Scarcity Isn't As Scarce As You Might Think
from the adding-scarcity-back-into-the-equation dept
Continuing the series of posts I’ve been working on concerning economics when scarcity is removed, I’m actually going to move back to scarcity for a bit — because it’s quite important. Last week, I talked about how when you looked carefully at just about any product, it was really a bundle of both scarce and non-scarce components, and highlighted a few areas where scarce goods had non-scarce components that people didn’t often think about. This week’s story is the flip side to that. It’s about recognizing where scarcity appears even when it comes to non-scarce goods. Even if this seems like a contradiction of the concept of non-scarce economics, it actually is quite important in understanding why traditional free market economics continues to work even when you plug zeros into the equations.
There are a few major areas where scarcity still comes into play for non-scarce goods. One important one that has received plenty of attention lately is… well… attention, itself. Someone’s attention is a scarce commodity — and even if a good is non-scarce, it can be worthless if it doesn’t get anyone’s attention. So, once again, just as a tangible good, like a BMW, has non-scarce components like reputation, a non-scarce good, like a song, has a scarce component: how much attention is being paid to that song. Related to this is time. Time and attention are closely related, but aren’t exactly the same thing. However, anyone’s time is quite limited — meaning that it’s scarce. There are many, many other scarce things that relate to non-scarce goods as well, including money itself, access to individuals or places, the initial creation of those non-scarce goods and many others. Any and all of these can become quite important in setting up a business model that embraces non-scarcity.
Now, if you go back to the basis of this entire series, you’ll remember that non-scarce goods are pressured to be priced at $0 (the basic marginal cost equals price point), but that scarce goods can be priced above zero (though, there’s still pricing pressure towards marginal cost). So, the opportunities to make money are by focusing on the scarce components that are related to any non-scarce good. The companies and industries that have trouble with this are the ones who haven’t figured out what market they’re really in, and therefore only see the non-scarce components (“we’re selling movies!”) rather than recognizing the scarce components that make up part of what they’re really selling (“we’re competing for people’s entertainment dollars and attention by selling a movie-going experience”).
One company that has figured this out, however, is Google (whether the folks there recognize it or not). It has bundled scarce and non-scarce goods together in an extremely profitable way. By creating a tremendously useful index of information (a non-scarce good), it has brought together a community, and it is effectively selling that community’s attention (a very scarce good) to those who value it — advertisers. The non-scarce good acts as a value adding component, which makes the scarce good that much more valuable. You’ll see that this gets repeated in almost any industry. Going back to the automobile example, it’s the non-scarce good (BMW’s reputation) that makes the scarce good (BMW’s cars) that much more valuable.
While today’s movie industry execs may not yet get this, in the past some of them did. As we recently noted, theater owner Marcus Loew famously said: “We sell tickets to theaters, not movies.” In other words, they are selling the scarce good (seats in the theater), but it’s the non-scarce good (the movie that is bundled with those seats) that makes it valuable. Some musicians have figured this out as well. I love the example of The String Cheese Incident, a band that recognizes “The more people are exposed to the music, the better it is for the band.” The music (the non-scarce good) helps them sell a lot more tickets to concerts (a scarce good). However, that band took it a step further. They set up their own travel agency to help fans attend their concerts — and have been making money there, by saving people time (scarce good!) and helping them secure flights (scarce good) and lodging (scarce good), all in the pursuit of access to the band (scarce good) who they value so much because of the music (non-scarce good).
When you start viewing the world this way, you’ll suddenly start to notice that there are tons of scarce goods that can be charged for connected to non-scarce goods that make them more valuable. In fact… you’ll start to notice that since those non-scarce goods make the scarce goods more valuable, it’s actually better to free those non-scarce goods and encourage that they be distributed for free. They become a resource. You want them to be free. You want to syndicate them. You want others to share them for you — because the more that happens, the more value accrues back to the related scarce goods. The trick is just figuring out which scarce goods are connected at the hip to the non-scarce ones. But, with a little practice, it’s really not that difficult.
If you hadn’t noticed, we’re getting pretty close to wrapping up this series. Depending on the comments from this post, there’s really only one or two more things to say directly on the topic, but I may then try to sum it all up in a nice compact bullet-pointed manner and see if we can have some fun applying it to a variety of industries — both obvious and non-obvious.
If you’re looking to catch up on the posts in the series, I’ve listed them out below:
- Economics Of Abundance Getting Some Well Deserved Attention
- The Importance Of Zero In Destroying The Scarcity Myth Of Economics
- The Economics Of Abundance Is Not A Moral Issue
- A Lack Of Scarcity Has (Almost) Nothing To Do With Piracy
- A Lack Of Scarcity Feeds The Long Tail By Increasing The Pie
- Why The Lack Of Scarcity In Economics Is Getting More Important Now
- History Repeats Itself: How The RIAA Is Like 17th Century French Button-Makers
- Infinity Is Your Friend In Economics
- Step One To Embracing A Lack Of Scarcity: Recognize What Market You’re Really In
- Why I Hope The RIAA Succeeds
- Saying You Can’t Compete With Free Is Saying You Can’t Compete Period
- Perhaps It’s Not The Entertainment Industry’s Business Model That’s Outdated
- An Economic Explanation For Why DRM Cannot Open Up New Business Model Opportunities
- Recognizing That Just About Any Product Is A Bundle Of Scarce And Non-Scarce Goods
Comments on “Scarcity Isn't As Scarce As You Might Think”
*yawn*
Man, this article is better than Ambien.
Re: *yawn*
I second that… one thing that’s becoming scarce is my patience for crappy techdirt articles.
Re: Re: *yawn*
Hey – freedom of choice here! I can’t believe you read it (presumably all of it if you then comment it’s boring) THEN comment when you’re claiming boredom! Just pick a different article to read, perhaps one more to your taste, and leave the discussion to those actuallly interested!
You’re like those critics of TV that say “oh the swearing/blood and gore/subject was awful. I sat through an hour of it”. Change the channel!!!
Re: *yawn*
twat
How many people would buy a BMW if an exact copy of the BMW could be purchased for a fraction of the cost?
That’s what you get with digital content, an exact copy. Would anyone actually pay $70,000 if they could get a car that was exactly the same as a real BMW in terms of looks, performance and reliability if they didn’t have to? Some may, but I doubt it.
Also, you talk about how the band String Cheese recognizes scarcity (or lack thereof) can be a driver for them. They use the content to generate revenue from other things, but the band, if it is signed with a label, makes its money at concerts, at promotional events, not off the CD’s consumers sell. The labels are the ones that profit from the CD sale, so of course the band doesn’t care about revenue from CD’s. If labels will or should go away is a different topic, and that’s actually a different conversation though.
The long tail theory works for the labels, the studios, the aggregators, but it doesn’t typically work for the individual unless they have already built a franchise, which usually happens through the labels or the studios.
Mike, I do have to say, this series has been very interesting. Congrats.
I’m here to offer my own scarce good: praise.
This series has been tremendously useful to me. As a creator of easily reproduced media, you’ve really made me start thinking about how I should be going about things.
A correction
Mike, I think this should be….
it’s actually better to free those scarce goods and encourage that they be distributed for free.
it’s actually better to free those non-scarce goods and encourage that they be distributed for free.
Re: A correction
Oops. Mike H, you’re right… sorry about that. Fixed. Thanks!
Re: A correction
Whew! Bent my brain trying to parse the original. THX
Well Put
Well put Mike. I think this is probably the best article in the series so far.
scarce goods
I disagree that an index of information is a non-scarce good — in the case of Google’s index, Google is the only one that provides Google’s index — they effectively have a monopoly on Internet search that’s so good, it’s not worth going to one of the few competitors without some other incentive (like which search engine is the browser’s default). While anyone can make an index, it’s not the index itself that has value despite the scarcity of indexes, it is the ease of use, accessibility, ubiquity, timeliness and relevance that makes Google’s index scarce. Indexes of information do not have some inherent quality that makes them non-scarce. Google actively makes information indexes non-scarce (even those of competitors) by purposely making theirs perform so well and appear everywhere. I don’t believe that, in the case of information indexes in general, and Google’s index in particular, that it’s as black and white as scarce/non-scarce.
Also, I think it’s worth pointing out that reputation, specifically good reputation, can be a scarce resource, but companies like BWM that bank on their reputation actively go out to make their good reputation non-scarce by building good products that people like, talk about, and envy. Those that toil in obscurity do not have a reputation, and thus reputation is a scarce resource to them. Intangible resources like good reputation, are fickle — one wrong move and the good reputation that you have a lot of suddenly becomes scarce. Consider what happened to the Concord – one incident made them think (wrongly, I believe) that their brand/reputation had been tarnished beyond repair.
RE: SCI Random Thoughts' comment
Nice write-up and analogy.
Just a clarification. SCI uses a very small label that probably provides them a better cut off the album revenues than is typical. Beyond that, bootlegging is encouraged at the shows, and file sharing is abundant. They realize the music is “non-scarce” and make sure it is available freely and easily. SCI goes to great lengths to merchandise as much as possible including hoola hoops, glow sticks, blinking necklaces, and other items (dont ask me). The point is that they have made the experience of going to the show, along with everything that entails, the real product. They have created their own community around their music, especially their live music. It is too bad they are calling it quits.
bzzzz
So, Mike, how does a company “connect” a scarce good/service that it produces (such as maintaining a searchable index and taste-matching technology, the use of its server hardware and software and bandwidth) to its non-scarce good, such as a song in digital format, so that it can afford to keep providing the non-scarce good? Ads are one option. But how can the company prevent someone from signing on, downloading everything in sight, and moving on to the next website? And how does the artist get compensated? Does he get a share of ad revenue that appears on the page where his song appears when it is downloaded? What if no one clicks on the ad? He gets nothing? How can he can afford to spend time making music, rather than being a plumber?
You’ve mentioned some ideas that I am sure work for marketing or media-savvy artists. But a LOT of good artists are pretty much completely clueless when it comes to marketing and such. Also, many good artists don’t live somewhere where they can perform and draw a decent crowd and don’t have the means to tour around the country. This doesn’t mean that their music isn’t good. I guess they can sell t-shirts if they are visual artists, too or can afford a one. Personally, I don’t like musical artists for their t-shirts or their “exclusive” interviews. I like them for their music, and that’s what I’m willing to pay for.
I think there’s a viable business model that uses DRM to connect the artist’s products (a song) to the value that people get from listening to his song. I’ve mentioned it before. DRM that allows the listener a limited number of listens for free (try before you buy). As I’ve said before, I think the record labels aren’t smart enough to take this up, but I think a company with some integrity, long-term vision and good search and relevance algorithms, like Google, could do this with at a minimal cost, say $0.10 or $0.20 per song in a true artist revenue-sharing model.
There are other models, too. Some of them have been tried (Internet radio, and FM radio, for that matter, although the content tends to be severely limited and repetitive on FM) Also, monthly fixed-fee subscriptions with unlimited listening, as long as you pay you monthly fee can work, but that involves DRM (either explicitly through expiring DRM on standard formats or else implicitly through proprietary formats and player that only work while your subscription is current).
The bottom line (no pun intended) is that there has to be some means of enforcing the connection between the efforts of those that create music and the value received by those that want to listen to it. Doing random web searches takes way too much time. And a company that aggregates, indexes and matches music for the people that want it is in a position to capitalize on this, but there has to be an enforcement mechanism of some kind. DRM can fill this role.
Personally, I like “free” stuff. I hate the RIAA and the MPAA. But there’s no such thing as a free lunch. Grow up.
Re: bzzzz
So, Mike, how does a company “connect” a scarce good/service that it produces (such as maintaining a searchable index and taste-matching technology, the use of its server hardware and software and bandwidth) to its non-scarce good, such as a song in digital format, so that it can afford to keep providing the non-scarce good?
I provided a few examples in the post — but the point is that there are always scarce components that can be connected to non-scarce goods.
Name a non-scarce product and it’s not too hard to come up with connected scarce goods. With a song, as discussed in the post, you related scarce goods include concerts, access to the band, merchandise and plenty of other things.
But how can the company prevent someone from signing on, downloading everything in sight, and moving on to the next website?
You don’t. You don’t care about it, because that’s just more promotion for you. You recognize that *not everyone* who gets the free promotional aspect from the non-scarce goods will buy the scarce goods — but that’s fine. You don’t expect everyone who sees a commercial for a car to buy that car, do you? But what it does is expand the market of people who are exposed to the possibility of buying the scarce goods by spreading the non-scarce goods.
So there’s no reason to worry about people downloading the content. It’s a good thing.
And how does the artist get compensated? Does he get a share of ad revenue that appears on the page where his song appears when it is downloaded? What if no one clicks on the ad? He gets nothing? How can he can afford to spend time making music, rather than being a plumber?
Well, we already listed out a bunch of ways. The question of “what if no one clicks on the ad” is the same as today’s “what if no one buys the album or sees the band.” It just means they’re not getting enough attention and they’re not satisfying the needs of their users. No one has a right to money if they haven’t earned it.
You’ve mentioned some ideas that I am sure work for marketing or media-savvy artists. But a LOT of good artists are pretty much completely clueless when it comes to marketing and such.
As are a lot of business people. Should we subsidize them?
But, yes, some artists are completely clueless when it comes to marketing, but that’s what they *should* be looking to labels to help them with. That’s where labels still have a role. They can still help the bands market themselves and collect money from the sale of the scarce aspects, rather than the non-scarce ones.
Also, many good artists don’t live somewhere where they can perform and draw a decent crowd and don’t have the means to tour around the country. This doesn’t mean that their music isn’t good.
Concerts are only one of many suggested ways of doing things. If the music is good, and they’re getting a following by giving away the music, then they can sell all sorts of things — *including* selling the creation of a new album (see things like sellaband, which do exactly that). As noted in the article, before content is created, it’s scarce, and therefore can be sold for a non-zero amount.
And as for them not having “the means” to go on tour, again, this is where they can team up with marketers or a label who can help them promote themselves better.
I honestly don’t understand most of your complaints. They seem to be of the nature of “what if this band doesn’t want to work to make money” and if that’s the case, then they won’t make money. But, like in any other job, you generally have to work at it to make money.
Also, monthly fixed-fee subscriptions with unlimited listening, as long as you pay you monthly fee can work, but that involves DRM
Again, that limits the promotional aspect of what you’re doing and decreases the potential value. It’s a bad business model.
Personally, I like “free” stuff. I hate the RIAA and the MPAA. But there’s no such thing as a free lunch. Grow up.
I’m not sure what I did that deserved an insult like “grow up,” but I’ve tried to clearly back up my positions and explain the economics.
I also never claimed that there was a “free lunch.” To the contrary, I’m arguing that you have to work for a business model to work — not just sit at home and wait for the money to roll in, which seems to be the way some think the industry should work. There is no free lunch here at all. In fact, the “lunch” (a scarce good) is very much paid for. It’s just that you get more people to want to buy it by advertising it widely with the non-scarce good.
Agreed
I have to agree with everything Poster #3 Darok said.
I am grateful to have had my scarce good, attention, directed to this series of articles among the host of non-scarce articles on this topic.
I too am an artist, as well as a musician (different beasts often), and an entrepreneur who would like to make a living with my art. I have no desire to be a ROCK GOD, or Business tycoon. The music should be free, and the experience sold. Profit should never come from the exploitation of the fan, or the art.
The RIAA has only represented its own best interests, and serves itself once again with the insertion of software designed to limit the exposure of the music.
The digital era heralds a wonderful time for Artists, Art, and Consumer alike. Profit should not hamper this growth, but should be folded into it seamlessly, and painlessly for the benefit of the Main Three parties first… and industry second.
Second thought
And in response to the industries cry to enforce artificial scarcity onto non-scarce goods, I want to suggest humbly you are trying to hold back the tide with palm leaves.
Script a program to limit plays, and folks will write a patch for it. Encode music, fans will decode it. Shut down 1 fileshare company/program and three will open in its place.
You see… its human nature, not criminal actions.
Drop a $10 bill on the ground, and wait for someone to pick it up. Then approach them with malice and accuse them of stealing it. They will defend their actions.
Now replace it and approach the next test subject with gratitude and thank them profusely for helping you recover your lost money…
When you accuse “Us” of being pirates and thieves indiscriminately… you lose our support. When you appeal to our basic nature to be helpful, most will respond in kind. No, you won’t always get your $10 back… but if a product is what you sell, you might get a customer.
Non-Scarcity should be a benefit, a boon to all, not a problem to be legislated and limited.
Dewy, I appreciate your position, but as an artist, you are free to distribute your content for free, there is nothing to keep you from doing so.
Of course the RIAA is protecting its interest, whose interest would you think they would protect?
The RIAA protects the labels, not the artist, because the artist doesn’t see much profit from the music itself anyway. How would artists feel if someone videotaped a live concert and distributed it, which in turn hurt concert attendance? How would the artist feel if someone printed up T-Shirts that cut into their promo profits?
It is easy to talk about changing business models as long as it is someone else’s model and doesn’t affect you in any way. Becomes much harder to consider cannibalizing your own product. Of course, you would rather profit from new models yourself instead of someone else, but as long as remaining with the current model is more profitable (for now) you stick with that.
No one should rush to jump on the sword, you deal with it when you have to, but doing so sooner than is needed is a waste.
Mike,
When I said to grow because there’s no such thing as a free lunch, I didn’t mean that you thought the artists should have a free lunch. I said it because you want to be able to listen to unlimited free music without any obligation to compensate the people who are producing it and providing you access to it. I would have thought that was obvious, but not, apparently, to you.
You see, I think that what most people value about the music they listen to is the actual music (not the t-shirts, exclusive interviews and live performances). If you don’t think the actual music is what people value most, then I think you’re missing the point. Do most people spend more time listening to music on their stereo/mp3 player/etc., or do they spend more time in live performances, wearing bands’ t-shirts and watching exclusive interviews?
So, let’s review.
With your model, in order to have any real chance of being compensated for creating music, artists either have to be marketing and media-savvy and put a lot of time, energy and at least some money into marketing their music, over and above the time and energy they put into actually creating the music, or else they have to pay a record label or marketing company to market their music.
With my model, good artists can merely do what they do best, which is create music, then upload it to a service like the one I mentioned, and they have a decent chance of getting compensated if people like their music. They do not have to become marketers and merchandisers or pay someone else to do that for them.
In both models, music fans have access to an unlimited number of songs. The limitation in my model is that fans eventually have to compensate the artists, if they decide they like a song enough to pay 10 or 20 cents to listen to it more than ten times. The limitation in yours model is that artists have to become marketers or pay someone else to market their music, in order to get compensated for their creations. That sounds like the kinds of artists we have on most record labels today. And, if people who merely want to create music and get some compensation for providing that value to people who like their music, they’re just out of luck. And, eventually, most (not all) of them will have to reduce the amount of time they spend writing and creating music and sharpening their skills, because they have rent to pay. My model doesn’t impose that burden on the artists.
It sounds to me like your model is a lot closer to the record-label-dominant industry than mine is, and mine sounds a lot more “democratic” than yours does.
Oh, and to Dewey: Your $10 bill analogy doesn’t work on any level. First: a $10 bill rolling down the street doesn’t clearly belong to anyone, so it’s up for grabs. With a song, it belongs to the artist who created it, unless he decides to give it away. And you know that. Also, a $10 bill is not a non-scarce good. Look around you at the people with thousands of songs in their music libraries that they were able to download or “share” for “free”. How many songs did they actually pay the artist for? 5%? 10%? The other 90% of the artists didn’t get a penny for the value they created for their listener. See how many people put a $10 bill on the street, when they average getting $1 back.
Re: Re:
I said it because you want to be able to listen to unlimited free music without any obligation to compensate the people who are producing it and providing you access to it. I would have thought that was obvious, but not, apparently, to you.
Do you pay the people who make television shows?
You see, I think that what most people value about the music they listen to is the actual music (not the t-shirts, exclusive interviews and live performances).
I think most people value the TV shows they watch too.
I think most people value the air they breathe.
Yet they pay for neither one. You know why? Because both are non-scarce goods. Value has nothing to do with it.
With your model, in order to have any real chance of being compensated for creating music, artists either have to be marketing and media-savvy and put a lot of time, energy and at least some money into marketing their music, over and above the time and energy they put into actually creating the music, or else they have to pay a record label or marketing company to market their music.
I’m afraid I must have explained my position poorly. The whole point is that the music promotes itself. If it’s good, it gets shared and talked about and people send it to each other. The “marketing” aspect is cheap. In fact, it’s FREE. That’s the benefit. The marketing is simple.
With my model, good artists can merely do what they do best, which is create music, then upload it to a service like the one I mentioned, and they have a decent chance of getting compensated if people like their music. They do not have to become marketers and merchandisers or pay someone else to do that for them.
No. Your model is actually much more complicated. The musicians still have to market themselves (how else are they found)? Not only that, but they have to market themselves that much MORE because they also have to get people over the hurdle of having to pay for the music and deal with whatever annoying limitations the DRM gives them. In my model, the music does the promoting for them. In your model, you have to SPEND to promote.
WOW...what a knob!
Once again the tired old rationale of scarcity and tangiblity come into play, and the author even blurs the lines between the two, and arbitrarily labels certain things, like reputation as non-scarce, and others like “attention” as scarce. What a crock.
Reputation and attention are the same friggin thing. One gets a reputation by creating a brand, a product or by performing some actions that generate attention, and that attention causes people to perceive, judge and valuate, and that’s ultimately reputation. You can’t have one without the other, and one is no more or less scarce then the other.
Ultimately all of these articles come down to the value of and the ability to protect intangible commodities, whether they be a brand, a reputation, a movie, or a song. Companies deserve the right to be able to protect these things, and when others want to enjoy them or capitalize from them expect to get paid.
Re: WOW...what a knob!
Once again the tired old rationale of scarcity and tangiblity come into play, and the author even blurs the lines between the two, and arbitrarily labels certain things, like reputation as non-scarce, and others like “attention” as scarce. What a crock.
They’re not arbitrary labels. Someone reputation is an idea. There is no way to limit someone’s reputation. It spreads freely.
Attention, however, is very limited. There are only so many things you or I can pay attention to at any one time.
So I fail to see how they are the same thing.
Ultimately all of these articles come down to the value
Do you value air? Do you pay for it?
Companies deserve the right to be able to protect these things, and when others want to enjoy them or capitalize from them expect to get paid.
Sure, they can protect all they want. The problem is that others won’t — and the companies that do protect will lose their business to those that don’t. It’s that simple.
Re: Re: WOW...what a knob!
>> Sure, they can protect all they want. The problem is that others won’t — and the companies
>> that do protect will lose their business to those that don’t. It’s that simple.
Right…businesses that give away their stuff for free and don’t protect it will win over other businesses that have a product they sell and try to protect.
RIGHT!
Re: Re: Re: WOW...what a knob!
Right…businesses that give away their stuff for free and don’t protect it will win over other businesses that have a product they sell and try to protect.
The point is that every business has something to sell… it’s just that some businesses recognize they can use the non-scarce goods to promote whatever it is they’re trying to sell.
The businesses that just focus on trying to sell non-scarce goods are the ones that will be in trouble.
Wrap it up! :)
Read your whole series and comments so far and you have done a great job writing and responding to critical analysis. I think you should try to wrap it up and re-reference all the points you have made.
Maybe include a relevant example for each major point you have made?
You should write a book about this, just be sure to distribute it for free 🙂
Re: Wrap it up! :)
Here is a tip. The anime industry is growing…
Rose-Colored Glasses
Mike, thanks for taking the time to create some interesting original content. My crystal ball isn’t any clearer than anyone else’s, but I can’t help but think your take on the current state of affairs isn’t a bit rosy. How about one more post where we lay off the “non-scarce sells scarce” theme and really explore what the MAFIAA is afraid of? A dark Blade Runner-like world where no one will create content because it costs $$ and it’s free on the Net as soon as you do. You’ve done a reasonable job of portraying the Polllyanna version of the lack of scarcity, but we haven’t explored where we might end up if the worst the *AA can imagine really comes to fruition. What’s that world like?A similar (probably less interesting) theme might be the fully-DRM-enabled, DMCA-compliant utopia *AA imagines for us. What’s life like in that reality?Interesting posts, but not necessarily the whole story.
Why the hostility?
I wonder why so many people feel so strongly about this that they have to be abusive?
Well done for ignoring it Mike. I read your comments on Jon’s Network and it seems you are coming at a similar thought from a different direction, which makes it all the more interesting to me. Hence why I can’t ignore the abuse you’re getting for being smart.
The fact is, ideas like this, once they are fully understood and explained will form not only economic theory of the future, but the entire shape of the technology market in our collective lifetimes. Any backlash against this is fear or ignorance, or both.
I salute you, and I am very interested to hear your future thoughts on this. I’m trying to get to grips with this as it applies to data, the identity, integrity and possible licensing thereof. The Semantic Web makes all of this possible, but also incredibly difficult to predict the outcome. Please stay in touch.