October 26, 2006

The Economics of Abundance and Why Most People Don’t Get It

Chris Anderson (author of the Long Tail and editor of Wired Magazine) recently spoke at PopTech on the subject of The Economics of Abundance. I’ll let you click the link for more information but to make a long story short, the economics of abundance are directly opposed to the economics of scarity. You remember scarcity right? After all it is in the basic definition of economics itself:

Economics, as a social science, studies human choice behavior and how it affects the production, distribution, and consumption of scarce resources.

(link)

But here’s the problem…in a digital world resources are no longer necessarily scarce. A file can be replicated an unlimited number of times at virtually no cost. So in a world in which resources are increasingly abundant rather than scarce everything changes. (For a further elaboration on what is changing, check out this *excellent* series of posts on Media 2.Uh-Oh.)

Yet, most people don’t understand what is shifting. Which is why you see Tower Records shutting its doors. It’s why you see NBC laying off 700+ employees. Because too many people are blind to the economics of abundance and have no clue how to operate in world that is no longer defined solely by scarce resources. And so rather than change they’d prefer to stick to existing business models that worked in the past.

It’s sad to me. Because I have conversations with people in the media world (like one I had this very morning) who want to keep their businesses closed off to the rest of the world. Who don’t want to embrace the new channels of distribution that are available. Who’d rather spend their time and energy protecting their existing turf rather than going out and innovating and taking advantage of all of the new markets that are opening up.

And it’s a shame because for most of these businesses they won’t realize it until it’s too late. By the time it becomes painfully obvious what the answer is they are filing for Chapter 11 and laying off the majority of their staff. Because they forgot to read The Long Tail or The Wealth of Networks.

Or more likely, because they didn’t know those books existed in the first place.