In 1985, my college economics professor taught that wealth is created through the strategic allocation of scarce resources. The theory being that if you controlled a scarce resource, you were on your way to building wealth.
A few years later, I read a book by Paul Zane Pilzer that not only disagreed with my college professor, but its concepts helped shape every career decision that I’ve made since. The book, Unlimited Wealth: The Theory and Practice of Economic Alchemy, helped me understand that the pursuit of controlling scarce resources was futile because the technology-of-the-day defines what a resource is.
For example, oil was an annoyance until someone figured out that it was a rich source of energy. In an agrarian society, land was considered a scarce resource, until we developed new methods for significantly increasing the harvest per square acre. And if the laws of supply and demand proved correctly, sand, the most plentiful material on earth, should have no value at all–that is until someone discoverd its semiconductive properties and built an entire valley in Northern California based on the discovery.
The concept that yesterday’s scarce resources can become abundant today creates huge challenges to those who’ve built their businesses on the obsoleted resource. If technology determines what a resource is, and the rate of technological change is accelerating, then anyone in the business of controlling resources faces real-time financial ruin the moment someone invents a technology that transforms that scarce resource into an abundant one.
Fast forward to 2009, with a book that picks up where Unlimited Wealth left off: Chris Anderson‘s Free: The Future of a Radical Price. Twenty years ago, there was no Google, WordPress, iTunes, Youtube, Facebook or Twitter–all technologies that transformed publishing from a scarce resource (printing presses and transmission towers) into an abundant one. Anderson takes a look at the ramifications that online technologies have had on driving the marginal cost of information delivery so low as to make it too small to measure.
While many businesses morn what has been lost through the cost marginalization of information delivery, Free focuses precicely on the abundance of opportunities that businesses have to choose from. The question (which I have posted in this blog on many occasions) is: do business leaders have the intestinal fortitude required to reap the benefits of those opportunities? Anderson sums up the sentiment on page 233:
Free is not a magic bullet. Giving away what you do will not make you rich by itself. You have to think creatively about how to convert the reputation and attention you can get from Free into cash. Every person and every project will require a different answer to that challenge, and sometimes it won’t work at all. This is just like everything else in life–the only mystery is why people blame Free for their own poverty of imagination and intolerance for possible failure.
Every now and then, a book comes along that needs to be read multiple times to completely absorb its concepts. Not only have I’ve read Unlimited Wealth at least a half-dozen times, but I’ve purchased it at least that many times, as my copy always seems to be on someone else’s bookshelf. More than likely I’ll be dong the same thing with Free.
During the next few weeks, I’ll be discussing specific things that companies must do (or avoid!) to benefit form the disruptive power of abundance vs. scarcity-based business thinking. Stay tuned.