Chris Anderson - The Future of Business

The new economy began circa 1935 where near zero marginal costs for each additional viewer but very high marginal costs for additional content. Chris highlights that NSync’s second album release in March 2000 and will become the best selling of all time because the distribution model has changed to digital and single songs. The one size fits all does not work anymore which is good for users but bad the record labels. Equally fragmentation is evident for TV where the top 10 average rating shows has declined as the number of channels available has exploded. The fundament for the long tail is therefore present. The short version of the long tail theory is that digital content does not cost overhead like physical products, so where most stores only carry 55.000 items in their inventory online stores carry 10 -100 times that numbers. And that even the most horrible piece of music will be downloaded at least once a year. Since it does not cost you anything to store it in hard drives you can generate 20-25 % additional income.

The new landscape is about niche and fragmentation while the old model was general and mass audiences in marketer’s crosshair. And the new landscape is also about abundance, not scarcity. The internet is an economy of free which Chris has spend the last two years building an economy models around since nothing existed until now and to uncover the 21th century economy of bits which is replacing the 20th century economy of atoms.

Unlimited Computer power
An example is Moore’s Law of doubling computer power every two years and if they run the numbers from an economic perspective, you eventually will have free, or close to free, microprocessor. And what would this mean for society? Student where given the task of wasting processors to come up with ideas of concept for this world. And they had no idea until someone envisioned a scenario where the computing power would migrate away from the data centers back in 1960s. The solution was a computer for every home which at the time seems unimaginable. Thus, wasting technology would be much better in the hands of ordinary people who had unmet needs which IT can solve.

Unlimited Storage Capacity
Another technology which becomes even cheaper is storage. Chris gave the example of this company where the IT department called him to delete some files because the storage was limited. Chris asked his kids what storage capacity they had at home. The answer was 500 GB which was equal to the entire company’s storage capacity. The point is that instead of the IT department spending time on deleting files, they should spend time on delivering unlimited storage and provide time for Chris. It’s the difference between the mindset of scarcity and abundance.

Unlimited bandwidth
YouTube emerged from the notion of bandwidth is to cheap to meter and there the driver is unlimited bandwidth in the near future. This changes the models of content as YouTube is full of junk but it gives user choices. Chris’s kids had the option of Star Wars the DVD and Star Wars spoof created by 9 year olds and LEGO’s. The content addressed the kids and had more relevance than a professional produced content.

Freemium
The unlimited computer power, storage and bandwidth all add to the argument of free premium e.g. freemium. Ex. social network platform Ning only earn money from 3% of its customers but those power users are paying for the remaining 97 % of the user who only explore the free version. This is only possible because the distribution model is digital. As giving away 97 % of a baker’s muffins will cost lots of money but not services on the internet. The gift economy laid ground for other internet economies like attention and reputation economy. And if the service if close to free, treat it as free and make money on something else.

Google use attention where the currency is traffic and the conversion mechanism for making money is ads. The same is true about the reputation of page rang.

Lesson in a free economy of what people will pay for: to save time, to lower risk, for things they love, for status, if you make them (once they are hooked). Those notions need to be understood and applied to service and products which are nearing free levels in order for the companies to survive. Current industry’s that are experimenting with free e.g. Ryanair is selling travels, not seat like the rest of the airline industry and build the cost structure around other services and products. Eventually Ryanairs’s CEO wants to make the flight free if you use the onboard casino.
I even got to ask Chris a question through the online gadget handed out here at the conference.

Link