Even in the current global downturn, most of us are better off than our parents and grandparents. People are living longer, healthier lives, and have more choices than ever before.
Food is cheap and abundant; yet some people pay $10 for ‘special’ organic lettuce. MIT offers all its courses for free online; yet students attend classes paying annual fees over $36 000 (plus dorm expenses and books).
These paradoxes make sense when we consider how markets work, and redefine what is being bought and sold. Midst the abundance of choices, we buy ‘scarcities’ - the things we really want. Going to MIT – BEing there – cannot be replaced by any on-line course.
The technology guru George Gilder has long postulated: “Every economic era is based on key abundances and scarcities.” Every new abundance brings matching scarcities, and many of our problems are centred on these recurring anomalies. Our current ‘scarcities’ offer opportunities.
Markets create abundance by identifying needs, determining prices and allocating goods. Markets thrive on scarcity, and turn it into abundance. Wealth is generated when something is scarce and can be offered at a high premium over cost.
Markets have given the world an unprecedented amount of information to help make choices. Google is free, yet the company is profitable, growing and making more money each quarter. They have found ways to sell scarcities midst the free choices.
In amongst a seemingly abundant choice of cellphones, Apple broke into the market to gain a leadership position fairly quickly. It did not offer what was already abundant – lots of cellphones with slightly different features. It offered the real value which people wanted, and were ready to buy at a premium.
Why do consumers still shop at old-fashioned retailers when they can buy cheaper on-line? Because they can touch, feel and compare products. Also, buying on the web is a lone experience; shopping becomes an outing for the family on a Saturday morning. Everyone participates, and you can have lunch together after.
With the abundance of e-mail, what is the true value of Facebook or Twitter? They have attracted all the buzz for creating social networking; it is like hosting a big cocktail party. But making money is their challenge – it is free and nobody shops. They must find scarcities, things that everyone at the party needs which they can sell, without driving away the crowd. They do not yet have a ‘scarcity’ revenue model. That is the challenge – to monetise social networking without ruining the atmosphere.
Apple’s real value-offering
In a recent article I discussed mobile-phones becoming the primary Internet connection, replacing TV and desktop computers. It is clear that what is needed is NOT just the commodity connection product, but the software environment that provides special values.
From this standpoint, Apple is not an iPod company, nor a smart phone company. It is not even a computer company – MAC hardware is relatively mundane. In the midst of commodity products and markets, Apple is morphing into a serious software giant. The iPhone OS 3.0 software update released for the iPhone and iPod Touch is probably the most important technology event of the past few years.
Sure, the latest iPhones are good phones; but they are like most other phones – capable and easy-to-use multitools for the connected age. They not only make phone calls, they check your e-mail, browse the Internet and take a decent picture. And they have games and GPS. Most of the competitors do too. Heck, if all you need is a good phone, buy the new Palm Pre which was designed by an ex-Apple genius.
The real iPhone breakthrough is the software it unlocks for developers of third-party applications. It becomes not just a cellphone, but a computing platform. The AppStore is now packed with more than 50 000 iPhone applications. There are apps for working out, for around the house, for going out, for making money.
For a couple bucks iBeer uses the iPhone’s accelerometer to slosh around a beer, brew, drink, shake and burp. Or you can pour beer from your iPhone to another. It is like ridiculous cellphone ring-tones, which still sell in the millions.
Many iPhone applications are ‘free’ downloads – software developers make money by selling subscriptions for add-ons and premium content.
The software is the ‘scarcity’ – no one else has the capability yet. By the time they catch up, Apple will be locked in as ‘the standard’. It remains to be seen how the other cellphone companies will react. Early leaders (Motorola, Eriksson) are falling behind by just offering hardware and proprietary software. Apple’s marketing genius comes from offering a complete environment for third-party developers.
Is your company affected by the recession? Are people simply not buying your products because of a budgetary crunch? This may be because you are selling ‘commodities’ – abundantly available stuff. The secret is to sell ‘scarcity’ – something in demand, which your customers MUST buy.
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