is possible through negotiation on a single number as a price. The implications of these basic changes in pricing, while not yet fully clear, will eventually be enormous for all of us. To see how pricing may change broadly, look at the stock market, where OptiMark has created a sort of black box that lets investors buy and sell stocks through what might be called "genie pricing." I use the term because OptiMark lets buyers and sellers find each other based on many criteria through endless, automatic matchmaking over information networks. The system gets pretty close to magic. Here's how it works: At the moment, someone wanting to sell stocks can specify only three things: the number of shares to be sold, the lowest acceptable price (picking either a specific number or accepting whatever price the market sets), and the period after which the offer to sell expires. A big seller faces even more limitations than a small seller: If a seller tries to line up buyers for a big block of stock, word leaks out about the sale, and the price drops. OptiMark's form of electronic stock market does away with these limitations by using advanced algorithms developed by the defense industry to capture not just a single price but "overtones," the fainter and fainter willingness to buy or sell at varying prices. Someone selling stock through OptiMark can, for instance, say he'd like to sell a certain number of shares at a given price but would be willing to take an 1/8th point less if he could fill his whole order immediately. The seller can indicate a willingness to sell additional shares at a 1/4 point more. And all transactions happen in milliseconds, so there's no time for a price to be affected by a big buy or sell order. In essence, all buyers and sellers can express their full willingness to buy and sell at a range of prices and volumes, without fear that the information will leak out and influence the price of a transaction. Everybody gets naked, so to speak, but in the dark. OptiMark, whose system is already trading several hundred stocks, will eventually allow much more sophisticated statements of intent. An investor will be able to say, "I'll buy 100 shares of Acme if it drops more than 10% within 48 hours, or 8% in 24 hours." Or: "If oil futures fall 10%, I'll buy American Airlines at 50 1/8," based on the knowledge that lower fuel prices help airline stocks. If OptiMark pans out as a revolutionary approach to trading stocks—and I think it will—the idea could easily be applied to other products. The results would be astonishing. Imagine, for instance, the effects on residential real estate. Even someone with no intention of selling a home might put it on the market at what he considers to be an outlandish, "reserve" price. If the house never sells, no harm done. But maybe someone is desperate for a house in the area and, with an OptiMark-like system as matchmaker, decides to meet the price. The spread of the Internet will give huge numbers of people access to sophisticated new trading systems like OptiMark, as they develop. And, if a digital for-sale sign costs nada, the owner of an asset like a house will have nothing to lose by assigning it an unconscionable value and waiting to see what happens. By extension, it will become perfectly rational for everyone to offer all their assets, all the time—globally and anonymously. The Internet is also introducing more subtlety into the pricing process by making broadly available so much information about products. For instance, a proliferation of on-line consumer guides is providing unprecedented detail about the features and prices for cars, insurance, and loans. Patients no longer evaluate doctors based just on the diplomas on their walls or on their bedside manners; in many cases, patients can find out how a doctor's "outcomes" compare with their peers' records of treatment. Even a complex financial instrument such as a mortgage-backed security can now be broken down into its parts and examined in a very granular way. While mortgage providers create these securities by lumping together loans with similar risks and interest rates, those buying the securities can now use cheap information technology to call up the paperwork on the individual loans that make up the security. Soon, prospective investors will be able to "tour" homes on a financial Web page. Investors might then trade the mortgage-backed security, the individual loans that it contains, or some combination. Products, meanwhile, now carry enough computer memory to tell a potential buyer what their condition is. Tomorrow's used cars, for example, will contain data on how they've been driven (e.g., how many times they've gone more than 100 mph and when the oil was changed). As the granularity of information continues to increase, and as systems like OptiMark help buyers and sellers communicate more fully, there will be seismic changes in the way commerce is conducted. Like any earth-shattering experience, these shifts will have lasting effects. Companies will be able to differentiate products much more clearly than in the past—indeed, companies will have to do so. Intermediaries that don't provide services of any particular value will have no place to hide as pricing becomes so clear and explicit. Companies will get more flexibility because they'll be able to turn assets into cash much faster than they can now. There will also, no doubt, be a host of other consequences that are impossible to foresee, because the changes are so complex and profound. The next decade or so should be interesting.
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