A Network Model for Prices

[rose-colored-coolaid]

I hypothesize you can think of the market like a big mesh net. If the price of a house drops (Eg Bothell Countdown), it pulls down prices nearby, just like putting a bowling ball on a mattress compresses parts of mattress around the ball. If prices drop 20% in Bothell, it suggests they might need to drop at least 15% in Kirkland.

So, imagine a huge net covering King County. Imagine a pair of fingers grabbing at the net from above pulling prices up (these are usually job epicenters, like MSFT campus in Redmond). Now, imagine a thousand smaller sets of fingers pulling down. These are all the houses sitting on the market, going through priced drops. Just as the fingers pulling up have a localized effect, each price drop has a localized effect to pull prices down.

Today, we are seeing marketplace innovation empowering the downward pressures, just like they before to empower those upward pressures. The problem for sellers, is that even a powerhouse like MSFT can only lift so much dead weight. There are just too many houses pulling the market down a little piece at a time.

[Lake Hills Renter]

That's pretty similar to the model Einstein used for gravity in space-time.

[rose-colored-coolaid]

yeah, in a way...but simpler really.

[garth]

There has been research in this vein regarding foreclosures, the hypnosis is that for every foreclosure within one mile of your home the value of your house goes down 1.4%.

[Robroy]

This is a real good example. Problem is, you have lots of big and little hands pulling up on the net. Microsoft is a big one. Boeing is another. Wamu is medium sized and I supplose Weyerhouser is a small one. And I think you know where I am going by mentioning those last two.

But regarding Microsoft. It could be interesting as well. I've finally bit the bullet and will be purchasind a laptop for my wifes business. The more I watch friends problems and talk to the tech people at work, the more consternation I had about Vista. Well, after a lot of research and experimentation, I will be dumping Vista (and getting a refund for it) and loading Linux Ubuntu.

Everyone knows the shine is wearing off Microsoft. It is looking more and more like a polished turd. And as the hands pulling up the dead weight loose their strength, The hands pushing can lower the net substantially further with no extra energy.

[rose-colored-coolaid]

MSFT's problems have nothing to do with shine. And it actually has little to do with the major improvements made by Linux or the phoenix like reinvigoration of Apple.

Their problem is the internet. MSFT is a PC company. They thrive on people buying software to run on their PCs. Now, think about your usage patterns. If you are like me, you use desktop applications (Word Processing, Compiler, etc) at work but at home nearly every thing you do is on the internet. There's a definite trend, and it's not going MSFTs way.

That's the main threat. There's something to be said that their cash-cows (Office specifically) are fairly static, meaning there is risk of competitors (commercial or free) stealing market share, but the internet is what's really changing the market.

[david_mcmanus]

[Robroy]