Friday, October 8, 2010

Artificial scarcity failed, let’s try abundance

Some things are pretty scarce--things like clean water, fresh air, oil and steel, iPads and iPhones 4, to name a few. Other things aren’t scarce at all. They are abundant:  crazy ideas, creativity, information, digital music, pictures on the Internet--especially pictures of little kittens.

As Stowe Boyd pointed out in one of his talks at the Reboot conference in Copenhagen a few years ago, we seem to confuse things when it comes to scarcity and abundance. Indeed, we tend to treat many things that are scarce as if we have an endless supply of them (fish in the ocean, clean water, a stable atmosphere), and, at the same time, create artificial scarcities for things we have in abundance, like ideas, digital content, and knowledge.

The main reason for such confusion might be purely economical. It seems so much cheaper to treat natural resources as abundant, and it has proven a successful business model to make abundant stuff seem scarce in order to make tons of money selling it.

However, the consequences can be dire. We have not only wasted precious natural resources and created global warming, we have also limited our potential to create better solutions in order to clean up the mess by preventing “ideas from having sex”.

Fortunately, there is good news. The Internet is changing the underlying dynamic. The first fundamental change is an unprecedented level of transparency, global awareness and coordinated action that helps companies realize the cost of destroying common goods.  Through collective action, society has started to print the costs of common goods in big red ink on corporations' balance sheet--a language corporations understand well.

The other fundamental change lies in the astonishing ability of the Internet to create and exchange astronomical value without any money being involved.

I guess I should explain that statement a bit more. Our economy is based mainly on the exchange of goods or services for money:  the transfer of value generally involves cash. Barter deals and gifting are minor exceptions.

However, the Internet has changed this dramatically. Most of the value created on the Internet comes for "free." We can read Wikipedia for free, Google the Internet for free, video Skype with friends around the world for free, listen to music for free, exchange pictures with our loved ones for free, become a star on YouTube for free, get thousands of followers on Twitter for free, and so on.

The fact that all these abundant things come without a price tag doesn’t mean that they are of little or no value. Quite the opposite. Just imagine the price you were wiling to pay to buy an Encyclopedia, to make an international phone call, or to transmit 10 Gigabytes across the Atlantic ten or twenty years ago. Now, you get so much more for less. Now you can even get your very own global TV station with YouTube for free.

As a consequence, the official GDP growth of every country on Earth is not even remotely related to the gigantic value each one of us has gained over the last two decades.

Exploding value creation on the Internet is a great thing. It enables us to give free or comparatively cheap access to services that were luxury goods only a few years ago to people around the world, even in some of the world’s poorest areas. Equally important, it enables more people to use their talent and to participate in this global value creation.

There are still various barriers that must be overcome to unleash more of the full human potential. Fortunately, a growing number of emerging ventures work on exactly that. They implement smarter ways to make use of abundant resources like human talent and social capital.

Nathaniel Whittemore, founder of Assetmap, calls this the “New Era of Human Capacity Startups”. He makes the convincing case “that people have more to contribute to their own lives and to their communities than they currently realize”. The Internet is certainly the most powerful tool we have to unleash this potential.

Unfortunately, there seems to be a dark side of free, a major barrier if you will. Where is the business model? If everything I produce is free, how can I pay for the milk in the morning? This questions feels increasingly real for many musicians, artists, writers and other members of the creative industries.

If the stuff you try to sell becomes abundant, your market will collapse. The declining revenues of music labels are a pretty vivid example of this rule. And their struggle might teach us a lesson.

The music labels decided to fight the unwanted abundance of digital music. Their main strategy was to maintain an artificial scarcity through DRM, Copyrights and legal action. Technically, digital music is abundant, but, legally, it is not. However, given the declining revenues in the industry over the last 10 years, the success of the “artificial scarcity strategy” seems questionable, to say the least.

On the Internet, artificial scarcities proved to be harder to maintain than expected. Technical solutions didn’t live up to their promises. DRM technology wasn’t 100% water tight and often too cumbersome to use. However, the far bigger and decisive looming threat to artificial scarcity might be a social one. Many, if not most, users don’t mind sharing digital content and, while doing it, lack the emotional restraint that is (nearly) universal when it comes to shoplifting.

Users seem to feel a difference when it comes to real scarcity (stealing an apple) and artificial scarcity (copying a piece of digital content). The rule “don’t steal” is generally accepted and a core value of our culture, but the rule “don’t copy and share” is not.

While the above observation doesn’t make copyright infringements legal or a good thing to do, it still leads to an interesting question:  If we can’t maintain artificial scarcity for digital music, how can artists make a living by embracing abundance?

yokudo is working hard to answer the above question. If we and other startups succeed, one more barrier for the free exchange of creative work will be gone. Abundance of (legally free) content will eventually become the new norm, and it will finally be a good thing for the artists, not just for their fans.

Posted by @soerenstamer

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