Why the End of Scarcity Will Change the Economics of Everything [OPINION]
James L. McQuivey, Ph.D. is a Vice President and Principal Analyst at Forrester Research serving Consumer Product Strategy professionals.
Apple triggered much debate when it recently announced it would begin enforcing policies that add a 30% toll to any content — Kindle books, newspaper subscriptions — sold through an app on an Apple device. Apple essentially restrained publishers’ access to Apple’s customers — a huge market within the Apple ecosystem.
With this move, the company –- typically known for anticipating and even causing seismic shifts in the business world -– demonstrates that it is fundamentally unprepared for one of the biggest transformations we are about to experience: The end of scarcity.
Our day-to-day experience teaches us that scarcity is real. All modern business practices are built on this assumption. Some businesses depend upon it entirely. For example, high-end auction houses and low-end infomercials both remind you through various cues that if you don’t buy it now, you may not be able to ever buy it again.
But what happens if the economics of scarcity are exchanged for the economics of plenty? For those industries that provide information or experience as a primary good, scarcity is rapidly evaporating. The media business is undergoing a similar change with the rise of citizen journalists, bloggers, and YouTube performers — all of which circumvent the traditional systems that once dictated production norms and processes. Most of these companies have sought to restore order by reinstating scarcity rather than celebrating its passing. It’s not a good sign of things to come.
Apple’s recent move was no different. The company imposed artificial scarcity on the relatively boundless iPhone and iPad ecosystem. It’s a restriction of publishers’ access to Apple’s existing customers.
This is no criticism of the company’s prowess nor is it a critique of the morality of the company’s strategy. I’m leveling a more devastating charge than that. I’m suggesting that the longer we postpone the inevitable shift to the economics of plenty, the longer we delay the remarkable benefits, both commercial and social, that relinquishing scarcity will provide.
We already see hints at what such a shift will do to generate value.
The New Model
Watch closely as entities of previously impossible scale become commonplace –- companies like Facebook, Google, and even Twitter. These companies scaled up so quickly precisely because they are not bound by scarcity. There is no meaningful limit to how many people can benefit from Facebook, and so it acquires more customers without aggressively marketing its services. Similarly, any new initiative that Google offers the world can reach hundreds of millions of people within a few days at modest incremental cost.
It demonstrates how these companies operate under previously undefined rules. In their world, the costs to exploit scale revert to zero. The best ideas, no matter how small or underfunded, have the largest potential impact, and a company that gives its value away may stand to gain more value in return. As a result, companies like Facebook and Google are writing the book on how to manage the economics of plenty, even if they don’t know it.
Other industries next in line for disruption like education and health care would be wise to pay attention. Most of what they do depends on the control of information that will soon no longer be scarce. Education reformers have long predicted a world where top professors spread their knowledge across the globe through electronic tools. But the knowledge students need is not only located in those few professors’ minds. Once we digitize not just the distribution of knowledge but the production of it, the existing university system loses its raison d’etre. Why would people come to a single physical location at higher and higher costs when the knowledge it houses is no longer scarce?
It is unlikely that universities, hospitals, and other information-dependent entities will see this coming and respond appropriately. While we wait to see which companies can unshackle themselves from the assumption of scarcity, we will live deprived of the innovation the economics of plenty could inspire. I expect that today’s teens will scratch their heads at some future date and wonder why we were so hesitant to accept what will have come so naturally to them.