Thinking about the economics of surplus.

by Gil Yehuda on July 26, 2011

in Enterprise 2.0,Open Source

In a world of limited resources, the path the wealth is to control the resources.  What about in a world of surplus?  I’ve been trying to understand the nature of surplus and how it impacts the digital age.  So I’m going to share and ask for your thoughts too.

First of all, let’s understand that digital assets differ from physical assets.  A physical asset is subject to resource limits.  If I have an apple and give you the apple, then you have it, but I don’t.  Most digital assets can be shared in a manner that does not result in loss.  If I have a digital picture and email you the picture, then we both have the picture.  Moreover, your copy is indistinguishable. Digital assets are copied and shared with nearly no transaction or manufacturing costs at all.  In contrast, physical items incur transaction costs, logistics costs, and can suffer from defects.

Digital assets are much more like virtual assets in this sense.  I can give you some information — that’s a virtual asset.  If I tell you a joke or a secret, or if I share an emotional story or feeling, then we can both have it (even if no digits were moved in the process). Interestingly, sharing a secret does result in a loss; and as more of our secrets are being stored as digital assets, the cost of protecting secrets will continue to skyrocket.

They will never run out of these.Ironically, people reverse their concept of theft when it comes to digital assets.  Ask someone if it is OK to go into a music store, put a CD in your jacket pocket and walk out without paying.  Everyone agrees this is a crime.  Now ask (a young person) if it is OK to take a digital copy of the same music from a bit torrent website.  Many will say that music sharing is not really theft, since no one looses anything.  So you then point out that the most apparent difference is the plastic disk and jewel case — something that costs pennies at most.  So stealing a few pennies worth of plastic is hardly the crime — but why then is shoplifting “more” of a crime than music sharing? It might feel like it’s more of a crime, because you have to do it secretly.  But stealing digital music does not have that same feel.  And yet, to the artist who paid her way through music school, rented a studio and hired a sound engineer and hoped that her sales would recoup her expenses — ask her if she’s OK with sharing her music on a bit torrent site.

The ability to put value in digital media and the corresponding ability to duplicate digital files in an unbounded and cost-free manner creates abundance.  The value of an abundant asset plummets.  Its tough to make money selling virtual assets — you have to sell experiences.  That’s why many artists give away their music and make their money on concert tours.  Experiences are more of a scarcity.  There is no shortage of videos on YouTube or pictures on Flickr.  There is no market for me to sell a 24×24 pixel gif file of the color blue.  And even if I created a picture worth buying, it becomes increasingly difficult to prevent someone from commoditizing my marketplace.  But if they are particularly good — like a YouTube video that captures the attention of millions, then you might have something of value — the scarce viral sensation.

The world of software is also coming to terms with abundance and value.  There are hundreds of thousands of Open Source software projects available for any developer to download and use.  But which one is good?  Which is worth using?  Which is worth contributing to?  Of course there are a couple of well-known and very successful ones out there.  But the vast majority are unknown, and probably worth very little to most everyone, save the person or few people who wrote the code — perhaps when they wrote the code, perhaps years ago.

The information age has caused a surplus.  And this changes the value of code.  Whereas once it was important for me to protect the rare asset, now I feel encouraged to share more.  There’s no wealth in hoarding a commodity.    And yet, there is still shortage in the technology world — shortage of great developers, lots of code that is needed, but has yet to be created.  And thus not all code or information has been commoditized — but enough has to change the economic balances.

What do you think about this?

Plug:  I’m going to be talking about this topic later this week at a Webinar that I’m doing with Black Duck Software, Inc.  We’ll be talking about how Open Source helps innovation, and issues related to releasing control and improving participation.  You can register here and join the conversation. https://www1.gotomeeting.com/register/696237048

 

 

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