How a Grocery Shopping Website Can Save America
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"This is Bill Gates. Do you know who I am?"
It was Thursday, September 23rd, 1980. I was sitting on a frayed sofa in my
Fannin Street office in Houston, meeting with Mike Griffin and Bill Radding, my
two partners in Small Business Applications, Inc. I was COO, Mike was VP of
Technology, and Bill was VP of Marketing. Mike had written a word processor that
he called the Magic Wand, largely financed by two investors who were friends of
mine. We were eight months into our first year of business, and doing pretty
well. In a fledgling microcomputer market hungry for software, word processing
was the "killer app" that sold computers, and we had, according to at least one
well-known reviewer, the best one in the world. That was what the 23-year-old
Bill Gates was calling about.
Bill Gates had left Harvard after one semester to develop (together with Paul Allen) a BASIC interpreter
for MITS, manufacturers of the Altair 8800 kit computer. Their BASIC interpreter was a rewrite of software developed by faculty and students at Dartmouth
University. Bill managed to wrest ownership of it back from MITS (Bill's father was a lawyer
for Digital Equipment) and signed a deal with Intel that paid Microsoft a royalty for every CPU that they shipped. That royalty, an estimated $5 per CPU,
was ultimately paid for some 200 million units. Microsoft made its first billion dollars from two months' work by two teenagers. So yes, I had heard of him.
"Yes," I said, "I do. To what do I owe the pleasure?"
"I'll try to say this in as few words as possible, and I need an answer as
quickly as possible," he said. "I've made a commitment to deliver a word
processor to a Japanese company that wants to compete with companies like Lanier
and Vydec. I just found out that I'm not going to make my deadline, and I
don't want to lose face. I want to buy your source code. I'll give you a
two-year non-compete agreement. What will it cost me?"
Lanier, Vydec and a few others produced dedicated word processors that were
selling at that time for around $25,000. Since a "dedicated word processor" was really just a microcomputer, a printer, a desk and a little software, the profit potential was staggering.
I remember being relieved that he didn't want to simply buy the software and compete with us. I didn't understand how Bill Gates thought. I do now. Microsoft plans for the long term. He had no intention of competing with us during the next two years; he intended to compete with us for the next twenty. I covered the receiver with my hand, turned to Mike and Bill, and repeated the
question and its generous non-competition offer. "Tell him $35,000," Mike said. I repeated Mike's number to him.
"You're not going to change your mind, are you?" the voice said. Uh-oh, I
thought; I probably should have asked for a little more. "No," I assured him.
"I'll be there tomorrow," the voice said. And after a few pleasantries, the
A few minutes later, Steve Ballmer, President of Microsoft, called and introduced himself. "I want to make sure that there are no slip-ups at the airport. Mr. Gates looks very young," he told me.
"No problem," I assured him. "I'll pick him up. What does he look like?"
"He looks very young," Ballmer reiterated. "Look for a 15-year-old in a
thousand-dollar suit reading the Wall Street Journal."
The next day I drove to Houston's Intercontinental Airport, parked my car, and
walked down to the terminal. In those days, you could wait for an arriving
flight just outside the jet way. Sure enough, there was a kid who looked about
15 in a really, really nice suit, reading the Wall Street Journal. I introduced
myself again, drove him to my house, made him a grilled cheese sandwich, and
handed him the source code to our program, printed on 14-7/8" X 11" green bar
paper and a couple of huge 8-inch floppies. He pulled out his personal checkbook
and wrote me a check for $35,000.
And that's how Microsoft got the source code for the program known today as
Microsoft Word. It was my first incursion into the world of microcomputer
software. (Note to Wikipedia: If you want to know how much of the Magic Wand made it into Word,
ask Charles Simonyi; it was his job to port the code over. I signed an NDA, because
Microsoft doesn't want people to know how much they bought and how much they made. Bill verbally
released me from the NDA in front of a half-dozen witnesses at dinner in the back yard of his house in 1990.)
A brief side-trip
I had studied to be an economics professor, my goal since an early age. I finished a
Master's degree in economics at Rice University, the "Harvard of the South." I
felt that finance offered more concrete career opportunities, because frankly,
with two degrees in economics, I didn't actually know how to do anything. So I
switched colleges and finished the coursework for an MBA and a Ph.D.,
specializing in Finance.
But the cost of caring for a child paralyzed by a spinal cord tumor forced me to look for a more lucrative profession, and when a professor that I worked with offered to teach me COBOL and help me find a contract programming job, I jumped at the chance. I soon left the academic world and focused on my new profession. I was a contract software developer at an oil company in Houston when the chance to build Small Business Applications came along. I stayed in my new profession for the next 30 years, and loved being on the cutting edge of software technology. I wrote seven books about software development, and published a monthly newsletter for ten years, writing hundreds of articles about programming. But I never forgot my roots.
When the Internet arrived, it changed everything. I learned to build websites that used databases.
This was obviously something that could change the world. It inspired me to try to use the Internet to satisfy my desire for social activism.
I started looking around for an idea for a website that would do something important.
I didn't know if I wanted it to make me a ton of money, or to do a ton of good, or what; I just wanted an idea.
Some years later I happened upon the work of John Nash, a mathematician who was awarded the Nobel Prize in Economics
for something called "Nash Equilibrium." Essentially, every transaction includes a buyer, a seller, and a third
party to tell each of the first two everything that the other party knows. No cheating, no lying.
"Nice theory," I thought, "but who's that third party?" Then one night it came to me while I was half-asleep: It's the Internet.
One day I was at the grocery store with my wife. I picked up a jar of Keiller's
Dundee Orange Marmalade, which I'm particularly fond of, and started to put it
in the shopping cart. "Don't buy that here," she said; "it's a dollar cheaper at
"A dollar?" I thought. "How can a store get away with selling something that you
can get for a dollar less six blocks away?" Turns out, grocery stores have done
a lot of thinking about things like this. Turns out, charging a dollar more than
the expected price is only one of perhaps twenty strategies to separate you from
more of your money than you thought you were going to spend. The fact that there
are thirty-five-thousand prices to remember for each store is what they're
Stores have a weapon that consumers don't: information asymmetry - the ability
to remember everything instantly (not them - their computers), and knowing that
you can't. Merchants count on information asymmetry to overcharge. They know
that you can't possibly know the prices of all thirty-five thousand items that
they and the other grocery stores in town charge. They know them, of course;
they use databases to remember things. You use your brain. Databases remember
better than your brain does. You need countervailing power. You need a database.
And my years as a database developer, plus the power of the Internet, meant that
I could offer a solution.
This was an epiphany for me. Those eleven years of studying economics had
persuaded me that, based on the theory of perfect competition, prices should be
about the same everywhere. The perfectly competitive model is the basis of the
free market - its very justification. But if the consumer doesn't have a
photographic memory, the free market fails, and the consumer loses. It's the
perfect blame-the-victim scenario.
If you saw the film "A Beautiful Mind", you will remember the story of John Nash, who wrote his doctoral dissertaion
at the age of 23 and then disappeared into a haze of paranoid schizophrenia and depression. Over 30 years later,
economists discovered his masterwork and awarded him the Nobel Prize for having developed a replacement for
capitalism, essentially with the ability to deceive customers removed from the equation. So I built
a website that applies Nash Equilibrium to grocery shopping.
Imagine if you could go to a website and tell it what you wanted to buy, and get
a shopping list for each store with only the items that are cheaper there than
at any other store in your neighborhood. Sounds simple enough, doesn't it?
Surely there's an app for that.
Try it. Go to Google, or Yahoo, or Bing, and try to find out the lowest price in
your city for a package of 24 newborn Pampers - or anything else. You can't.
There are sites that show you the names of stores that charge more than
the one that paid them to showcase their price, but not those that charge less.
The stores own the data, and they're not about to let you have it in a way that
permits comparison. And only single-item price comparisons are possible on these price-comparison pages;
doing a complete shopping list will still involve a pencil and a piece of paper. So I stole their data and
built a website to let people build shopping lists for groceries. (It's called Screen-scraping - very labor-intensive...)
Part of the reason I built the website was simply to teach myself the technology; I would have to master dozens of new
tricks and techniques. But I really did want to do something to make life easier for ninety-nine percent.
I thought Nash Equilibrium might be the solution. So I began my journey.
I never imagined where it would take me.
A blueprint for a just society
This book is about how we can use the free market model - the real free market, John Nash's free market -
to eliminate excess profits and give the middle class some breathing room.
My website asks consumers what they want to buy from their local grocery stores.
There are no prices, no store names; only virtual aisles and virtual shelves.
So you buy one of these, two of those, one of something else, and then hit CheckOut. The result is one shopping list for each store,
containing only the items that you requested that are cheaper at that store than at any other (in case of ties, your default favorite
The resulting savings in my tests were twenty-four percent of what we're paying now.
My little website could save the grocery shoppers of America over a hundred and sixty billion dollars a year -
and I built the website in four days.
Before you go looking for the website, it's inactive. It would take a crapload of data entry to feed the database, and the data
belongs to stores that have no desire whatsoever to give you their data just so that you can discover that their prices are higher
than those of their competitors. So I only gathered data from my own zip code, and it's no longer current. In fact, it would take considerable
political power to overcome the clout of the people who want to cheat you. They bought their Senators first.
But the stakes are high (there will be an occasional pun and/or double entendre in these pages - sorry). If we can marshal the political
strength to demand this approach to controlling excess profits, gathering the data will be easy.
When it comes to forcing people to base their decisions on facts and facts alone, there's an elephant in the room. The 2016 election
saw the two candidates tell over 500 lies, according to PolitiFact and to the Toronto Star. Lying Hillary told 19 of those lies; Donald Trump
told 490, and perhaps more. And if President Trump died today, we'd still be stuck with the 62 million voters who didn't know that
he was lying. Voter ignorance is worse than gerrymandering, worse than voter ID laws, worse than voter apathy. It really makes a
joke of democracy. If the principles of Nash Equilibrium can be applied to voting as well, it might be even better than getting a good deal on raisins.
Using Nash Equilibrium to rationalize shopping doesn't just lower prices; it eliminates the concentration of wealth
in the hands of a small elite, and that's good. But forcing voters to base their votes only on actual, verifiable facts would give us a democracy
that's worthy of the name, instead of the shameful trumped-up joke we have now. (Sorry, couldn't help it...)
I hope that this book will contribute to a movement that can spare us the ultimate tragedy.
With Internet technology, and with renewed determination to solve our problems justly and
rationally, we can fix this broken world. If the amazing power of the Internet can save us from a revolution,
that will be its greatest legacy.
Email me when the book is published