By David Hornik on October 22, 2006 11:52 PM / http://ventureblog.com/

Chris Anderson Strikes Again: The Economy of Abundance
By David Hornik on October 22, 2006 11:52 PM | Links In | Comments (1) | TrackBack (0) | Categories: Conferences and Consumer Internet & Media and The Economy & Finance

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.