Real Scarcity Is An Important Part Of A Business Model; Artificial Scarcity Is A Terrible Business Model

from the business-modeling-for-fun-and-for-profit dept

Partly in response to Rupert Murdoch whining about how it's too risky to make films if Congress doesn't set up protectionist plans that lock down the internet, venture capitalist Fred Wilson has a great post about how "scarcity is a shitty busines model." He focuses, mainly, on the windowing aspect of movie releases these days, and how many in the industry still insist that locking up content rather than making it widely available is the key to profiting. But Fred points out (as many people have for years), that this makes no sense:

Denying customers the films they want, on the devices they want to watch them, when they want to watch them is not a great business model. It leads to piracy, as we have discussed here many times, but more importantly it also leads to the loss of a transaction to a competing form of entertainment.

[....]

I've argued this point many times with film executives. They insist that they need their windows. They argue they need to manage access to their films to extract every last dollar from the market. That just doesn't make sense to me. If they went direct to their customers, offered their films at a reasonable price (say $5/view net to them), and if they made their films available day one everywhere in the world, I can't see how they wouldn't make more money.

He points out that this certainly will disrupt some players -- but for the studios, it will undoubtedly increase the pie. It may hurt the gatekeepers, but it helps pretty much everyone else.

The one quibble I'd have with Fred's post is he keeps saying that scarcity is a bad business model. I think he's overstating his case a bit. Scarcity remains, and scarcity is still a key part of a smart business model these days. What is a bad business model is relying on artificial scarcities -- scarcities that are created by choice and by fiction -- rather than market realities. A seat in a movie theater is a real scarcity. Fred's attention is a real scarcity. Those are important parts of a real business model. Pretending an infinitely copyable video is not... is an artificial scarcity and it's a bad business model.

Filed Under: artificial scarcity, business models, economics, real scarcity, scarcity