Selling dairy products in the land of milk and honey
Posted by aogThursday, 19 February 2004 at 22:20 TrackBack Ping URL

Buzz Machine discusses yet another clueless economist who claims that the information industry is suffering from market failure. His definition of this is reasonable - “the inability to reach a self-sustaining equilibrium”. However, he’s picked his sector of the economy on very narrow ground in order to get this result. This sector consists of large corporation who push packaged information to mass consumer markets, where prices are collapsing in slow motion. The failure there isn’t of the market, but the of the business model.

As Scott Adams said “Why would you pay people to speak? You can’t pay them to shut up”. The business model of Big Media depended on high fixed costs (which is how the economist defines the market) to create a barrier to entry for competitors. Modern information technology is lowering those fixed costs across the board - production, reproduction, distribution. There are simply too many people willing to produce content for little or nothing for high cost producers to compete. And even there, it’s not clear that the real producers are worse off economically. Many musicians, for instance, are likely to make more money in the new information economy than they did in the old with Big Media.

Finally, big information oriented companies are not going away. The particular ones we have today might well do so, but I would expect the power law to stay in operation, meaning that we’ll have very few big companies, some more middle sized ones, lots of small ones and vast hordes of tiny ones. I expect a separation of information production and delivery. We might even see bandwidth companies charging producers for product placement (the way many of the gadget catalogs charge the gadget makers for space in the catalog). The scarce resource of the future will be the attention span of consumers. The companies that can capture some of that on a regular basis will be the big companies that replace the current ones.