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Business - Written by on Thursday, May 8, 2008 12:57 - 1 Comment

Denis Hancock
Leveraging scarcity in the age of abundance

When looking at traditional economic models, there is perfect competition at one end of the spectrum and monopoly at the other. Many economists love the idea of perfect competition, and consider it to enable the efficient allocation of resources and the maximization of social welfare. The rub is that in the perfectly competitive model it is impossible for firms to earn abnormal profits in the long-run – everyone ends up with zero economic profit (or “normal” profit if you prefer). In turn, the strategic objective of many leaders is to get their organization as close to being a monopoly provider as possible without going to jail within the boundaries of a healthy, competitive marketplace (i.e. leverage differentation, economies of scale, barriers to entry, etc.).

This can make the concept of wikinomics a scary thing, as it is far more closely associated with abundance than scarcity, and by extension far more with perfect competition than monopoly. Rather than seeing an opportunity for expansion, many business leaders simply see an explosion of potential competition and margin erosion as new technology (among other things) erodes pillars that have traditionally held barriers to entry in place – so they fight it tooth and nail. But there is definitely an alternative perspective. To quote a good read recently posted on the long tail blog:

Every abundance creates a new scarcity.

Chris goes on to provide a variety of examples – among them that an abundance of information can create a scarcity of content, an abundance of choice can create a scarcity of advice, and an abundance of content can create a scarcity of time. Hal Varian referenced a similar theme (as I discussed in this post) in regards to how people should think about starting a career, and the thinking can be easily applied to the idea here:

If you are looking for a career where your services will be in high demand, you should find something where you provide a scarce, complementary service to something that is getting ubiquitous and cheap. So what’s getting ubiquitous and cheap? Data. And what is complementary to data? Analysis. So my recommendation is to take lots of courses about how to manipulate and analyze data: databases, machine learning, econometrics, statistics, visualization, and so on.

It’s a great way to think about developing business strategy for the future of any organization – what scarcity is being created by the abundance that is emerging around us, and how can one profit from it? One idea off the top of my head, though somewhat less poetic than those mentioned above, is that “an abundance of ideas creates a scarcity of executional ability.” The notion here is that the availability of good (and great) ideas is rapidly increasing thanks to ideagoras like innocentive, feedback loops like Dell’s IdeaStorm, and a variety of others.

There are lots of ideas out there (see: Google search for “there are no new ideas“), and lots of people that can ask for them – but improvements in the ability to execute on a good idea (in my opinion) is not keeping pace with the ability to find one. I wonder if there is a company out there that could help change that? :) Shameless plug aside, now that I think about it some more, the ability to pull a variety of ideas together into a single plan/idea still seems quite limited – could an abundance of contributions create a scarcity of consensus (working on improving the wording, but you should get the idea)?

What kind of scarcity is created by the abundance of customization – does it address the “consensus” issue effectively? Moreover, what happens when these various abundance/ scarcity combos start piling on each other? For example, an abundance of content creates a scarcity of time. Because of the scarcity of time, each of us seeks out a better context to sort through the abundance of information. As this context customizes, we’re each increasingly only hearing the POV we’re presupposed to hearing – so if context becomes abundent while time remains constrained could it create a scarcity of empathy or overall understanding (i.e. that develops from a lack of exposure to alternative POVs?). In other words, this is the “only hear what you want to hear, based on what you’ve heard and liked before” idea.

At this point I’m obviously just thinking out loud – but I just really like the notion of strategizing around the scarcity that is inevitably created each time a new “abudance” emerges. Any interesting abundance / scarcity combos floating around out there?



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Action-Reaction | Derek Sivers
Jun 26, 2008 23:17

[...] Varian, chief economist at Google, said (via the Wikinomics blog), “If you are looking for a career where your services will be in high demand, you should find [...]

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