Chris Anderson Strikes Again: The Economy of Abundance

With great admiration, I have been watching Chris Anderson's book "The Long Tail" hit the New York Times best seller list and dominate the scarce business book shelf space of the brick and mortar bookstore world. The Long Tail is not just a geeky concept for the O'Reilly crowd, it is now a mainstream driver for the Business Week crowd. And while no longer an absolute requirement of every consumer internet venture pitch (and pretty much every enterprise pitch for that matter), the idea of the long tail continues to permeate many, probably most, of the PowerPoint presentations I see on a daily basis. Chris deserves great credit for simplifying and contextualizing a concept that plays such a big role in the evolving connected economy.

Continuing in his role as shirpa of the new economy, Chris has moved on from the Long Tail to a related but distinct idea that he is calling the Economy of Abundance. In a talk he just gave at the PopTech conference (a fantastic event in the unbelievably beautiful but remote town of Camden Maine), Chris described this new economy. The basic idea is that incredible advances in technology have driven the cost of things like transistors, storage, bandwidth, to zero. And when the elements that make up a business are sufficiently abundant as to approach free, companies appropriately should view their businesses differently than when resources were scarce (the Economy of Scarcity). They should use those resources with abandon, without concern for waste. That is the overriding attitude of the Economy of Abundance -- don't do one thing, do it all; don't sell one piece of content, sell it all; don't store one piece of data, store it all. The Economy of Abundance is about doing everything and throwing away the stuff that doesn't work. In the Economy of Abundance you can have it all.

The same businesses that are the poster children for the Long Tail, are the poster children for the Economy of Abundance. And the same businesses that are the victims of the Long Tail are the poster children for the Economy of Scarcity. With bandwidth and storage approaching free, iTunes can offer three million songs (P2P offers nine million). In contrast, with limited shelf space, Tower Records can only offer fifty- or sixty-thousand tracks. The end result, consumer choose abundance over scarcity (something for everyone) -- Tower Records gets liquidated while iTunes grows dramatically. Television is undergoing a similar transformation, from scarcity to abundance. TV initially consisted of only the major networks. Consumers were limited to 3 choices in any given time slot. With cable the number of channels was dramatically increased and a broader range of content became available (Food Channel, Discovery Channel, ESPN, CNN, etc.). To many, 250 channels may constitute sufficient abundance as to approach infinite choice in their minds. But the true television of abundance is YouTube. With unlimited bandwidth and unlimited storage, television is subject to microprogramming -- millions of shows, viewable on demand at any time. Now not only should NBC be worried, so too should be Comcast.

Unlike the Economy of Abundance, scarcity requires that businesses make tough choices. The Economy of Scarcity is a zero sum game -- new offerings necessarily replace old. Take, for example, Blockbuster. With DVD choices limited to the inventory that fits on the store shelves, the arrival of each new release necessarily displaces some DVD that the day before was available for rent. In contrast, Netflix has no shelf space limitations, thus the arrival of new releases need not replace the old. Blockbuster's user-base continues to wain as consumers prioritize choice over immediacy. And, of course, with the holy grail of movie abundance coming soon -- Rhapsody-style video on demand (made available courtesy of unlimited bandwidth and storage) -- both shelf space limitations and concerns about immediacy will be eliminated. Business owners forced to make choices about inventory are necessarily at a disadvantage. Even the best corporate buyers get it wrong and don't pick the year's hot color of Kitchenaide or the movie that outperforms its box office on the video store shelf. Meanwhile, businesses driven by abundance can make all SKU's available and need not fall victim to poor choices.

The Economy of Abundance allows business owners to defer choices to the end users. What better way to find out what consumers want than to give them everything and see what they actually buy. That is the paradigm of abundance. Why get your news programmed by CNN.com when you can have your news bubble up from the collective wisdom of end users at Newsvine or Reddit? Why get your television programmed by CBS when you can leverage the collective wisdom of the web to find great shows like Lonelygirl15 or Ask a Ninja? No longer will the success or failure of content be dictated solely by the Economy of Scarcity (e.g. Walmart). Rather, it will be dictated by the will of the consumers, as empowered by the Economy of Abundance.

Much like the Long Tail, the idea of the Economy of Abundance is not prescriptive. It does not tell you how to run your business. But it points to another significant force at work in the new economy and suggests that entrepreneurs should think creatively about how their businesses might be transformed by utilizing abundant resources in a disruptive way. Like the Long Tail before it, I suspect that I will be seeing the Economy of Abundance permeate the presentations that I see in the coming months and year.

Comments

[Rik]

Although I like the general idea, sortof, I also think it's somewhat of a narrow view: it's something you can only use if you are a reseller of sorts. Otherwise, you're still going to have to choose which products are going to be made and which ones aren't. That's because you're limited by the size of your business. Second, I don't believe that consumers or clients want all that much choice. Sure, when you're getting a DVD of some music, you want to be able to choose from everything that's available. But when you buy a new toaster, television or bed, you act differently. You go to the store you know has the stuff you like, and you choose from the lineup they have carefully picked to sell and support. This is what sets such businesses apart; if there where two amazons, they'd just be competing for price, and nothing else. And I think a lot of people are still looking for a shopping experience, the pleasure of buying something.
Apart from all of that, the design world has some frameworks to involve (future) users in the design of a product. This way, you get a product that is validated and inpired in terms of usage and functionality by what users want and need, right from the start. The techniques are built so that you're not asking them directly what they want, but rather you look for patterns and latent needs and such. So what you're doing is coming up with a really good solution for a subset of people, without them needing to choose between 3978738 possible solutions in the store. Sure, it takes effort, and sure, not everyone is going to like your solution, but at least you have properly identified what problems you product should solve. Marketing can do the rest.

This is where is think the abundance thing is coming short: it's just an acknowlegdement of of the fact that some people like to have all the choices. I don't think businesses should necessarily be in the business of ��deferring choices to the end users ��. So david, please send me some of those powerpoints when you get to see them, I'm really curious what people will try to do with this paradigm.

[GraemeThickins]

I agree with Rik -- the world would be in big trouble if every consumer-products company just threw everything out there for the consumer to wade through and figure out what to buy. This is a paradigm largely for online retailers, and nothing new. (With all due repects to Chris Anderson trying to sell books.) It was there when we built BestBuy.com, starting in '99 (I was part of that launch). The company's management could obviously see the implications that clicks would have on bricks. (They were just late in getting to it at the time! Now the site has sales of more than $1B per year.) Then again, note that the CD sections in their physical stores haven't gone away, and their 'big box' stores keep getting bigger and bigger to hold all the choices, at least the ones they know that most consumers want.

Rik's right -- this is all about the function of Marketing....as in market research, consumer trend research, product research, design, product-design testing, et al. But I guess we have to give Anderson a pass: what does he know about marketing, except maybe how to market (promote) a book? He's an editor! (If he does launch another book, maybe WSJ's Lee Gomes will take this one apart, too, in one of his columns. Are you listening, Lee?)

Sorry for the rant, but I just went through a very frustrating, tiresome experience related to this: trying to decide which digital video camcorder to buy. Way too many choices, way too much confusion, way too many arcane features, way too much goobledygook. (And don't even get me started about the manuals.) This is an example of what happens when an industry doesn't do Marketing well (the product planning and research part especially), and instead just proliferates endless designs, models, features, etc. When are they ever going to take the lesson from Apple?? And the electronics retailers, too (both clicks and bricks), still have a long way to go to effectively help consumers cut through all the complicated choices and make a damned purchase -- to that I can attest!

I say, if the Economy of Abundance is to benefit consumers, then the function of Marketing becomes even more critical than it is now. I'm reminded of my favorite Peter Drucker quote: "The business enterprise has two -- and only two -- basic functions:
marketing and innovation. Marketing and innovation produce results; all the rest are costs."

regards,
Graeme Thickins
Minneapolis

[Caribbean Guide]

The concept of abundance is not as new as it might appear. To the contrary, when Europeans moved to North America, they were faced with unprecedented abundance of land (relative to the economy they left).

Similarly, many inherently valuable commodities have always been abundant, relative to other, inherently less valuable commodities (the classic example used by economists is the comparison between water and diamonds).

Rather than assuming the era we are entering is unprecedented, more wisdom can be gained by thinking about historical examples where abundance emerged, and rapidly relative price levels changed rapidly.

The plunging cost of bandwidth and storage has significant implications, but it is hardly unprecedented.

Consider, for example, the plunging cost of horsepower during the late 1800's and early 1900's with the invention of steam engine, internal combustion engine and electrical generation.

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