Say goodbye to Chokepoint Charlie: In a world without walls, free is the new green of the internet economy

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

I have been talking about the economics of abundance literally from Day One of BloodhoundBlog:

In a subsistence culture, the work of the mind is precious and literally unsupportable. We are by now so rich that millions of people can create intellectual resources that they give away, in turn to be remarketed by others.

I was talking about phenomena like weblogging and open-source software, but, ironically enough, I was also talking about an article by Wired magazine editor Chris Anderson.

This week Anderson is back with another important article, this one called Free! Why $0.00 Is the Future of Business. He’s writing about the net.economy, and what he has to say is fascinating, even if I think he might be missing the bigger picture. He’s also writing in support of his new book, a for-pay product I don’t intend to pay for.

Anderson likens the idea of free razors, which we’ve also talked about, with the modern net model of using free web-based software to create massively-viral effects. Interestingly, he documents six broad categories of no-cost-to-the-user internet business models.

His thesis is that the plummeting cost of data-processing hardware, coupled with a software-cost-per-user that approaches zero, requires vendors of web-based information and services to find other ways to monetize their efforts. If one vendor won’t cut the price to zero, the next one will.

We’ve been talking about this much, too, also since the birth of BloodhoundBlog:

[T]he people most immediately affected are the ones who are currently paid a salary or wages based on the sale of information. Either the information is going to get much, much better — or the number of paychecks is going to get much, much smaller.

Stewart Brand said “information wants to be free”. This has intellectual property implications far beyond ordinary information. But with respect to that ordinary information — news, opinion, fiction, poetry, almost all music, etc. — the war is over. Hoarding lost. The challenge amidst this vast abundance is not getting people to pay for your information — but simply getting them to pay attention to it.

The daily newspaper has no hope whatever of nicking me for fifty cents. The question that will decide if there is even to be a newspaper is, can they hold onto my eyes for as long as fifty seconds? And will someone pay for those eyes in the random hope of piercing my vast indifference to advertising?

It comes down to career advice, I think, for the newspaperati and for all of us: How much future is there in a job that millions of very smart people are willing to do for free? Maybe not the same work, but so close that any differences become academic. And: If you’re committed to sharing information even in a marketplace where ordinary information is so abundant as to be without monetary value, what are you going to do to make a living?

That much is very interesting, and Anderson is always a good read.

But wait. There’s more.

The economics of abundance is more than a reflection of very low data-processing costs. It’s plausible to me that that echoes of the data-processing revolution are being heard everywhere, in every sector of the economy. Those functions that are most like their Nineteenth or Twentieth Century equivalents might exhibit the smallest kind of identifiable change. But those economic activities that are themselves wholly or largely data-processing functions are also becoming remarkably faster, significantly more efficient and substantially cheaper with each passing year. In other words, the cost of offering up a Facebook-like platform or a new MP3 is not only, essentially, zero cents per instantiation, the cost of many, many market values is approaching zero.

Still more: The naked essence of the scarcity economy — everything you were taught of economics, very probably — is based on chokepoints — limitations upon available supply occurring either in nature, by fiat of law or as an artifact of clever marketing. When we talk about “the middle man and the middle man’s profits,” what we’re talking about is some vendor who has interposed himself at a chokepoint between supply and demand.

Does that make sense? Tempe, Arizona, used to be called Hayden’s Ferry. Charles Hayden ran a ferry across the Salt River, which in those days had water in it. (The river has since been dammed upstream.) In any case, if you wanted to cross the river, you had to buy a ticket on Hayden’s ferry. He controlled the chokepoint.

A toll road is the same sort of thing, except the erection of toll booths is not a natural phenomenon.

The De Beers diamond cartel has managed to convince lovebirds that diamonds are rare — when in fact they are abundant — thus charging a premium price for showy baubles.

An example closer to home: In the Web 1.0 world, lead vendors snapped up domains and fought hard for dominance on organic and pay-per-click keywords relating to real estate sales, mortgage origination and refinancing. By these means, they harvested contact information from interested parties, which they were then able to sell to Realtors and lenders, often for enormous fees. The lead vendors created an artificial chokepoint by marketing, then charged practitioners a premium to gain access to the consumers trapped at that chokepoint.

Scarcity has been a given, until now, in human economic life, but scarcity has also been an important tool of political and social domination. Consider that the medieval castle was much more than the baron’s residence. It was a redoubt for the serfs, of course, and the armory for both the serfs and the putative nobility. But the most important function of medieval fortresses, from the time of the Roman latifundia on, was to serve as the granary for the community. The baron would defend the community’s harvest from theft by invaders with armed guards stationed behind stout stone walls. But the baron also, in consequence, had the means to bring any rebellion, large or small, to its knees. He controlled the food supply.

Now stop for a moment and think about Web 2.0.

Horizontal search tends to erode all man-made chokepoints. So do weblogs and every other form of social media. The serfs were stuck with the baron because they had no means of moving away. If you have only one way across the river, you’re going to have to take the ferry. But nothing prevents you from discovering that diamonds are insanely overpriced — nor is there anything that prevents you from shouting this fact to the world, as I am doing right now.

And there is no barrier to forbid consumers from skipping around the chokepoint — and the middle man’s profits — to engage directly with Realtors and lenders. The transition from the economics of scarcity to the economics of abundance will not be instantaneous, but the obvious long-run trend is toward greater transparency, increased symmetry of information — and no marketing-engendered chokepoints.

Nothing happens as quickly as we expect it to, looking forward, and everything seems to have happened much faster than we had realized, looking backward. More important, I think, than the plummeting cost of data processing, is the massive and seemingly irreversible horizontalization — the democratization — of information. The most significant man-made chokepoints centered around restrictions upon access to information and concentrations of expertise. When we use the word “disintermediation,” what we really mean is not getting rid of the middleman, but, rather, the dismantling of arbitrary economic chokepoints. As those barriers erode away, one by one, the consumer cost of everything associated with them drops dramatically. The semantic web, Web 3.0 — wherein the information that you want finds you — should only hasten this process.

It’s plausible to me that the economics of abundance will have an impact on the fees we charge, as well. If that looks like a cloud to you, here is a silver lining: It’s not how much you make, it’s how much you take home. If your own costs are plummeting, then you can make more while charging less.

In any case, in the long run — which is not very long — everything that can be ‘sold’ at no cost will be. And everything else will tend to be marketed with fewer and fewer chokepoints. And yet we are rich beyond the wildest dreams of the richest of the medieval barons.

There are still wannabe barons in our economy, people scheming to find a way to hold us hostage with our own grain. But the last laugh will be ours: They will defend to the death the stout gates they have built across economic chokepoints. And we will go wherever we choose — in a world without walls.

 
Further notice: Scrabulous in the New York Times.

Last summer’s persecution of Zillow.com was a counter-reaction against no-cost services.

The real estate vendors are all atwitter that Inman News has shed its skin to become… a dinosaur…