If I may be a moment of vanity, this is the pithy saying I'd care to have my name attached to - "You can't make a business model out of preventing consumers from having something they want".
There're so many such models around these days. Most of them are dismal failures, others on their way. DRM, Macrovision, the whole of RIAA/MPAA, and the like seem to be destined to be dragged kicking and screaming to business-model-oblivion.
In the good old days, when the scarcity that economic textbooks talked about was 100% real, life was simple. You made your money by making a product (that was scarce, in the economic sense), and made money by selling to people who wanted to buy it at the price you were willing to sell at. Your job was to deliver a product or service to the consumer, and you made money based on how much they were willing to pay.
If you made enough money, others would enter, and the market would begin to resemble a perfectly competetive one. Your price would then decline from what the customer was willing to pay to somewhere above your marginal cost. Not too bad, you still made money. Alternatively, you created artificial scarcity through ownership of the means of production or distribution (I'm talking about you, media companies!), limited competition through whatever means, and kept prices close to willingness-to-pay. You could create an artificial scarcity by owning the medium of communication (records, movies, newspapers) or by imposing protection on content (copyright, IP protection etc.).
It was the digital age that made things different. Marginal costs of software, digital media, and information are now close to zero, as I've blogged about before. Is this the beginning of the post-scarcity abundance economy that Marxists love to presume is inevitable? Perhaps not, but we are definitely seeing the implications of abundance, albeit in a limited domain.
Traditional "own-the-medium" scarcity creators like music or movie companies and newspapers are now in trouble. Rather than adapt, they've chosen to react by throwing money at the problem - buying legislation like the DMCA, pushing DRM down the throats of unwilling consumers and so on.
All this amounts to a reversal of the tradition of business. You're not trying to make money providing goods or services to customers, but by preventing access unless your protection money is paid.
So, expect the outdated scarcity-dependent vendors to continue to try. And expect them to fail.
Expect some interesting half-steps towards dismantling old models - like iTunes. Though currently DRM-ridden, iTunes became succesful because it finally let customers have easy pay-as-you-go access to digital music at a reasonable (compared to alternatives) price. It was incrementally better than competition - it put fewer hurdles in the consumers' path. Apple's DRM is the target of a lot of activism and legislation, and will eventually fall. Even Apple doesn't seem to want to keep DRM alive.
The consumer will find ways to get what he or she wants. He/she will crack DRM. File-sharing will evolve in ways that make DRM or tracking utterly pointless. Blogs have already begun threatening the viability of newspapers and the viability of overpaid reporters who work for them.
Self-publishing on the web and free-access online journals are the next wave, and will probably doom traditional publishing houses.
Recording artists will begin publishing online, and receiving voluntary payments for unrestricted media. They will continue to make money on live shows, with the record company now out of the picture.
In the meantime, it would be a smart move not to try to swim against the tide. Surprisingly, there are a few such models floating around in startup-space. If your business model rests on creating artificial scarcity in a digital world, pause to think. You're probably on the wrong side of history.
You can't make a business model out of preventing consumers from having something they want. They will find a way.
Try finding a way to give them want they want.
0 comments:
Post a Comment