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