Lately I’ve been thinking about the web from an economics standpoint. Instead of trying to think about “what should be”, I have been trying to discern “what is”. I think someone who really understands the web in this context is
JP Rangaswami. In his post a little while back,
“The Customer is the Scarcity” he writes,
We are fast approaching an age when many analogue things will become virtual, digital, easily copied.
We can choose to invest time and effort in making digital things harder to copy: we can choose to create artificial scarcity, and lose.
Or we can choose to invest time and effort in making digital things easier to consume, to share, to enrich. And to pay for.
The customer is willing to pay. If we get the consumption model, the paying model, the sharing model, right.
The customer is the scarcity. Let’s focus on valuing that scarcity, on giving the customer what she wants when, where and how she wants it. With the right consumption and payment and sharing models.
Nowhere do you see the this “customer is the scarcity” concept than with Google (GOOG). Google makes money by selling a scarce asset, our searches, to advertisers. While we are their customer we are also the product that is sold to advertisers. We are a scarce asset that is auctioned off and valued to the market. This concept, while not new by any means, is very important. As long as we’re content hanging out over at Google, they have a monopoly on the production of searches, and there is really nothing anyone can do about it.
Right now, Microsoft (MSFT) is spending millions of dollars to try to persuade us to come hang out at Bing. While they are gaining some traction, the truth is that we’re happy at Google, we’re comfortable there and we’re not going anywhere anytime soon. Even more interesting is that Microsoft can’t “Wal-mart” Google. They can’t go and undercut Google on the price of ad space, because the price of ad space is completely independent from the volume of searches. This is a tough position to be in and really illustrates what the scarce asset is on the web, us.
As the social web starts to take hold, this concept will never be more important. As people settle down into communities to talk, play and solve problems, those who can effectively engage and foster the growth of loyal customer – raving fans will benefit. These communities are scarce markets of people that can be auctioned off to advertisers, matched up with other markets, and monetized in ways we can’t even comprehend right now.
While training in sales at Smith Barney, I was taught that we buy from people we know, love, and trust. Since “knowing”, “loving”, and “trusting” are all characteristics associated with a social network, I will rephrase that to say “we buy from within our network”. Thus, not only is the customer the scarcity, but the network is as well. Those who can build the strongest and deepest networks, will also hold the most valuable assets on the web going forward.
