Techdirt. Stories filed under "scarcity"

Musician Mike Doughty Offers Unique Copy Of His New Song, Personalized To Each Buyer, For $543.09

Mike Masnick — Tue, 11 Dec 2012 20:01:00 PST

Mike Doughty, a frequently awesome musician who may mostly be known for his work in the band Soul Coughing (though his solo work after that is even better), has always been known for creative attempts at navigating the new music world. He's frequently said that the original Napster saved his career and he's been willing to embrace new media and new models in the same somewhat experimental way that he crafts music. The latest offering is somewhere between a business model experiment and performance art (and, honestly, when the two blend together, that's often a good thing). He's written a song called "Dogs/Demons" which is not being released on any album or online in any manner. The only way to get it is to pay $543.09 and he'll record you an entirely personalized performance directly into a voice recorder and send it to you. You can pick which of 3 different keys he'll record it in, there's an optional bridge for an additional $267.18 (you know you want it), and at the beginning of the song, he'll state the date, time, location, the recording number and "the full first, middle, and last name of the person who orders it." The voice recorder itself will also be signed and numbered.

In the FAQ, he makes it clear that the full name is absolutely required:

Q: I’m going to put a weird fake name in there, like Hoobop Skibbyskabby Lorbowl–will you say it?

A: No. Essential to this piece is the actual, full name of the person who purchases it. If your name is indeed along the lines of “Hoobop Skibbyskabby Lorbowl,” you may be asked to provide documentation proving this is indeed your name.

Q: I hate my middle name! Will you omit it from my recording of “Dogs/Demons”?

A: Again, essential to this piece is the real, three-part name. If you have no middle name you may be asked to provide documentation; the same goes for multiple-middle-name possessors.

Q: I’d like the name of my friend, colleague, or partner said on my version of “Dogs/Demons,” as well as my own name, can you do that?

A: Alas, no: only one name can be in each recording.

As for buyers, he notes that they can "sell it to somebody else for more than you paid for it–you can auction it off, you can exhibit it. All that stuff." Though, he makes it clear that he still retains the copyright, he also notes "there will doubtless be some sold person-to-person, or bootlegged, and I accept this as the nature of the world."

He admits that he's more or less copying the idea of artist Ray Johnson as shown in the documentary How to Draw a Bunny.

While it's certainly not the best way to get that particular song heard widely, as part of a continuing strategy to draw attention for doing some unique things (and, who knows, maybe make some money in the process), it seems like an amusing experiment.

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Turns Out That The iPad Won't Magically Bring Back Scarcity For Magazines

Mike Masnick — Fri, 3 Aug 2012 15:31:00 PDT

Back in 2010, we suggested that the mad dash by various publications to build fee-based iPad apps was completely misguided, reminiscent of the belief in the 90s that publications could sell CD-ROM versions of their magazines. As we noted, there's nothing that special about the iPad format that takes away the natural abundance of the internet, and pretending that it was really any different than a portal to the wider internet with all its options was a fool's errand. In particular, we called out Rupert Murdoch's obsession with creating an iPad-only publication. In fact, we were confused why all the publishers investing so much in apps didn't put that same sort of effort into improving the features on their websites. A few months ago, the editor-in-chief and publisher of MIT's Tech Review more or less made the same point, saying that the future was on the web, betting on HTML 5 to make the site "look great on a laptop or desktop, tablet or smartphone" and then killing off the apps it had developed.

While others aren't going that far, there's more and more evidence that betting on apps was, in fact, the exact mistake that we predicted. Mathew Ingram summarizes how both The Huffington Post and Murdoch's The Daily have failed with their fee-based iPad app strategy. He makes the same basic point that a winner of our "most insightful comment" (by Robert Weller) made recently: that people get their news from lots of sources, so paying for a bunch of apps just doesn't make sense. In fact, it takes away from the value. As Ingram notes:

Whether media companies like it or not (and they mostly don’t), much of the news and other content we consume now comes via links shared through Twitter and Facebook and other networks, or through old-fashioned aggregators — such as Yahoo News or Google News — and newer ones like Flipboard and Zite and Prismatic that are tailored to mobile devices and a socially-driven news experience. Compared to that kind of model, a dedicated app from a magazine or a newspaper looks much less interesting, since by design it contains content from only a single outlet, and it usually doesn’t contain helpful things like links.

What he's basically saying is that the publishers focusing on apps are trying to create artificial scarcity by building digital silos. But that actually takes value away from those publications. People interact with the news in all sorts of ways that go way beyond "reading." But individual apps often make that more difficult. It involves extra effort (and cost) while providing less benefit. All because publishers are looking for something (anything!) that resembles some fencing so they can build a gate and go back to pretending they're in the gatekeeper business.

Hopefully publishers will finally stop looking to recreate the past by building artificial walls, and start looking at ways to make money that embrace the internet and what it enables.

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Real Scarcity Is An Important Part Of A Business Model; Artificial Scarcity Is A Terrible Business Model

Mike Masnick — Thu, 23 Feb 2012 13:18:20 PST

Partly in response to Rupert Murdoch whining about how it's too risky to make films if Congress doesn't set up protectionist plans that lock down the internet, venture capitalist Fred Wilson has a great post about how "scarcity is a shitty busines model." He focuses, mainly, on the windowing aspect of movie releases these days, and how many in the industry still insist that locking up content rather than making it widely available is the key to profiting. But Fred points out (as many people have for years), that this makes no sense:

Denying customers the films they want, on the devices they want to watch them, when they want to watch them is not a great business model. It leads to piracy, as we have discussed here many times, but more importantly it also leads to the loss of a transaction to a competing form of entertainment.

[....]

I've argued this point many times with film executives. They insist that they need their windows. They argue they need to manage access to their films to extract every last dollar from the market. That just doesn't make sense to me. If they went direct to their customers, offered their films at a reasonable price (say $5/view net to them), and if they made their films available day one everywhere in the world, I can't see how they wouldn't make more money.

He points out that this certainly will disrupt some players -- but for the studios, it will undoubtedly increase the pie. It may hurt the gatekeepers, but it helps pretty much everyone else.

The one quibble I'd have with Fred's post is he keeps saying that scarcity is a bad business model. I think he's overstating his case a bit. Scarcity remains, and scarcity is still a key part of a smart business model these days. What is a bad business model is relying on artificial scarcities -- scarcities that are created by choice and by fiction -- rather than market realities. A seat in a movie theater is a real scarcity. Fred's attention is a real scarcity. Those are important parts of a real business model. Pretending an infinitely copyable video is not... is an artificial scarcity and it's a bad business model.

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Getting It: In A World Of Digital Abundance, Sell The Scarcities

Glyn Moody — Wed, 7 Dec 2011 07:17:11 PST

A recurrent refrain from the copyright industries is that you can't make money from digital goods if they are freely available online. To which Techdirt has been pointing out for years that not only are there many ways of doing precisely that, but lots of people are already coining it as a result. One of the Guardian's columnists has noticed one of them - that in a world of digital abundance, you can make money by selling associated scarcities:

Earnings from recordings have been plummeting for a decade, while from live they are rising ever faster. Warner Brothers release albums free online to publicise forthcoming concerts. In Britain HMV is closing 40 shops while tickets for a Rihanna concert can cost �330 [$500], and for Coldplay �180 [$280]. A seat for Madonna is more expensive than her entire recorded output. A top American performer would reckon to earn between 80% and 90% of revenue from live performance. In the US alone, touring revenue that grossed $1bn in 1995 rose to $4.6bn last year.

The article then goes on to list other manifestations of this trend, such as Tony Blair's $160,000 fee for a speech "in the flesh"; a doubling of attendances at museums and galleries; 90% audience levels at the UK's National Theatre and Royal Shakespeare Company; and the fact that even "humble" authors find "appearances at literary festivals (those that pay) can compensate for dwindling book advances and, in the case of poets, eroding copyrights."

But one of the most telling examples is the following:

Performers such as Stephen Fry have taken to reading their books in public, Dickens-style

Dickens undertook his American reading tours in part because piracy of his works was rampant there, so he made little money directly from the many published copies. But amidst this unwelcome abundance, he was still able to sell the ultimate scarcity – his presence – to earn handsomely from the reputation his pirated works created.

The same is true for countless other writers, musicians and artists before Dickens, who lived when there was little or no copyright, and whose works could thus be copied freely. In other words, people have been using abundance to sell scarcity not just for years, but for centuries. Maybe it's time today's copyright industries got the message.

Follow me @glynmoody on Twitter or identi.ca, and on Google+

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Star Trek In The Age Of Intellectual Property

Mike Masnick — Fri, 22 Jul 2011 18:24:56 PDT

Over the years, plenty of people have used the Star Trek: TNG "Replicator" analogy to try to discuss intellectual property issues. I recall writing a piece using that as the central construct for a magazine article (that got spiked, unfortunately) nearly a decade ago. Over the years I've mentioned it here or there on the site, including in a discussion about how such a replicator would likely, contrary to the belief of many, create more new jobs. The argument there was that by reducing the input costs for lots of products, there would also be increased demand for absolutely everything surrounding those products that couldn't be replicated.

Of course, not everyone thinks so. Matthew Yglesias has been drawing some attention to a piece that Peter Frase wrote at the end of last year, in which he went through a thought exercise in which he discussed the world of the replicator... plus intellectual property:

This is the quality of intellectual property law that provides an economic foundation for anti-Star Trek: the ability to tell others how to use copies of an idea that you “own”. In order to get access to a replicator, you have to buy one from a company that licenses you the right to use a replicator. (Someone can’t give you a replicator or make one with their replicator, because that would violate their license). What’s more, every time you make something with the replicator, you also need to pay a licensing fee to whoever owns the rights to that particular thing. So if the Captain Jean-Luc Picard of anti-Star Trek wanted “tea, Earl Grey, hot”, he would have to pay the company that has copyrighted the replicator pattern for hot Earl Grey tea. (Presumably some other company owns the rights to cold tea.)

This solves the problem of how to maintain for-profit capitalist enterprise, at least on the surface. Anyone who tries to supply their needs from their replicator without paying the copyright cartels would become an outlaw, like today’s online file-sharers. But if everyone is constantly being forced to pay out money in licensing fees, then they need some way of earning money, and this brings up a new problem. With replicators around, there’s no need for human labor in any kind of physical production.

He goes on to discuss what kinds of jobs would be left in such a world, and it's pretty much lawyers and marketers and not much in between. There would be a few people needed to create the new things that could then be replicated, but he argues that wouldn't be a big moneymaker, since you could just crowdsource the best ideas for free.

Of course, I think he leaves out a few things. I would imagine there'd be a good business in being a replicator repairman, for example. However, as we've pointed out for years with digital content, every new abundance tends to create new scarcities, and there will always be new opportunities to build products and services around those scarcities. Of course, sometimes it's difficult to predict what those new offerings might be, but we've yet to discover a new abundance that didn't create massive new markets, so I have trouble believing that an abundance of physical goods would suddenly stop that general principle.

Obviously, if it's easy to get tangible goods, it's likely that most of the new jobs would be in services, rather than goods, but that's not necessarily a bad thing. Of course, to even have this happen, we'd have to get past the intellectual property hurdle, that the estate of Gene Roddenberry might claim rights over your replicator...

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Culture is Anti-Rivalrous

Nina Paley — Tue, 12 Jul 2011 12:44:23 PDT

Economists talk about rivalrous and non-rivalrous goods, but Culture is neither rivalrous, nor non-rivalrous; it is anti-rivalrous.

I. Rivalrous

Rivalrous goods diminish in value the more they are used. For example, a bicycle: if I use it, it gets me from here to there; if you use it, it gets me nowhere. If I acquire your bicycle, you don't have it any more. Only one of us can have the bicycle at one time. We can share it to a limited extent, but the more it's used the less it's worth; it gets dinged up and wears out. The more people use the bicycle, the less utility it has.

If I steal your bicycle, you have to take the bus

All material things - things made of atoms - are rivalrous, because an object cannot be in two places at the same time. Everything in the physical world is rivalrous, even if it's abundant.

A commons is a rivalrous good. Hence the "tragedy of the commons": the more people use a square of land, the less valuable it is to each of them. The grass gets eaten too fast to grow back, the soil can't handle the incoming rate of sheep shit, and degradation ensues.

Fig. 1: a lovely day for grazing on the commons

Fig 2: Tragedy strikes

Rivalrous and non-rivalrous are often confused with scarce and abundant, but they're not the same thing. Air is abundant, but it is still rivalrous - some "users" could make it toxic for the rest of us, because air is not infinite. Land and water are so abundant in North America that Native Americans couldn't imagine owning or depleting them, and look what happened. We treat the oceans as infinite, but they are not; human pollution and exploitation is killing ocean life. We also pollute the vast ocean of air - hence acid rain. Air and oceans are commons.

Commons are commonly-held rivalrous goods. Because they are rivalrous, some uses (or over-use) can poison them or otherwise diminish their value. For that reason, Commons(es) actually merit rules and regulations.

But Culture is not a commons, because Culture is not rivalrous and can't be owned.

II. Non-Rivalrous

Non-rivalrous goods, as their name implies, don't diminish in value the more they are used. A favorite example of a non-rivalrous good is the light from a lighthouse. It shines for everyone. No matter how much you look at it, I can see it too.

Everyone can see the light from the lighthouse...

This is a pretty good example, but it's not quite right. Theoretically, if enough tall boats are in the harbor, they actually can crowd out your lighthouse light.

...except when they can't. Once again, too many sheep ruin everything.

Consider sunlight in Manhattan; yes, the sun shines for everyone, but if they build a high-rise next to your apartment you won't see it any more. There's only so much sunlight that hits a certain area, and that light is rivalrous. You can always move, of course - except land, while abundant, is definitely rivalrous and not infinite, so you'll have to engage in some rivalry to do so.

The light metaphor has another problem: is light a particle, or a wave? If it's a particle, then light is rivalrous. If it's a wave, then it's not.

Thomas Jefferson used the example of candle fire, writing "He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me." Of course candles burn out but it's not the light that's diminished, it's the candle. That's a great metaphor for attention, which is scarce: once our attention is used up, the light goes out.
But Culture is not non-rivalrous either.

III. Anti-Rivalrous

Anti-rivalrous goods increase in value the more they are used. For example: language. A language isn't much use to me if I can't speak it with someone else. You need at least two people to communicate with language. The more people who use the language, the more value it has.

Which language do you think more people would pay to learn?

English
Esperanto
Latvian

More people spend money and time learning English, simply because so many people already speak English.

Social networking platforms increase in value when more people use them. I use Facebook not because I love Facebook (I certainly don't), but because everyone else uses Facebook. I just joined Google+, and will use that instead of Facebook if enough other people use it. If enough people flock to yet another platform, I'll use that instead. Meanwhile I love Diaspora in principle (I was an early Kickstarter backer, before they surpassed their initial $ goal), but I don't use it, because not enough other people do. When it comes to social networks, I am a sheep.

A classic "Nina's Adventures" comic, which I only realized was anti-rivalrous a few years ago. ♡ Copying is an act of love. Please copy and share. Culture is anti-rivalrous. The more people know and sing a song, the more cultural value it has. The more people watch my film Sita Sings the Blues, or read my comic strip Mimi & Eunice, the happier I'll be, so please go do that now and then come back and read the rest of this paragraph. The more people know a movie or TV show, the more cultural value it has. Monty Python references attest to the cultural value of Monty Python - we even use the word "spam" because of it. Shakespeare's works are culturally valuable, and phrases from them live on in the language even apart from the plays ("I think she doth protest to much," etc.). The more people refer to Monty Python and Shakespeare, the more you just gotta see em, amiright? Or not, it doesn't matter whether you see them, you're already speaking them. That all culture is a kind of language, I'll leave for another discussion.

Cultural works increase in value the more people use them. That's not rivalrous, or non-rivalrous; that's anti-rivalrous.

IV. Some Exceptions That Prove The rule

I know what you're gonna say now: "what about my credit card number? That doesn't increase in value if it's shared!!" That's right, Einstein, because your credit card number is not culture. Here are two things that aren't made of atoms and are nonetheless rivalrous:

1. Identity
2. Secrets

Identity is some mysterious mindfuck that my very smart friend Joe Futrelle says no one has satisfactorily defined yet. But whatever identity is, it's rivalrous. If more people were named Nina Paley and had my home address and social security number, I'd be screwed. But that should highlight that my name, home address, and social security number aren't culture. They may be information, but they're not culture. They don't increase in value the more they are used.

Secrets have power as long as they're secrets. They lose their power when they are shared. When I become conscious of some secret that's weighing on me, I share it with at least one other person (even if they are a confidante also sworn to secrecy): I can feel the secret's power diffused just by the act of sharing. Notice I use "power" here instead of "value." Secrets may be of little or no cultural value - most people don't really care who that guy slept with 6 years ago - but they can certainly have power, especially when used for blackmail. Which is why it's important they remain secrets, so they're not used for blackmail, or harassment, or any reason at all. Privacy is important. Because secrets aren't culture. Culture is public. Secrets are, well, secret. Until they're public, whereupon we get scandalous stories that are culture - humans love to gossip - but aren't secrets any more. The story might gain value, but the secret loses it.

Money vs. Currency
And how about money? Money is scarce, right? It has to be, or it doesn't work (thanks Wall Street & Federal Reserve for screwing that up). But currency has more value the more it is used! Would you rather have your scarce 100 Euros in Euros, or in giant immoveable donut-like stones on a remote island?

A large rai stone in the village of Gachpar

I remember when the US dollar was a valuable currency; markets all over the world wanted dollars, because they were so widely used and exchangeable. So you want your money to be scarce, but you want your currency as widely used as possible.

V. Conclusion

It's important to treat scarce goods as scarce, abundant goods as abundant, rivalrous goods as rivalrous, and so on. Wall Street treated money, a scarce and rivalrous good, as though it were infinite/non-rivalrous, and look what happened. Power companies, and the politicians they own, treat the environment, which is a rivalrous commons, as though it were non-rivalrous, and we have dying oceans and mass extinctions and other events you don't want to think about so much that you'll just get mad at me if I point them out here so I'll stop. The RIAA and MPAA, and the politicians they own, treat Culture, which is anti-rivalrous, as though it's rivalrous. They are doing for Culture what Wall Street did for the economy. If you want to help make this better, treat Culture like what it is: an anti-rivalrous good that increases in value the more it is used.

Addendum: Why do I say Culture is not a Commons?

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Fortune Decides To Let Everyone Else Get All The Traffic For Its Story On Secrets Of Apple Culture

Mike Masnick — Tue, 10 May 2011 19:04:00 PDT

Last year, we wrote about how Rolling Stone ceded the web to other publications on its big story about General Stanley McChrystal, which resulted in him losing his job a few days later. Rolling Stone decided to hold off publishing the story to the web, allowing lots of others to write up stories and get the web traffic. In that case, it seemed more like incompetence on the part of Rolling Stone rather than a consciously clueless choice. However, the same cannot be said for Fortune Magazine, which apparently published a detailed story about culture inside of Apple, getting "secret" stories from insiders out of the notoriously secretive company. It's the type of story that would have driven a ton of traffic online normally... except that Fortune made the conscious decision not to put it online... except if you have an iPad.

Of course, all that's done is allowed lots of other web sites to receive all the traffic instead.

Fortune's excuse for this is that its existing subscribers were pissed off about the content being online:

"There was this feeling that we’re sort of pissing off our subscribers,” by publishing the magazine’s best stories on the Web, often before paying customers got their hands on them, he says. “The problem was there wasn’t anything we could have offered them before."

Really? From whom? That sounds like the sort of "complaint" that execs at a publication come up with to rationalize a really bad decision. I'm all for providing subscribers greater value, but it should be done by adding value to what you offer them, not taking away value from others that can easily be provided by competitors...

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Dan Bull Auctioning Off A Custom Song On eBay

Mike Masnick — Mon, 9 May 2011 15:20:27 PDT

We've written about singer Dan Bull a bunch of times, including doing a case study on him and highlighting a few of his songs, including Death of ACTA and Dear Lily, both embedded here:

Beyond singing about copyright issues, and releasing his stuff for free (though I bought his album), it appears he's experimenting in other areas of business models as well. For years, we've pointed out that one of the key "scarcities" that can be sold is the creation of new works. This is a point that confuses many, since a song is not scarce once created (and made available in digital format). But the creation of a new work is very much a scarcity. Dan seems to recognize that and is running an experiment in which he tries auctioning off the creation of a new song on eBay. Since eBay auctions disappear, here's a screenshot: The text reads:

Hello, my name is Daniel and I make songs. You can see my stuff by typing "Dan Bull" into YouTube. I've decided to find out what my music is really worth so I'm sticking myself on eBay. The winning bidder will receive:

One song on any topic of your choice, written, performed and produced by Dan Bull. Duration: 2.30 - 3.30 approx. I will liaise with you via e-mail if there any specific details you wish to include in the song. You will be free to use and redistribute this song in any way you wish, however I reserve the right to do the same. The song will be delivered to you in MP3 format within 14 days of the winning bid.

Get bidding now, because this may never happen again. Love from Dan :) x

Pretty cool experiment. We'll be interested to see how it turns out...

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Discussions About Scarcity vs. Abundance In Copyright From A Century Ago Sound Just Like Those Today

Mike Masnick — Fri, 1 Apr 2011 19:39:00 PDT

A reader by the name of Shadow-Slider points us to a fascinating report from a 1897 Copyright Commission in Great Britain in which the report points out how content is different than real property because of the difference between scarcity and abundance. It sounds very much like what we discuss here -- just well over a century ago.

Some of the witnesses whose evidence has been received by Your Majesty's Commission have urged the claim of authors to perpetual copyright, on the ground that the right of an author to property in his published works is as complete and extends as far as the right of any person to any property whatever.

If this analogy were admitted, it appears to me that it would be difficult to dispute the claim of an author to perpetual copyright; but I venture to submit that the claim of an author to a right of property in his published works rests upon a radical economic fallacy, viz., a misconception of the nature of the law of value.

The necessity which is recognize in all civilised societies of conferring rights of private or personal property arises from the limited supply of that for which there is an unlimited demand. It is only from a limitation of supply that there can be any value in exchange.

But supply may be limited either by natural or artificial causes.

Wherever supply is limited by natural causes it is necessary in the public interest to limit the demand, by investing the possessor of the subject of it with proprietary rights, for without them the progressive increase of an unlimited demand operation on a limited supply would lead to the dissolution of society. To whatever extent these rights partake, as they often must, of the character of a monopoly, they do so in virtue of attributes derived from the nature of things, which may be regretted, but must be accepted as inevitable, and which the law is therefore compelled to recognise.

There is no such necessity in the case of those objects which are useful or necessary for mankind of which supply is unlimited. In that which is absolutely unlimited, in the air, in sunlight, in the forces of nature, such as heat, electricity, magnetism, &c., there is no natural exchangeable value, and therefore no property; that which, although absolutely unlimited in itself, nevertheless exceeds all probable or possible demands in exchange, there can be little or no value, and little or no property, e.g., in the sea, in the water of large or unfrequented streams, in the game of a wild country, or in the fish of the sea. It is in fact scarcity which creates value, and renders property necessary. Property exists in order to provide against the evils of natural scarcity. A limitation of supply by artificial causes, creates scarcity in order to create property. To limit that which is in its nature unlimited, and thereby to confer an exchangeable value on that which, without such interference, would be the gratuitous possession of mankind, is to create an artificial monopoly which has no warrant in the nature of things, which serves to produce scarcity where there ought to be abundance, and to confine to the few gifts which were intended for all.

Apparently my own thoughts on this stuff is accidentally derivative of what came way before...

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Dear Hollywood: It's Time To Realize Artificial Scarcity Is Gone... And That's A Good Thing

Mike Masnick — Thu, 10 Mar 2011 10:36:57 PST

If you haven't yet, you really should read Greg Sandoval's excellent report from Hollywood on how the major studios are feeling about Netflix these days. The whole thing is quite enlightening, but can basically be summed up thusly:

The prevailing feeling among the studio managers I spoke with is that Netflix's streaming service will be a good outlet for the least-valuable material. If they have their way, Netflix will be the Internet equivalent of a swap meet, where only the most dated and least popular titles are available. The studios are betting that eventually people will get bored with the service.

Yeah. Good luck with that. But the statement I wanted to focus on was one that preceded that, and which explains why the movie studio execs think the above is even possible:

Netflix takes the scarcity out of the equation, one film industry insider said. People can watch any of the service's commercial-free films and shows anytime they want.

Notice that this is said as if this is a bad thing. And that, right there, is a one sentence summary of all of the industry's problems. It still looks upon scarcity as a good thing, and is seeking ways to bring back scarcity where there is none. This shows a rather confused understanding of economics -- one that doesn't recognize that abundance increases market size and opportunity, while scarcity decreases consumer value and market potential. Abundance is what leads to economic growth. It may require different strategies to capture pieces of that economic growth, but it inevitably leads to greater economic opportunity.

And part of the way that you capture that economic opportunity is to focus on adding value to consumers not taking it away. Yet what these studio execs appear to be doing is exactly the opposite. Consumers like Netflix's setup because it takes away scarcity. They see that as a good thing. They're actually paying for that. And the studios' reaction is that this has to go away? It's incredible. What kind of execs actually look at what consumers like and are willing to pay for... and decide "that has to be shoved aside"? If the studios are flopping it's because of thinking like this.

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Crispin Glover Using Scarce Resources To Sell His Film... But May Be Limiting His Opportunities

Mike Masnick — Tue, 1 Feb 2011 19:07:00 PST

richw alerts us to an excellent writeup he did about an interview Rich conducted with actor/filmmaker Crispin Glover. Glover's known as a bit of an oddball, but he is doing some interesting things. He's been making a "trilogy" of films, and focusing on selling "scarcities" around the films, focused mainly on his time. Not all that different from one element of Kevin Smith's plan, Glover is touring with the movie and doing Q&A sessions afterwards, along with some other theatrics and a book signing (for which you can buy his various books).

However, Rich notes that he appears to be limiting his overall strategy. While he's focused on selling the scarce, he hasn't also realized the additional value of setting infinite goods free. Instead, according to Rich, he claimed repeatedly that much of what he was doing was due to his fear of piracy. So, he's more or less trying to keep everything exclusive to where he can control it -- so he's not offering any other way to see the movie other than through this tour. This is, certainly, one strategy out there for dealing with the digital marketplace, but it's unlikely to be all that effective long term. Using the infinite as a promotional effort can help increase the value of the scarce good, increasing the audience while also potentially increasing how much they're willing to pay for things. However, in keeping the work locked up, it potentially limits those who know or care about the film, and makes the audience smaller, which is generally not a great business strategy. So there are definitely some interesting lessons to be learned, but it's not clear that this strategy really makes that much sense.

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When A Humor Site Understands The Implications Of Abundance Better Than The 'Experts'...

Mike Masnick — Wed, 20 Oct 2010 11:44:24 PDT

A whole bunch of you* sent over the article from humor site Cracked, all about scarcity and abundance in economics. Wait, what? A humor site? Yeah, a humor site. Of course, they don't officially claim it's an article about scarcity and abundance in economics (though, they come close). Instead, in true linkbait-fashion it's called "5 Reasons The Future Will Be Ruled By B.S." Nicely done. Then, it focuses on the idea that the future can be described as FARTS: Forced ARTificial Scarcity.

That, of course, is the kind of thing we talk about all the time, and damn these Cracked guys, they actually make it funny:

Remember the debut of Sony's futuristic Matrix-style virtual world, PlayStation Home? There was a striking moment when the guys at Penny Arcade logged in and found themselves in a virtual bowling alley... standing in line. Waiting for a lane to open up. In a virtual world where the bowling alley didn't actually exist. It's all just ones and zeros on a server--the bowling lanes should be effectively infinite, but where there should have been thousands of lanes for anybody who wanted one, there was only FARTS.

The key point, raised at the beginning of the article, which is the point we've been trying (and most likely, failing) to make for years, is that this isn't just about music and movies. Issues of abundance where there used to be scarcity is going to impact all sorts of industries, even beyond what many people expect. Or, as the folks at Cracked explain:

Which brings me to an amusing story. In the last few decades, thousands of babies in Third World countries have died from contaminated baby formula. Wait, did I say amusing? I typed the wrong word there. Anyway, what happens is the mothers mix the baby formula with contaminated water, because sanitation is poor. So why the hell do the mothers feed their infants poison formula when they can just produce milk, for free, from their own bodies? The answer is that they do it because the manufacturer of the formula, Nestle, ran lots of ads telling them to.

If you want to know what the future looks like, there it is. The future is going to hang on whether or not businesses will be able to convince you to pay money for things you can otherwise get for free.

Some of you think I'm about to talk about file sharing and DRM and the evil record labels. But that's just a teaser of what's coming. The world has changed. All the rules we were trained to believe about society from birth until now are about to go out the window.

In other words, get ready to learn how to "compete with free." Of course, it turns out that it's really not that difficult. They also do a bang up job walking through the basic thought process that goes into the steps down the road of abundance:

An ebook sold to a library will thus delete itself out of existence after a year, or after X number of times it had been lent out. This is a big source of controversy between publishers and public libraries, maybe because both of them know they've found the loose thread that can unravel all of society. After all:
A. Why can't the library just buy as many digital copies as are needed for the customers, and keep them forever, if they don't naturally degrade?

B. Wait a second. It's just a digital file. Why not just buy one copy, and just copy and paste it for every customer who wants to read it?

C. Wait a second. Why do you need the library at all? Why can't a customer just buy a copy from the publisher and "lend" copies to all of his friends?

D. Wait a second. If no printing and binding needs to be done, why do you need the publisher? Just buy it directly from the author.

E. Waaaaait a second. Why buy it? Once the author makes one copy available, why can't everyone just grab it for free?

So, the article's author, David Wong, concludes, the future of pretty much all commerce is going to be about marketers trying to convince you to buy stuff that you can get for free anyway, and when he notes that you probably think you're too smart to fall for that, he points out that you probably have already, and goes about listing just a couple of examples on his own desk, such as bottled water, Windows on his computer and Excedrin pain medication.

Now, I recognize that it's a humor piece, and not meant to be taken that seriously, but since it makes some good points in a humorous manner, I do want to push back (not in a humorous manner) on some of the points made in the article. First up, I'd argue that what he's talking about isn't really "forced artificial scarcity" at all. Forced artificial scarcity is when the laws are set up to artificially create the barriers that leave you little choice to buy. What he's talking about isn't forced, but voluntary -- and that's cool. And it's also not artificial. The reason people buy things, even when there are free alternatives is because of some very real scarcities, such as convenience, trust, reputation and patronage. So, for example, when he talks about buying Excedrin over the generic, he's paying for a real, not artificial scarcity (and certainly not forced). He's paying extra for the very real scarcity of brand comfort and trust.

Separately, he exaggerates (yes, yes, I know, it's a comedy piece, and exaggerating is how comedy works, but I'm the idiot trying to pretend there are real lessons in it, so hear me out) the jobs "lost" due to these changes. The jobs change, certainly, but they're not necessarily lost. And that's because with each abundance, all kinds of new scarcities are created as well. Historically, as industries defined by scarcity move to abundance, the new scarcities tend to create even more new jobs. Now, it's true that it's not always easy for those in the old jobs to make the switch to the new ones, but almost always other new jobs do open up (which were often more lucrative than the old jobs). Remember when automated phone switching was going to put all those operators out of work? Except, yeah, that didn't happen. Instead, automated switching created tons of new jobs, such as call centers, and led to new innovations (like the internet) that created even more new jobs.

But, yeah, those are finer points to nitpick in an otherwise quite enjoyable piece on the economics of scarcity and abundance. And, now, I'm left wondering why I don't go out and hire someone who's actually funny to write about the various important issues we like to cover on this site...

* And despite so many of you sending it in, we already knew about it by the time you did. That's because hidden in the middle of the article there, Cracked links to our story about libraries fighting with publishers over ebooks. And, despite the fact that this is the sort of link in the middle of a long story that people normally ignore, Cracked appears to get more traffic than Google and Facebook combined, and so even when an infinitesimally small number of those readers chose to click on that obscure, boring-sounding link in the middle of such an article, it shows up prominently in our log files, making me wonder who cracked Cracked to add a link to Techdirt and what could I ever do to get that sort of traffic to an article on the economics of abundance and scarcity?

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Abundance And Scarcity In Privacy

Mike Masnick — Fri, 6 Aug 2010 19:39:00 PDT

As you know, we talk an awful lot about understanding abundance and scarcity around here, and how that's really important if you want to understand what the future holds for a variety of different businesses. Failing to understand abundance and scarcity is a recipe for disaster these days. And the more you look, the more you realize that technology is creating new abundances and new scarcities in all sorts of places. Tons of industries are either already experiencing this (entertainment, content, publishing, news, software, etc.) or are about to (energy, health care, finance, etc.). But it's also showing up in other realms as well, and Jeff Jarvis has a smart post about how it's impacting privacy. He summarizes it in a very catchy manner:

Once-abundant privacy is now scarce. Once-scarce publicness is now abundant.

The concept of "publicness" is one that's been getting greater attention lately (Jarvis is writing a book on the subject, apparently), but it's this recognition of the flipside of privacy. As Jarvis notes, it used to be really "scarce." It was very difficult to have large parts of your life public. It only happened for a very small number of people, and involved a lot of gatekeepers. That's no longer the case.

The economics of abundant publicness mean that the old gatekeepers -- editors, agents, producers, publishers, broadcasters, the entire media industry -- overnight lost their power. That's why they're so upset. That's why they keep complaining about all these amateurs taking over their sacred turf -- because they are. What they thought was valuable -- their control -- now had no value. They can't sell their casting couches and presses on craigslist for nothin'. They are being beat by those who break up their control and hand it out for free (Google, craigslist, Facebook, YouTube, etc.).

Abundant publicness also creates new value. Google search is made up of that value. Twitter movie chatter predicting box-office success is that value. Annotations on maps, restaurant reviews, health trends, customer desires -- and on and on -- all find value in our publicness and so new companies are being built on that value. That is why it is in the interests of both companies and customers to be public and why privacy -- when it does compete, when it discourages publicness -- becomes a nuisance for them.

I don't totally agree with this. I think he takes the argument slightly too far in the name of simplicity. That is, I still think that many of the jobs carried out by those old gatekeepers -- editors, agents, producers, publishers, broadcasters, the entire media industry -- actually do still have tremendous value. But a lot of how it works has changed. The problem is when they focus solely on the gatekeeping function as the value (which is Jarvis' point -- many really hung their hat solely on the gatekeeping function), then it's difficult for them to adapt. Those who focused (and still do) on providing greater overall value beyond the gatekeeping still do have tremendous value. As proof that Jarvis believes that, just look at his post about that new book he's working on where he talks up his "brilliant editor" at publishing giant HarperCollins. There's value there, it's just not in gatekeeping.

The other point in all this, which Jarvis mentions more as an aside, is that this is really just looking at the economics of free from a different angle. That is, the reason that such "publicness" is so abundant is because it's so easy for people to spread their works (and share the works of others) for free. And that increases the value of other things that you might do.

Jarvis focuses on the "publicness" side of the equation, rather than the privacy part of it, but the idea that "once abundant privacy is now scarce," is also fascinating to think about as well, and certainly fits with various themes that have been communicated over and over again -- often as simply as Scott McNealy's famous: "You have zero privacy anyway. Get over it." I don't think we've quite reached the stage of the David Brin-style world where radical, extreme transparency replaces privacy, but if you want to extrapolate out some interesting scenarios, it's fun to at least pull the lever that far in thinking about what it would mean.

Instead, I actually think that it highlights the theme of the post we recently had about how everyone has something to hide. As privacy becomes more and more scarce, those things we have to hide actually become increasingly valuable as well. Being able to keep that privacy increases in value. And that is going to lead to some very interesting and controversial business models and situations over time.

It's all a very interesting subject that I'm sure we'll be talking about a lot around here over the next few years.

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Understanding What's Scarce And What's Not...

Mike Masnick — Tue, 9 Feb 2010 04:49:51 PST

A bunch of folks sent over Jeff Jarvis' recent blog post entitled stop selling scarcity, which I actually think is slightly misleading. If you read the details, he's actually saying that you should very much sell scarcities -- but that you should avoid pretending that you're selling a scarcity when you're really selling something that it infinitely available:

If you are selling a scarcity -- an inventory -- of any nonphysical goods today, stop, turn around, and start selling value -- outcomes -- instead. Or you're screwed. Apply this rule to many enterprises: advertising, media, content, information, education, consultation, and to some extent, performance.

I have to admit, while I get what he's saying, I'm not sure it's particularly useful to most people, because they've always thought they were selling "outcomes" in the first place. I think that a similar post by filmmaker Ross Pruden may actually be a lot more useful, in that he talks about selling experiences, which is something that's scarce:

You think you sell a movie--you do not.
You think you sell a book--you do not.
You think you sell a song--you do not.

You sell an experience, something communicated, something elusive and ephemeral. Something mystical and transformative and inspiring. All these abstract things simply come in the shape of a movie, a book, or a song.

Never before has it been possible to strip away these experiences from the product... until now, the Digital Age.

The Digital Age lets us duplicate products infinitely. And, for the first time in human history, creators are not deprived of their original copy.

From that he points out the simple problem that many folks who were used to the old way are facing:

...now we can read a novel without buying a book.
...now we can watch a movie without buying a movie ticket.
...now we can listen to a song without buying a record.

From there, he lists out a bunch of different scarcities that come up with you separate the experience from the physical product, and notes that this is how things have always worked in reality, it's just that conceptually we merged the experience with the scarce physical product, which is why it's often so difficult to separate them conceptually now that they've become untied in reality.

The key to the Digital Age is to recognize that many existing products already embed intangibles, which is why those products are still being bought. However, once those tangibles stop being offered, or a competitor offers better intangibles, the customer will go elsewhere.

Creators can sustain. They will sustain. The market wants to sustain creators. Yet only the ones who realize that they don't sell products, but experiences. Only those creators are the ones worthy of survival in the Digital Age.

This is a great point, and more eloquent than my own post from a few years back on how every "product" was really a mix of scarce and infinite goods. To understand what the technology allows, and how to embrace it in a way that's sustainable, you need to be able to break out the components, and properly figure out what's really scarce, and what isn't.

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From Infinite To Scarce: xkcd Goes The Book Route

Mike Masnick — Mon, 20 Apr 2009 16:59:33 PDT

A bunch of folks have been sending in the NY Times story about how the online comic xkcd is going to be putting out a book, and that it's being done avoiding the traditional book publishing process. There are some key quotes in there, including:

In fact, the xkcd story previews the much more likely future of books in which they are prized as artifacts, not as mechanisms for delivering written material to readers. This is print book as vinyl record -- admired for its look and feel, its cover art, and relative permanence -- but not so much for convenience.

And then there's the more important point about Randall Munroe not worrying about copying of the content -- and instead focusing on the other direction:

Publishing a book is an extension of the selling of items like T-shirts and posters, which pays the bills, he said, to a "free culture" mind-set about the cartoons themselves. "We have been encouraging people to share things, saying that it is a good business decision," he said....

One trick in transferring the material from online to print has been how to recreate the "title text" that comments on the strip when your cursor hovers over it.

"It's not supposed to be a punch line, but hopefully if you didn't laugh, you'll laugh at this," he said. The title text will appear where the tiny copyright notice would appear on a traditional strip.

Does that mean that the book won't carry a traditional copyright and instead take its lead from the online comic strip itself, which Mr. Munroe licenses under Creative Commons, allowing noncommercial re-use as long as credit is given?

"To anyone who wants to photocopy, bind, and give a copy of the book to their loved one -- more power to them," he said. "He/She will likely be disappointed that you're so cheap, though."

It's been clear from pretty much the beginning that Munroe understands that getting more widely known is a lot more important than worrying about "piracy," and it's great to see him take that attitude even further.

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Blizzard Adds Another Scarcity To Sell Around World Of Warcraft: 3D Figurines

Mike Masnick — Wed, 28 Jan 2009 05:03:51 PST

We're always looking for interesting examples of companies using infinite goods to sell scarcities, and George Johnston points us to one side business that Blizzard Entertainment seems to have gotten into to make more money from World of Warcraft. The company already gives out its basic software for free, but sells the (scarce) service of connecting to its game servers to play (even though there are "free" servers out there, many end up paying for the official one, because it's better, more stable, and has many more players). However, Johnston noticed that Blizzard has also done a deal with a 3D printing company (usually used for things like rapid prototyping) to allow game players to buy 3D models of their players. This is unlikely to ever become a really big business, but it highlights, yet again, that there are numerous different scarcities around any particular product -- and a good business is one that goes out and explores that wide variety of options to figure out what they can sell.

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Scarcity Is A Bad Thing, So Why Would You Want To Artificially Add Scarcity?

Mike Masnick — Thu, 18 Dec 2008 04:26:38 PST

If there were no such thing as scarcity in the world, there wouldn't be a need for property rights, because there would be no borders to worry about. The entire reason why we worry about property and ownership and borders and allocation is because these things are scarce and we're concerned about the most efficient way to split up those scarce resources, without having too many arguments over who controls what scarce bit. If there were no scarcity, everyone could have whatever they wanted, and there would be no reason to worry about the rest. That's why I've never quite understood the rush to create artificial scarcity, as in the scarcity created by intellectual property laws.

It's a situation where you have the opposite of scarcity. You have abundance, such that there need not be any argument over ownership, because everyone can have what they want... and suddenly people want to take away the good thing (abundance!) and replace it with limits and a situation that is worse for everyone. Why would you ever do that, unless you either don't understand economics or you dislike mankind and would prefer that the world have fewer resources and more arguments over ownership.

Apparently, some others feel the same way. Derek Reed points to an amusing quote in a post by Tycho over at Penny Arcade concerning Sony's Playstation Home:

"Chief among these bizarre maneuvers is the idea that, when manufacturing their flimsy dystopia, they actually ported the pernicious notion of scarcity from our world into their digital one. This is like having the ability to shape being from non-being at the subatomic level, and the first thing you decide to make is AIDS."

While an extreme quote, he's making an important point. If you are creating a new world, where unfortunate and damaging resource limitations of other worlds wouldn't be necessary, why would you arbitrarily add those limitations back in? Why would you arbitrarily shrink the resource pool?

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And What If Tangible Goods Become More Abundant?

Mike Masnick — Fri, 29 Aug 2008 10:55:00 PDT

Over the years, I've written plenty about the economics of infinite vs. scarce goods. Too often (and I do this on occasion as well) people default into thinking of "tangible" goods as being the scarce ones, and digital goods or information goods as being the infinite ones. But the definitions can certainly expand beyond that -- and there's also the possibility that material, tangible goods could one day lose much of their scarcity. Economist Arnold Kling, riffing on a post by Will Wilkinson about why energy isn't really scarce points out that, if energy isn't scarce, matter isn't scarce either.

In theory, as you solve "the energy problem" and figure out how to create energy cheaply, then you can make any material you want as it's needed cheaply as well. Then you're in a bit of the Star Trek replicator universe where even tangible products become much more abundant. We're still a ways off from that point, but it's worth thinking about as a thought experiment (especially as 3D printer technology improves rapidly). Indeed, Chris Anderson is also thinking along these lines, noting that technology is likely to solve both of the big "shortage" problems we're facing these days: energy and food -- if only government regulations would let them.

For those who think that copyright holders should try to artificially maintain scarcity, this may be a scary situation. After all, then the same "problem" facing copyright holders, will also face makers of tangible goods. But the truth is even if you switch tangible goods from scarce to abundant, it doesn't mean that you run out of scarcities to sell. Music is more abundant thanks to digital technologies, and there are still plenty of scarcities to sell for the music industry. There are always scarcities -- it's just that they're no longer tangible goods. Instead, business models will start to revolve around those non-tangible scarcities as well, such as time, attention and reputation. But these changes could create a rather radical shift in how economies function. So, even if it's pretty far out, it's worth considering the possibilities already.

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NBC Seems To Have Learned The Wrong Lesson About Scarcity

Mike Masnick — Wed, 20 Aug 2008 05:34:48 PDT

Of the various television companies, NBC Universal has always had the most trouble grasping the basic economics of scarcity and abundance, so perhaps it's no surprise that it's still misinterpreting the data that shows its mistake in trying to stop anyone from watching any of the major Olympic events live online. Instead, it forced people to wait until it was aired, hours later, on TV. This is leading to massive frustration, as people hear about various events, but can't see them for a while. Stunningly, NBC Universal boss Jeff Zucker seems to think this is a good thing, claiming:

"There's no question we did the right thing in holding the opening ceremony to air in prime time on NBC that night. The excitement that built out of word of mouth that the opening ceremony was the most spectacular thing that people had seen, that China had wanted to make a statement and they made a statement and people wanted to see that."

Read that a few times and spot the logical inconsistency. He's basically saying that by forbidding people from seeing the content and frustrating them, it built up word of mouth excitement. Apparently, it hasn't occurred to him (despite what his own data suggests) that another way to have built up word of mouth about the events would be to show them so that people could watch them live and tell their friends about it getting them to go see it when it gets rebroadcast again in prime time.

At the link above, Chris Matyszczyk, lays on the satire in responding to this view that forced deprivation breeds word of mouth demand:

So one assumes, given that this strategy has been so successful, the next time NBC's cameras exclusively witness, say, an assassination or a politician saying or doing something nutty, they will keep it to themselves until prime time comes along. You know, just to build up the excitement.

Let's hold NBC to this standard, shall we?

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Musician Talks About Success In Getting Fans To Pay For The Album Before Its Created

Mike Masnick — Fri, 15 Aug 2008 08:01:00 PDT

Whenever we talk about business models involving giving away "infinite" goods and charging for "scarce" goods, one of the points that we try to emphasize (though it doesn't always come across) is that some of the best business models are ones where you get paid for the creation of content, rather than copies of existing content. When it comes to music, we've suggested a variety of options, and pointed to stories like Jill Sobule and Maria Schneider, who have set up models where fans chip in to pay for the production of the album itself -- and, in return get lots of extras back in return (including access to the musician, early releases, credits, etc.).

Mathew Ingram points us to a blog post by Mark Kelly, the keyboard player with the band Marillion, who have actually been using just such a method of producing their albums for almost a decade:

In 1999 we released our final contracted album for Castle Records and, in anticipation of the way we planned to do business in the future, called it Marillion.com. We had already collected the email addresses of more than 20,000 fans through free CDs, downloads, etc. and by asking these fans to order and pay for the upcoming CD in advance, we were able to finance the writing and recording.

We maximised the profit from the pre-order by cutting out the record companies, distributors and retailers, manufacturing and shipping direct. We also released the album in the shops through an independent distributor to reach the fans not on the internet.

We released three more albums between 2001 and 2007 using this business model and despite continuing falls in CD sales worldwide we have managed to shield ourselves from the worst by continuing to build our database of email addresses, currently more than 65,000, and by offering special edition pre-order CDs with 128-page hardcover books containing beautiful artwork.

I'm sure many people still download our music illegally but the real hardcore fans want the special editions and are willing to pay £25 or more for them.

This is another fantastic example of the business model in action: focusing on connecting with your true fans, focusing on selling scarce goods (remember, the creation of content is a scarcity -- existing content is not) and giving people a real reason to buy (such as "special edition pre-order CDs with 128-page hardcover books containing beautiful artwork").

Unfortunately, after describing this great business model, Kelly veers off on a tangent that doesn't seem to fit with the point he makes in the first half. Even though his band has figured out how to profit without having to worry about "piracy," he seems to support the idea that ISPs should be responsible for file sharing, and he doesn't seem to recognize how promoting file sharing himself would help create more fans to add to that 65,000-strong email list. But, still, even though the end of the post doesn't quite match with the first half, it's great to see another band find success with this sort of business model.

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Bad Ideas: Instituting Artificial Scarcity To Annoy Fans Into Buying Now

Mike Masnick — Tue, 3 Jun 2008 11:54:00 PDT

The more you look at the economics of abundance, you realize how ridiculous it is to ever artificially create scarcity. It only serves to shrink a market and leave open huge opportunities for competitors to wipe you out. Most of the time, though, we're talking about things like copyrights and patents -- which many people (who haven't considered the matter thoroughly) don't think of as artificial scarcity. However, it's quite rare to see someone be totally open in defending artificial scarcity as a smart business model option. Reader Mart writes in to point to just such an editorial, over at Gamasutra, where Matt Matthews tries to make the case for why video game makers should create artificial scarcity in an attempt to have more control over their markets.

Specifically, he suggests that games should only be released and available for limited times before being pulled, with the idea being that this artificial scarcity would cause people to rush to buy now. This is part of the common misconception about artificial scarcity. It assumes a somewhat static market, where all the scarcity does is make the same number of people want to buy in a smaller window. That's simply untrue, and plenty of economic research in the space has shown that to be false. It's not difficult to understand why either. A purchase decision involves a variety of different factors, and if one of those factors is that the company selling the product is toying with you by putting extremely annoying limitations on the product, that's going to turn a lot of people off. It also opens up much wider opportunities for competing companies who don't toy with their customers and offers a product to whoever wants -- embracing the wider opportunities of the long tail, rather than shutting them off. The whole point of the long tail is that it expands your market -- whereas Matthews seems to want to destroy that expanded market in favor of additional control over a smaller market.

What seems to really get Matthews are two things, which he notes as being the core of the problem: "An infinitely long tail gluts the market, confounds the consumer, and commoditizes developers." As for "gluts" the market -- that's not a problem that you solve by artificial scarcity (limiting choice), it's a problem you solve by having better filters and better recommendation systems. As for commodtizing developers, that's shorthand for "I don't want to compete." But, of course, the second you do something so silly as limiting the timeframe in which your fans can buy your games, the faster you hurt your own business by letting your competitor get their business. That seems a lot worse than having to actually compete.

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Can Someone Teach The New Malthusians About Infinite Goods?

Mike Masnick — Thu, 27 Mar 2008 14:24:00 PDT

When we talk about economics and business models concerning "infinite goods" it may seem like we focus almost entirely on the entertainment industry. However, the reason for doing so isn't an infatuation with that particular industry, but simply the fact that it's the best "natural experiment" for showing how these infinite goods work to grow a market. But "infinite goods" impact every market and help them grow. Yet, every time there's some sort of larger financial crisis, people spring up and deny that economic growth can occur any more. It dates back to Malthus' incorrect belief that people were growing exponentially while food supplies grew linearly -- meaning we'd run out of food. The problem, of course, was that he failed to take into account economic growth. That economic growth came from new ideas and new technologies (infinite goods) that made the production of food much more efficient.

The Wall Street Journal at least admits that every previous "Malthusian" has been proved wrong (other than very limited, pre-technology societies) before diving headlong into a discussion of whether or not the latest generation of Malthusians might just have a point this time. The article includes lots of fear mongering about various resources running out -- but those were the same fears that proved overblown in past Malthusian outbursts. My favorite example of this is William Stanley Jevons, who predicted the end of British economic growth thanks to coal running out (four years before oil was discovered) and when he died, his study was found filled stacked high with scrap paper -- since he believed that the country was running out.

That isn't to say things just "work out," but that it's these new ideas and new technologies -- these "infinite goods" -- that help to solve the problems. But they can only do so if they aren't locked down and artificially limited. Every time we lock down these ideas, we cause more problems and actually limit growth. If you could invent a solution to creating drinkable water (which the article frets about, but which Dean Kamen believes he's done), you could patent it and make it expensive. Or you could give it away, and recognize how you've just created a booming market for goods in places previously decimated by drought and disease. Rather than selling the water cleaning device, I would think there's a much bigger market in giving it away free to trouble spots and then helping to sell everything else that a healthy population would then want. Unfortunately, it's not clear that this is what Kamen will do. He is, after all, one of the folks protesting against any kind of patent reform in Congress.

So, again, this isn't to brush off the concerns of the Wall Street Journal piece. The environmental and resource challenges described are real challenges. But resource constraints can be solved through growth, and that growth is supplied by new ideas (new infinite goods) that increase the pie by creating resources that are infinite, and which make other scarce goods more valuable. We've pointed to Paul Romer's excellent explanation of economic growth before, but it bears repeating:

Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material.

Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. The difficulty is the same one we have with compounding. Possibilities do not add up. They multiply.

So, when we're discussing infinite goods, and using the entertainment industry as a model, it's not just about entertainment. It's about dealing with all kinds of challenges that the world faces, and doing so through spreading infinite goods that multiply and make existing resources more valuable.

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Can You Create A Market For Privacy? Would Anyone Care If You Did?

Mike Masnick — Fri, 29 Feb 2008 07:29:00 PST

David writes in to point us to Jim Manzi's guest post at Andrew Sullivan's Daily Dish suggesting that a way to deal with privacy issues is to create a market for private info. This is not a new idea, though it's not clear if Manzi knows about those who have tried it before. Root Markets has been trying to do this for years without getting that much traction. Manzi's idea is that right now people are lax with transaction data because they really have no choice: "When the choices are (1) opt out of modern life, or (2) implicitly surrender all of this info, pretty much everybody picks door #2." His description of the solution, however, should immediately ring some bells on an analogy that shows why his plan will almost certainly never work:

"But what if I had the practical ability to charge commercial entities for access to or use of information of this sort? It would, first, go from a free good to a scarcer resource, and second, I could protect those parts of my transaction history that I feel to be most sensitive. In effect, we need a functioning market into which I can sell my transaction history."

Yes, he's basically saying that we should take an infinite resource (data about our transactions) and forcibly create artificial scarcity, and then create a market around that artificial scarcity. It sounds nice in theory, but given how just about every market that's based on artificial scarcity is disintegrating as we speak, it seems unlikely to get very far. If there's one lesson that we've learned from watching the entertainment industry implode over the last decade, it should be that artificial scarcity doesn't last. Basing a business model on artificial scarcity is incredibly risky.

Given how little attention Root Markets has received from users, Manzi may not be correct in estimating where consumers' feelings lie on this matter. As they've shown time and time again, it's not that people want to keep their transaction data private and just don't have the means to do so -- it's that very few really seem to care at all.

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Abundance And Scarcity In The Insight Market

Mike Masnick — Wed, 27 Feb 2008 11:46:36 PST

Last week, after I wrote about some of the theory behind the Insight Community and the Smart Dossiers offering (which is a subset of the Insight Community), someone asked how my writings on economics fit into the equation. It's rather straightforward: In any market there are likely to be various scarcities and various abundances. You should always look at the scarcities as problems that need to be solved and the abundances as the resources you can use to solve those problems.

So, as we were building out Techdirt's business, working with various Fortune 500 companies to better understand various technology trends, we again began to notice an interesting set of scarcities and abundances. On the scarcity side, companies were really hungry for useful and actionable insight about their biggest challenges. At best, they could hire a big analyst firm or a big consulting firm, which would be excessively expensive, and often wouldn't give particularly useful information. In fact, it was a huge risk, since they would only receive a single answer, as if handed down from a wise man on the mountain, with no idea if it was accurate or not. At worst, they could have internal people try to do the analysis, often passing it off to a junior person to handle the work. Again, this would result in a single opinion (often from someone not very experienced) providing an important analysis that was also biased by coming from inside the company, rather than with an outsider's perspective.

At the same time, we were discovering an immense abundance in the ability to find and communicate with smart, knowledgeable passionate experts, many of whom we got to know via their participation on Techdirt itself, or via their own websites and blogs. At first we began to tap that group informally, to help us with the work we were doing with existing clients -- but we realized it was better to formalize the system, which is how we came up with the Insight Community, helping to eliminate the middle man and solve the scarcity (relevant, timely insight) with the abundance (lots of knowledgeable folks). The trick was coming up with a system that allowed the best, most useful insights to bubble to the top. In other words, figuring out not just how to connect companies to smart people, but to make sure that those companies could get the best, most relevant and insightful analysis out of the most qualified folks in that group of experts. To do that, we put in place a competitive system, that allowed experts in the community to compete to show they could provide the best insight. The end result has worked quite well, making it incredibly easy for companies, both big and small, to tap into this network of experts in order to get the best, most relevant insights into the challenges they face, gaining multiple expert opinions -- and doing so at a price the company gets to set.

Of course, while the "name your own price" model works well in some cases, it doesn't work for all. It can sometimes be an impediment for a company that knows they want something specific and isn't sure how much to bid for it. So, to help with those situations, we wanted to focus on common types of cases that the Insight Community was being used for and start to launch more packaged solutions -- the first of which is Smart Dossiers. Many of the customers using the Insight Community, had used it to get a straight analysis of a company. Sometimes of themselves (to get a quick snapshot of multiple outsider expert viewpoints), but more often of other companies they were dealing with: customers, competitors, partners, investments and investors. For example, we had one company use the Insight Community to create detailed "dossiers" on the company's top customer targets, so that its sales people could be better informed while calling on them. Another firm needed a competitive landscape of a new market it was about to enter, and was able to get a bunch of experts to all weigh in on the competitors in just over a week.

So, yes, we are putting into practice the economics that get discussed here all the time. It's all about taking an abundance and helping them "solve" a scarcity that companies desperately are looking for help solving.

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Another Business Model That Leverages 'Free'

Mike Masnick — Thu, 21 Feb 2008 08:57:00 PST

When I first heard about TrialPay, I thought it was a bit gimmicky. However, in reading through a NY Times article about the company, I'm realizing it's actually yet another example of how to use "free" in a business model. The service is mainly used by software providers (who, remember, are offering an infinite good, which will face pricing pressures towards a zero price). The software developers officially offer their software for a price, but then also offer it for free if you agree to buy someone else's product. For example, you can get free anti-virus software if you also agree to get a subscription to Netflix. Note what's happening here (and how it sounds familiar). Software providers are giving away their (infinite) product, but they're attaching it to the sale of a totally unrelated (scarce) good, and are then profiting from the referral fees associated with those other goods. In other words, even if not explicitly, they've realized that their software products act as a promotional good for those other products. What's most interesting here is that those scarce goods are totally unrelated to the software that's for sale, other than through TrialPay's service. Effectively, TrialPay has helped makers of infinite goods tie up their products with other scarce goods that people would have thought were unrelated. So, the next time someone insists that there can't be a scarce good attached to certain infinite goods, remember this example.

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