By selling cheaply to partners who would give away the razors, which were useless by themselves, he was creating demand for disposable blades. Once hooked on disposable razor blades, you were a daily customer for life.
In the atoms economy, which is to say most of the stuff around us, things tend to get more expensive over time. But in the bits economy, which is the online world, things get cheaper. The atoms economy is inflationary, while the bits economy is deflationary.
In every industrial revolution, some key factor of production is drastically reduced in cost. Relative to the previous cost to achieve that function, the new factor is virtually free. Thanks to steam, physical force in the Industrial Revolution became virtually free compared to getting it from animal muscle power or human muscle power. Suddenly you could do things you could not afford to do before. You could make a factory work 24 hours a day churning out products in a way that was just incomprehensible before.
A “free sample” is simple marketing, intended to both introduce a product and trigger a slight feeling of moral debt that may encourage you to buy the full-price item. A “free trial” may be free, but only for a limited time, and it may be difficult to opt out before it becomes paid. And “free air” at a gas station is what economists call a “complementary good” — a free product (DIY tire inflation) intended to reinforce consumer interest in a paid product (everything else at the gas station).
The free parking in the supermarket is paid for by the markup on the produce, and the free samples are subsidized by those who shell out for the paid versions.
Paid products subsidizing free products. Loss leaders are a staple of business, from the popcorn that subsidizes the loss-making movie to the expensive wine subsidizing the cheap meal in a restaurant. Free just take that further, with one item being not just sold at a fraction of its cost but given away entirely.
Your credit card is free because the bank makes its money from the service charge it imposes on the retailers you buy from. They, in turn, pass that charge bak to you.
But inside the box, it’s the unwitting free labor of thousands of people. Likewise for rating stories on Digg, voting on Yahoo Answers, or using Google’s 411 service. Every time you search on Google, you’re helping the company improve its ad-targeting algorithms. In each case, the act of using the service creates something of value, either improving the service itself or creating information that can be useful somewhere else. Whether you know or not, you’re paying with your labor for something free.
For instance, a cash-back rebate invokes a very different psychology from simply saving the money in the first place. Studies show that they tend to spend it like a lottery winning — an unexpected windfall, even though it’s really just a loan against future payments. Guys buy golf clubs their wives would never normally let them purchase, and their wives don’t stand in their way, despite the fact that they know they’ll be paying that money back over the years to come, just like a credit card debt.
Ariely notes that Mark Twain illustrated this with Tom Sawyer, who somehow got the other boys to be so envious of the fence-painting exercise that they not only took over his job but paid him for the privilege.
One of the reasons that Free is often so hard to grasp is that it is not a thing, but rather the absence of a thing. It is the hole where the price should be, the void at the till. We tend to think in terms of the concrete and tangible, yet free is a concept, not something you can count on your on your fingers. It took thousands of years of civilization to even find a number to describe it.
The Greeks, meanwhile, explicitly rejected zero. Since their mathematical system was based on geometry, numbers had to represent space of one sort or another — length, angles, area, etc. Zero space didn’t make sense.
It is an abstract concept and only shows up when the math gets equally abstract. “The point about zero is that we do not need to use it in the operations of daily life. No one goes out to buy zero fish. It is in a way the most civilized of all the cardinal numbers, and its use is only forced on us by the needs of cultivated modes of thought.”
Unlike the Greeks, the Indians did not see shapes in all numbers. Instead the Indians saw numbers as concepts. Eastern mysticism embraced both the tangible and the intangible, through the yin and yang of duality. The god Shiva was both the creator and the destroyer of worlds; indeed, one aspect of the deity Nishkala Shiva was the Shiva “without parts” — the void. Through their ability to divorce numerals from physical reality, the Indians invented algebra.
Even after most cultures established monetary economies, day-to-day transactions within close-knit social groups, from families to tribes, was still mostly without price. The currencies of generosity, trust, goodwill, reputation, and equitable exchange still dominate the goods and services of the family, the neighborhood, and even within the workplace. In general, no cash is required among friends.
Just as in Darwin’s description of nature, competition was at the heart of this emerging science of commerce. Money was how we kept score. Charging for things was simply the most efficient way to ensure that they would continue to be produced — the profit motive is as strong in economics as the “selfish gene” is in nature.
But every effort to make this work in practice at any scale failed, largely because the social bonds that police such mutual aid tend to fray when the size of the group exceeds 150.
The value of anything was best determined by the price people would pay for it — it was as simple as that. Utopian dreams of alternative systems based on gifts, barter, or social obligation were reserved for fringe experiments. In the world of commerce, “free” took on its primary modern meaning: a marketing tool.
For most of human history manure has determined how much food we had. Agricultural yield was limited by the availability of fertilizer, and that largely came from animal (and sometimes human) waste. If a farm wanted to support both animals and crops in a synergistic nutrient cycle, it had to split its land between them.
If a resource becomes too scarce and expensive, it provides an incentive to look for an abundant replacement, which shifts demand away from the scarce resource (witness the current race to find replacements for oil). Simon believed that human ingenuity and the learning curve of science and technology tend to create new resources faster than we used them.
But perhaps the most familiar example of abundance in the 20th century was plastic, which made atoms almost as costless and malleable as bits. What plastic, the ultimately fungible commodity, could do was to reduce manufacturing and material costs to practically nothing. It didn’t need to be carved, machined, painted, cast, or stamped. It was simply molded in any shape, texture, or color desired. The result was the birth of disposable culture.
Others create goods that are mostly IP, such as drugs and semiconductors, where the cost to produce the physical product is tiny compared to the cost of inventing it.
A few decades ago, the most value was in manufacturing. Then globalization rendered manufacturing a commodity, and the price fell. So the value moved to things that were not (yet) commodities, further away from hand-eye coordination and closer to brain-mouth coordination. Today’s knowledge workers are yesterday’s factory workers (and the day before’s farmers) moving upstream in search of scarcity.
These days that scarcity is called “symbolic analysis,” the combination of knowledge, skills, and abstract thinking that defines an effective knowledge worker.
The simple answer is that the act of writing a check or entering a credit card number, regardless of the amount, is an act of consumer volition that completely changes how an advertiser sees a reader. Writing a check for any amount means that you actually want the magazine, and will presumably read it and treasure it when it arrives. In fact, advertisers will pay as much as 5 times more to be part of that relationship than they’ll pay for a free magazine that may be treated as junk mail.
So on a psychological basis (and all economics is rooted in psychology), if there’s a way to take the whole “is it worth it?” question off the table, it pays to do so. Note that there are other mental transaction costs to free — from worrying if it’s really free to weighing nonmonetary costs such as considering the environmental impact of a free newspaper or just fearing that you’ll look like a cheapskate. (One friend tells me the giveaway furniture he puts outside his house is only taken at night.) But those costs aside, taking money out of the equation can greatly increase participation.
Most entrepreneurs fall into the trap of assuming that there is a consistent elasticity in price — that is, the lower the price of what you’re selling, the higher the demand will be. So you end up with hockey stick looking revenue charts that go up and to the right, all supported by an “it only costs $2/month” business plan.
The truth is, scaling from $5 to $50M is not the toughest part of a new venture — it’s getting your users to pay you anything at all. The biggest gap in any venture is that between a service that is free and one that costs a penny.
Zero is not just another price, it turns out. Zero is an emotional hot button — a source of irrational excitement.
Once again, the enemy of free is waste. To order shoes you don’t really want and send them back feels wasteful, and indeed it is, from the labor of the workers and delivery people involved to the carbon emitted in the transportation. Simply taking money out of the equation isn’t enough to fully eliminate the perception of a price, in this case an amorphous social and environmental cost rather than a direct hit to your wallet.
People quickly took the Coke, but didn’t touch the money. They treated the Coke as “free,” even though they know it costs money. But taking actual money felt like stealing.
This is one of the negative implications of free. People often don’t care as much about things they don’t pay for, and as a result they don’t think as much about how they consume them. Free can encourage gluttony, hoarding, thoughtless consumption, waste, guilt, and greed. We take stuff because it’s there, not necessarily because we want it. Charging a price, even a very low price, can encourage much more responsible behavior.
It’s really just as simple as that. As Torrone says, “I can’t imagine doing a book, a video, or a magazine unless I had a community that would rally along the way. In the end it always seemed to be about a story — people like to see the beginning, middle, end, and plot of something — and if there’s a buy button somewhere, they sometimes click it and reward us for working hard.”
You’re not even paying yourself minimum wage if you choose to take the time to wade through all the messy metadata that comes with file trading.
The term “learning curve” was introduced by the 19th German psychologist Hermann Ebbinghaus to describe improvements he observed when people memorized tasks over many repetitions. But it soon took on broader meaning. The principle states that the more times a task has been performed, the less time will be required for each subsequent iteration. Every time total aircraft production doubled, the required labor time decreased by 10 to 15 percent.
What’s different about semiconductors is a characteristic of many high-tech products: They have a very high ratio of brains to brawn. In economic terms, their inputs are mostly intellectual rather than material. After all, microchips are just sand (silicon) very cleverly put together.
The point: Ideas are the ultimate abundance commodity, which propagates at zero marginal cost. Once created, ideas want to spread far and wide, enriching everything they touch.
But in business, companies make their money by creating an artificial scarcity in ideas through intellectual property law. That’s what patents, copyright, and trade secrets are: efforts to hold back the natural flow of ideas into the population at large long enough to make a profit.
The underlying science is information, while observed efficacy is just anecdote. Once you understand the basics, you can create an abundance of better drugs, faster.
DNA sequencing is falling in price by 50% every 1.9 year, and soon our individual genetic makeup will be another information industry.
If transistors are becoming too cheap to meter, then we should stop metering them and otherwise cease thinking about their cost. We should switch from conserving them on the assumption that they are a scarce commodity to treating them like the abundant commodity they are. In other words, we should literally start “wasting” them.
What Kay realized was that a technologist’s job is not to figure out what technology is good for. Instead it is to make technology so cheap, easy to use, and ubiquitous that anybody can use it, so that it propagates around the world and into every possible niche. We, the users, will figure out what to do with it, because each of us is different: different needs, different ideas, different knowledge, and different ways of interacting with the world.
What Mead and Kay anticipated had a profound effect on computation-based industries. It meant software writers, liberated from worrying about scarce computational resources like memory and CPU cycles, could become more and more ambitious, focusing on higher-order functions such as user interfaces and new markets such as entertainment. The result was software of broader appeal, which brought in more users, who in turn found even more uses for computers. Thanks to that wasteful throwing of transistors against the wall, the world was changed.
Now that this triple play of technologies — processing, storage, and bandwidth — has combined to form the Web, the abundances have been compounded. One of the dot-com jokes from the late-90s bubble was that there are only two numbers on the Internet: infinity and zero.
On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower all the time. So you have these two fighting against each other.
Perhaps information would become cheaper, because the bits could be reproduced so easily. Or perhaps it would become more expensive, because the perfect processing of computers could make information of higher quality.
So you can read a copy of this book online (abundant, commodity information) for free, but if you want me to fly to your city and prepare a custom talk on free as it applies to your business, I’ll be happy to, but you’re going to have to pay me for my (scarce) time.
In arguments I was hearing about IP, both sides made perfect sense, and that is the definition of a paradox. Paradoxes drive the things we care about. Marriage is a paradox: I can’t live with her, and I can’t live without her. Both statements are true. And the dynamic between those two statements is what keep marriage interesting, among other things.
Paradoxes are the opposite of contradictions. Contradictions shut themselves down, but paradoxes keep themselves going, because every time you acknowledge the truth of one side you’re going to get caught from behind by the truth on the other side.
Although 3M computers get sold each year in China, people don’t pay for our software. Someday they will, though, and as long as they’re going to steal it, we want them to steal ours. They’ll get sort of addicted, and then we’ll somehow figure out how to collect sometime in the next decade.
This had the desired effect of checking Netscape’s growth, but Microsoft paid the price with a decade of antitrust prosecutions and fines for anticompetitive behavior. Free is fine, the regulators said, but not if you’re a monopoly and are using free to keep competitors out.
Where had Microsoft been for Linux’s first decade? Mostly hoping the free OS would go away or remain insignificant, like most other free software had to date. Even if it didn’t disappear completely, Microsoft executives hoped the appeal of Linux would be mostly to people who already used UNIX, rather than Microsoft’s own OS. That wasn’t entirely reassuring — those UNIX customers were a market Microsoft wanted, too — but it was better than direct competition. But more than anything else, Microsoft managers were confused by why any customer would want free software and all the headaches that came with products not polished to a professional sheen.
Microsoft executives dismiss open-source as hype: “Complex future project will require big teams and big capital. These are things that Robin Hood and his merry band in Sherwood Forest aren’t well attuned to do.”
We need to more effectively respond to press reports regarding Governments and other major institutions considering open source alternatives to our products. We must be prepared to respond quickly and with facts to counter the perception that large institutions are deploying open source software or Linux, when they are only considering or just piloting the technology.
It was time for Microsoft to turn down its customary stream of vitriol and face the facts: Linux wasn’t going away, and customer anger with Microsoft’s tactics was part of the reason why: “We realized that we had to take the emotion out of it if we expected anyone to take us seriously.”
The license that Linux and similar open source software uses, known as the GPL, requires that every “derivative work” of open source software also be open source. The lawyers decided that this made it a virus: Any Microsoft programmer who touched it might be at risk of infecting anything else he or she worked on, with a possibility that one mistake could even accidentally open-source Windows.
He has a budget and a staff of programmers working on open source projects. What changed? Pragmatism at the top. Gates and Ballmer had taken their best shot at Linux and it was only getting stronger. It was time for Microsoft to adapt to the new reality.
The problem is a classic one in free. It’s easier for the newcomers than for the incumbents. That’s not just because the incumbents have a revenue stream that they’re in danger of cannibalizing. It’s also that they have a lot more users, and the costs of serving millions of customers can be astronomical.
Google had no email customers, so it could offer a gigabyte of storage without bearing any real cost: A few servers should handle the first few thousand customers (and, as it turned out, Google would keep the service invitation-only for its first year, ensuring that it could handle the demand without having to buy a lot of hardware).
Watching the presentations is only part of the experience; an equal part is mingling with other attendees, who are often of the same caliber as those on stage. Come for the talks, stay for the hallway conversations.
Analysts calculate that the electricity consumed by a typical Google computer board costs more over the life of that computer than the computer itself.
It’s disruptive when one of those price is your salary. From the coal miners of Wales to the automotive workers of Detroit, this race to the cheapest, most efficient models has a real human toll. The TV industry is terrified of “trading analog dollars for digital pennies.” Yet there seems little he or anyone can do to stop it.
To see that at work, look no further than Craigslist, the free classified site. In the 13 years since it was founded, its no-charge listing have been blamed for taking at least $30B out of America’s newspaper companies’ stock market valuation. Meanwhile, Craigslist itself generates just enough profit to pay the server costs and the salaries of a few dozen staff.
Just because products are free doesn’t mean that someone, somewhere isn’t making lots of money, or that lots of people aren’t making a little money each.
“Liquidity” is usually thought of as just a financial term, but in truth it applies in any system of connected parties. In technology, it’s called “scale.” What it boils down to is that more is different. If only 1% of the hundred people in some school’s 6th-grade class volunteer to help make the yearbook, it doesn’t get done. But if just 1% of the visitors to Wikipedia decide to create an entry, you get the greatest trove of information the world has ever seen. More is different in that it allows small percentages to have a big impact. And that makes more simply better.
The point is that the Internet, by giving everybody free access to a market of hundreds of millions of people globally, is a liquidity machine. Because it reaches so many people, it can work at participation rates that would be a disaster in the traditional world of non-zero marginal costs. Youtube works with just one in a thousand users uploading their own videos. Spammers can make a fortune with response rate of one in a million.
Microsoft turned something that Britannica considered an asset (a door-to-door sales force) into a liability. While Microsoft made $100M it shrunk the market by over $600M.
And now Wikipedia, which costs nothing, has shrunk the market again, decimating both the printed and the CD-ROM encyclopedia markets. Wikipedia makes no money at all, but our own ability to make money armed with more knowledge is improved.
This is what free does: It turns billion-dollar industries into million-dollar industries. But typically the wealth doesn’t vaporize, as it appears. Instead, it’s redistributed in ways that are hard to measure.
Everyone can use a free business model, but all too typically only the number one company can get really rich with it.
Traditionally, markets are segmented by price, making room for the high-end, the middle, and the low-end producers. The problem with free is that it eliminates all the price discrimination texture in the marketplace. Rather than a range of products at different prices, it tends to be winner-take-all.
There were some suggestions that advertising might be the answer, but it was by far from a popular solution. It seemed a shame to despoil this new medium with sponsored messages. One article fretted that “bombastic advertising cuts into the vitals of broadcast by creating an apathetic public, impairing listener interest and curtailing the sales of receiver sets.”
Magazines are put together by people, and people can be corrupted by money. But Web advertising is placed by software algorithms, and somehow that makes it more pure.
You can buy new outfits, hairstyles, and faces. Importantly, you can’t buy a superweapon, because that would be unfair — the company doesn’t want people to be able to buy their way to power, creating a two-tiered society. Instead, money is used to save time, look cooler, or otherwise do more with less effort. The opportunities to pay are “nonpunitive.” You don’t have to pay, but you may want to.
When you’re selling disks, you risk the Hollywood “second weekend” effect: When the movie’s not as good as the trailer made it look, people feel ripped off and word spreads. But in games that are free to play and only charge for items once people understand why they might want them, the risk of disappointment is lower and the odds of returning customers is higher. Simply put: You’re charging the people who want to pay, because they understand the value of what they’re getting.
Linden Labs is in the virtual real estate business, and a good business it is, too. Unlike real-world realtors, Linden Labs can make as much land as it needs, and the land is made attractive by the users, who build entire towns themselves.
And why not? Memorable experiences are the ultimate scarcity.
The music industry is growing. The record industry is not growing.
For nonfiction books, especially those on business topics, free books are often more closely modeled after free music. The low-marginal-cost digital book is really a marketing for the high-marginal-cost speech or consulting gig, just as free music is marketing for concerts.
The enemy of the author is not piracy, but obscurity. Free is the lowest-cost way to reach the largest number of people, and if the sample does its job, some will buy the “superior” version. As long as readers continue to want their books in atoms form, they’ll continue to pay for them.
College students can spend $1K a year on books. That’s a lot, considering a $160 biology text might have a one-semester shelf life, which is why the market for used books is so big and why publishers try so hard to subvert it with tactics like new editions with different page numbers.
Facebook “friends” are a classic unit of reputational currency. The more “friends” you have, the more influence you have in the Facebook world, and the more social capital you have to spend. Indeed, most of the value of Facebook is in the fact that it has created perhaps the world’s largest closed market of reputational currency.
The book was, as is often the case for even the most inspired works, promptly ignored.
Both of these examples tend to produce winner-take-all markets, which is how Microsoft created a monopoly. And when you’ve got a monopoly, you can charge “monopoly rents,” which is to say $300 for two plastic disks in a box marked “Office,” when the actual cost of making those disks is just a dollar or two.
In an information-rich world, the wealth of information means a death of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention.
What Simon was observing was a manifestation of one of the oldest rules in economics: “Every abundance creates a new scarcity.” We tend to value most what we don’t already have in plentitude. For example, an abundance of free coffee at work awakens a need for much better coffee, for which we are willing to pay a lot. And so, too, for any premium good that arises from a sea of inexpensive commodity products, from artisanal food to designer water.
His answer, expressed in his now famous “hierarchy of needs,” was this: “At once other (and higher) needs emerge, and these, rather than physiological hungers, dominate the organism.”
The same sort of hierarchy can be applied to information. Once our hunger for basic knowledge and entertainment is satisfied, we become more discriminating about exactly what knowledge and entertainment we want, and in the process learn more about ourselves and what drives us. This ultimately turns many of us from passive consumers to active producers, motivated by the psychic rewards of creating.
These two are what often called the “attention economy” and the “reputation economy.” Of course there is nothing new about marketplaces of attention and reputation. Every TV show has to compete in the first and every brand has to compete in the second. A celebrity builds reputation and converts it into attention. But what’s unique about the online experience is how measurable the two are, and how they are becoming more like a real economy every day.
But Adam Smith gave the term its modern meaning when he defined economics as the study of the markets, in particular what we now shorthand as “the science of choice under scarcity.”
It is in this secondary market that social ambition thrives. It is this stock exchange of attentive capital that gives precise meaning to the expression “vanity fair.”
Today when you link to someone on your blog, you are effectively granting them some of your own reputation.
Ideally, this transfer of reputation leaves both parties richer. Good recommendations build trust with a readership, and being recommended confers trust, too.
PageRank is the gold standard of reputation.
A college education is more than lectures and readings. Tuition buys direct proximity to ask questions, share ideas, and solicit feedback from academics like Muller.
Game designers often bring in academic economists to help design their in-game economies, to avoid all the ills of real-world economies, from insufficient liquidity to fraud.
But in the end, all these games pivot around the ultimate scarcity: time.
He focused mostly on Pacific Island and other “native” societies that had not adopted formal monetary economies. Instead, stature was established through gift exchanges and rituals — cultural currencies substituted for money.
Many of these societies lived amid abundant natural resources — food really did grow on trees — so their basic substance needs were provided by nature. Because of this, they could move up Maslow’s pyramid and focus on social needs.
It’s usually not quite so altruistic. Adam Smith got it right: Enlightened self-interest is the most powerful force in humanity. People do things for free mostly for their own reasons: for fun, because they have something to say, because they want people to pay attention to them, because they want their own views to gain currency, and countless other very personal reasons.
The top reason was “community” — people felt part of a community and wanted to contribute to its vitality. The second was “personal growth,” which harkens back to Maslow’s highest level, self-actualization.
In a world where food, shelter, and the rest of Maslow’s subsistence needs are met without having to labor in the fields from dawn to dusk, we find ourselves with “spare cycles,” or what sociologists call “cognitive surplus” — energy and knowledge not fully tapped by our jobs. At the same time we have emotional and intellectual needs that aren’t fully satisfied at work, either. What our “free labor” in an area that we value grants us is respect, attention, expression, and an audience.
In short, doing things we like without pay often makes us happier than the work we do for a salary. You still have to eat, but as Maslow showed, there is more to life than that. The opportunity to contribute in a way that is both creative and appreciated is exactly the sort of fulfillment that Maslow privileged above all other aspirations, and what many jobs so seldom provide. No wonder the Web exploded, driven by volunteer labor — it made people happy to be creative, to contribute, to have an impact, and to be recognized as expert in something. The potential for such a nonmonetary production economy has been in our society for centuries, waiting for the social systems and tools to emerge to fully realize it. The Web provided those tools, and suddenly a market of free exchange arose.
When your phone company tells you that your voice mail box is full, that’s artificial scarcity. By forcing subscribers to take their time to delete voice mails, the phone companies were saving a little money in storage costs by spending a lot of consumer time.
However, the rest of nature doesn’t work like that. A bluefin tuna can release as many as 10M fertilized eggs in a spawning season. Perhaps 10 will make it to adulthood. A million die for every one that survives.
Nature wastes life in search of better life. It mutates DNA, creating failure after failure, in the hopes that every now and then a new sequence will outcompete those that came before, and the species will evolve. Nature tests its creations by killing most of them quickly, the battle “red in tooth and claw” that determines reproductive advantage.
The reason nature is so wasteful is that scattershot strategies are the best way to do what mathematicians call “fully exploring the potential space.” The way to get from a “local maxima” to the “global maxima” is to explore a lot of fruitless “minima” along the way. It’s wasteful, but it can pay off in the end.
All those random videos on YouTube are just dandelion seeds in search of fertile ground on which to land. In a sense, we’re “wasting video” in search of better video, exploring the potential space of what the moving picture can be. YouTube is a vast collective experiment to invent the future of TV, one thoughtless, wasteful upload at a time.
Since saying yes to a story proposal is so costly, from the dozens of people who will be involved to the factories that may someday print the words on the page, my job is to say no to almost everything. Because I’m responsible for allocating costly resources, I fall back on a traditional top-down management hierarchy, with a chain of approval necessary to get something into print.
Her latest album sold nearly 4M copies. The problem is that almost all of them were pirated versions. Or rather, that’s her label’s problem. She’s fine with it. The pirates are her best marketers.
You can buy large-sum price tags to attach to your low-sum clothes, and there is even a secondary market in fake receipts. The products are one thing, but the status that goes along with them is much more important.
The idea that knockoffs can actually help the originals, especially in the fashion business, isn’t new. In economic, it’s called the “piracy paradox.”
The paradox stems from the basic dilemma that underpins the economics of fashion: Consumers have to like this year’s designs, but also quickly become dissatisfied with them so they’ll buy next year’s design. Unlike technology, say, apparel companies can’t argue that next year’s models are functionally better — they just look different. So they need some other reason to get consumers to lose their infatuation with this year’s model. The solution: widespread copying that turns an exclusive design into a mass-market commodity. The designer mystique is destroyed by cheap ubiquity, and discriminating consumers have to go in search of something exclusive and new. This is called “induced obsolescence.”
The two products — real and knockoff — are simply targeted at different market segments. Each feeds the other.
In a sense, the street vendors have become the advance team in each town Calypso visits. They get to make money from the music CDs, which they sell for as little as $0.75, and in turn they display the CDs prominently. As a result, by the time Calypso comes to town, everyone knows about it.
Science fiction is that writer Clive Thompson calls “the last bastion of philosophical writing.” It’s a sort of simulation, where we change some of the basic rules and then learn more about ourselves. “How would love change if we lived to be five hundred? If you could travel back in time to reverse decisions, would you? What if you could confront, talk to, or kill God?”
In sci-fi circles this is called “post-scarcity economics.”
The film is about the workers’ revolt, but the broader point is clear. Abundance comes at a cost: scarcity elsewhere.
Scarcity was simply a construct of the virtual reality, and if you hacked it right you could have anything.
Why bother with surgery when you can grow a clone, take a backup, and refresh the whole body? Some people swapped corpuses just to get rid of a cold. The result, however, is that people become bored and apathetic. Junkies don’t miss sobriety, because they don’t remember how sharp everything was, how the pain made the joy sweeter. We can’t remember what it was like to work to earn our keep; to worry that there might not be enough, that we might get sick or get hit by a bus.
What become scarce is reputation. When all physical needs are met, the most important commodity becomes social capital.
In some of these books, the end of labor scarcity liberates the mind, ends war over resources, and creates a civilization of spiritual, philosophical beings. In others, the end of scarcity makes us lazy, decadent, stupid, and mean. You don’t have to spend much time online to find examples of both.
Perhaps no greater example of abundance / scarcity-driven extremes exists than in religion.
Heaven is the ultimate imagining of abundance. Those who die holy become incorruptible, glorious, and perfect.
But it doesn’t take many New Yorker cartoons to reveal that if we take the abundance myth of heaven too seriously, we quickly imagine how bored we’d be there. Robes, harps, every day like the last — blah. No wonder abundance in fiction quickly leads to total loss of purpose and the bloated sloth of WALL-E. Is it inevitable that the end of scarcity also means the end of discipline and drive?
Neither society found itself floundering or stagnating for lack of purpose. The Athenians became artists and philosophers, trying to seek purpose in the abstract, while the Spartans focused their lives on military strength and might. Rather than depriving life of purpose, material abundance created a scarcity of meaning. Athenians moved further up Maslow’s pyramid, exploring science and creativity. And the Spartans’ lust for battle? I suppose Maslow would call that a form of self-actualization, too.
The lesson from fiction is that we can’t really imagine plenty properly. Our brains are wired for scarcity; we are focused on the things we don’t have enough of, from time to money. That’s what gives us our drive. If we get what we’re seeking, we tend to quickly discount it and find a new scarcity to pursue. We are motivated by what we don’t have, not what we do have.
Economically, abundance is that driver of innovation and growth. By psychologically, scarcity is all that we really understand.
Economics is called a “dismal science” for good reason — like other studies of human behavior, it is more than a little fuzzy. What cannot be directly measured in economic systems is hand-waved away into a category called “externalities.” A lot of the cost in that free lunch fall under the category of externalities — technically there, but immaterial to you.
In terms of his mineral content, my youngest son is worth around $5 at current spot market prices, but I won’t sell him to you for that. Confusing the cost of transmitting the megabits with the cost of making them and what they’re worth to the receiver is a similar mistake of misunderstanding where the value actually resides. It’s not in the network. It’s in the production and consumption at the edges, where we turn bits into meaning.
When people rip and burn CDs, they’re not saying that Crow didn’t put any work into the album. They’re essentially saying she didn’t put any work into that particular act of distribution — the creation of a digital copy.
There is no greater test of what people value than what they choose to spend their time on — although we are getting more affluent, we’re not getting any more hours in the day. Crow is being listened to by the most distracted generation in history, with the most choice and the most competition for their time. There are worse problems than getting attention.
Depleted oceans, filthy public toilets, and global warming are the real cost of free.
Free doesn’t encourage piracy. Piracy encourages free. Piracy happens when the marketplace realizes that the marginal cost of reproduction and distribution of a product is significantly lower than the price asked. In other words, the only thing propping up the price is the law protecting IP. If you break the law, the price can fall, sometimes all the way to zero.
So piracy is like the force of gravity. Copyright protection schemes, coded into either law or software, are simply holding up a price against the force of gravity.
But it is almost impossible to stop. Economics has little place for morality for the same reason that evolution is unsentimental about extinction — it describes what happens, not what should happen.
It is true that each generation takes for granted some things their parents valued, but that doesn’t mean that generation values everything less. Instead, they value different things. Somehow we managed to stop getting up at dawn to milk the cows without losing our overall will to work.
Free is not a magic bullet. Giving away what you do will not make you rich by itself. You have to think creatively about how to convert the reputation and attention you can get from free into cash. Every person and every project will require a different answer to that challenge, and sometimes it won’t work at all. This is just like everything else in life — the only mystery is why people blame free for their own poverty of imagination and intolerance for possible failure.