Posts about deflation

Stop selling scarcity

If you are selling a scarcity — an inventory — of any nonphysical goods today, stop, turn around, and start selling value — outcomes — instead. Or you’re screwed. Apply this rule to many enterprises: advertising, media, content, information, education, consultation, and to some extent, performance.

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Start with advertising. I wrote in my report on a local advertising sales roundtable we held at CUNY that sites should shift from selling media — their own inventory of banners and buttons — to selling services for merchants, helping them succeed through networks of local sites and also through Google, Yelp, Twitter, Facebook, email, mobile, and whatever comes next … helping them with their business. The merchant doesn’t give a rat’s ass about your limited supply of space and eyeballs; the merchant cares about sales and return on investment. As Max Kalehoff advised in a comment on that post, “Sell the outcome.”

At a Paley Center breakfast this week, Sirius CEO Mel Karmazin — a titan of ad sales in broadcast — was blunt about the current state of advertising in media: “There’s just too much supply,” he said, “and I don’t think that supply is going to go away. The leverage is on the part of the buyer as opposed to the seller.” When there’s limitless supply, pricing is not based on supply and demand. These are the new economics of media.

Thus the value is in results. That, of course, is what Google realized when it sold clicks instead of pixels, aligning its interests with those of the advertiser and sharing the risk, which motivated Google not to sell scarcity but to create abundance in the form of AdSense. This, for Google, produced a practically limitless supply, which in turn yielded ever-better relevance, effectiveness, and ROI.

Or as Karmazin famously told Google in Ken Auletta’s book: “You’re fucking with the secret sauce.” He recounted his reaction to Google’s strategy at the breakfast: “You want advertisers to know what will work and what doesn’t? That’s bizarre…. Oh, my God, I don’t want to be in that business.” In most media, Karmazin said, the lowest rates were paid by direct response: “The people who knew what worked were the ones who paid the lower rate.” That bubble is irreparably burst.

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So what are you to do if you are media? First, you have to align your interest with marketers if you have any hope of still helping them, still adding and then recognizing value. Marketers will, as Bob Garfield so forcefully states in The Chaos Scenario, build their own, direct relationships around media, without advertising. Or as I’ve been obnoxiously stating it, advertising is failure — it’s what you do when you don’t have a valued relationship.

Relationships. That’s what the business of media must become. In our New Business Models for News, we began — just began — to project the value of the relationship a new media service can have in its community: creating events; educating; gathering and selling data; selling goods directly (as the Telegraph does, quite successfully); running networks to help others succeed; saving money by collaborating. This is why the notion of charging your best customers — cutting off your richest relationships with a toll booth — seems so dangerous to me.

Instead, we must also align our interests with those of the community, with the people formerly known as the audience, helping them do what they want to do, adding value and recognizing it that way. We need to make ourselves their platform.

Content is not a scarcity. You can no longer sell it as such. That’s one of the morals of the Demand Media and Wikipedia stories: Like it or not, for many different motives, there’s always someone out there who can create content that serves a similar purpose, that answers the same question, that is just good enough. Selling content as if it were a consumable — indeed, calling the people who use content consumers — is now outmoded.

Information is not a scarcity, or at least it isn’t scarce for long. Yes, when I don’t know something, then the answer is scarce. But now it’s much easier to get that answer; Google will have it in .3 seconds and if it doesn’t and if enough of us ask it, then someone at Demand Media will write it for me and the rest of the world for $20. When news is new, its value is scarce (as Thomson Reuters Tom Glocer says, his information has its highest value in its first 3 milliseconds); but then that value deflates.

The new media economy gets even more complicated because putting our content and information out there is how it gets distributed, how we find new people, how we build new relationships, how we realize new value.

You can no longer afford to make yourself scarce.

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In education, we’re fooling ourselves if we think that we can maintain our scarcity-based economy: only so many chairs to soak in the wisdom of that teacher. It’s a wildly inefficient system — especially in our industrial-age knowledge factories that try to turn out people who memorize the same answer instead of invent new ones.

Earlier, I’ve speculated about the idea of an educational ecosystem with star professors whose lectures are widely available (as is the case with MIT and Stanford) and who gain value (books, speaking gigs) through being broadly distributed. Then we have local tutors who give us the specialized instruction and consultation we need.

Thus we have performers and consultants. There is still value in unique performance. We will continue to buy tickets to concerts by stars (but we won’t pay for the Muzak covers of their songs on elevators). We will buy books. We will pay to sit in a movie theater with popcorn. The new competition in the case of media and performance isn’t that someone will make a good-enough version of what we do but that there is more call for the public’s attention.

Quality is a scarcity. But it is a real scarcity. You may think that your newspaper’s version of the Super Bowl is better than the next, but good luck trying to build a business on charging for it. No, you have to be recognized by enough people as being the best — so many that they spread the word for you — if you want to have a blockbuster. It’s still possible. But in an economy of abundance, it’s ever harder and thus riskier and more expensive to get that hit.

This is also why value shifts from creation to curation: in a world of overabundant content, it’s the filters we need.

If you’re not the star performer (or professor), if you’re the consultant (or tutor) who works much more locally, you do indeed have a scarcity: your own time. That scarcity works against you. So it’s in your interest to scale as best you can. That is why people like me blog. The more we share our ideas, the more attention we draw, the more business we can get, the more efficient we are. I’ve even tried to convince big consulting companies and headhunters and international organizations of this; didn’t get far.

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The real story in nonphysical goods is one of deflation. Value in once-scarce — well, once-controlled — commodities like news, information, and advertising decline as the internet explodes creation and competition. The internet also destroys the ability of many to control distribution and thus value. But at the same time, the internet drastically increases efficiency thanks to platforms and open distribution and the ability — no, the need — to specialize and collaborate. The bottom line in many of these enterprises — as we tried to show in our New Business Models for News — is that they may be profitable, only smaller. Both sides of the ledger deflate.

This is why the old controllers of scarcity have such trouble rethinking and remaking themselves for the economy of abundance. Their reflex is to control more, when that only decreases value.

So stop selling scarcity. Scarcity has no value. Results and efficiency do.

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Then again, people are spending big money — billions — for a virtual market with a virtual scarcity in virtual goods: pixels on a screen. It’s absurd, of course, that anyone can create a scarcity and market value for fictional food for fictional cows, but it’s making money. In this economy, I think we see both the dying gasp and a parody of scarcity.

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