Distorting The Economics Of Scarcity

The recent announcement that Amazon has released an Ad Supported Kindle was greeted with little fanfare in the tech world.  There isn’t anything sexy about an ad supported version of an existing (and relatively unexciting) piece of hardware.  Yet this release may have marked an important first step in the progression towards a limited form of the mythical “post scarcity” economy.

As Amazon continues to progress towards their (unconfirmed) goal of a free Kindle, we get closer to the first time that a piece of physical hardware can be subsidized entirely via the delivery of paid, digital content.  Unlike phone subsidies tied to the signing of a long term (and overpriced) contract, the Kindle subsidy is tied entirely to the postulated lifetime value of a Kindle customer.

The concept of Post-Scarcity Economics has intrigued me for years.  A (very) theoretical offshoot of mainstream economic thought, its primary focus is exploring the potential consequences of an economic reality no longer tied to scarcity in the procurement of physical resources.  The hypothesis is that this would lead to the prioritization of knowledge and creativity as capital, rather than of tangible or strictly monetary (in the contemporary sense) goods.

While those most interested in the field tend to skew towards a theoretical and utopian perspective, I think the core tenets of the theories hold some valuable insights for our current era of increasing digital consumption.  Specifically, by further questioning the relationship between creative/physical capital, we can gain a better understanding of how we value and consume goods and services.

Just in the past 10 years, Apple and Netflix are well on their way to eliminating the physical scarcity of our media consumption.  They have taken one step further the scalable, mass reproduction of plastic discs, and replaced it with the nearly infinite scalability of bits and bytes.  As the cost of data transmission continues to fall, eventually the cost of delivering entertainment will effectively be zero.

At this point, we will have approached (at least in this specific industry) the utopian ideal of the post scarcity world: Entertainment will be valued solely on the expense of envisioning, creating, and recording a single instance of it.  Afterwards, the cost of duplicating and transmitting it (legally) will actually be zero.

Yesterday, amidst the buzz surround LinkedIn’s $8+ billion post IPO valuation, Barnes and Noble quietly fielded an acquisition offer that valued the company at $1 billion.  Barnes and Noble controls 1300+ physical retail locations, in addition to owning millions of dollars in physical book inventory, while  LinkedIn’s only physical assets might be the desks and chairs in their offices.

When you put it that way, the idea of a “post-scarcity” economy doesn’t sound so crazy, does it?