“Survival dictates that human beings develop and ethics and aesthetics that favour exploiting fully those resource that exist in abundance, and economizing on items that are in short supply” – Taichi Sakaiya, Japanese Futurist
Abundances and Scarcities
Every new era can be defined by key abundances and scarcities. They define the theory behind economics, the substance of business and the foundation of life. It is for that very reason that we breathe Oxygen, and not Xenon. Our past is littered with examples of the ever-changing balance between different scarcities and abundances.
Examples from human history show that most people believe that economics is essentially a zero-sum game – that scarcity will ultimately prevail over abundance. According to this view, whatever resources are used for productive purposes, they will meet diminishing returns and exhaustion. Pastor Thomas Malthus famously predicted a zero-sum game as the human population grew exponentially while food production grew in a linear fashion and irreplaceable natural resources were consumed.
Technological Innovation has however trumped the zero-game mindset. Technology is the key driving force in turning scarcity into abundance. A simple example is the fibre optic cable, that can handle millions more data traffic than a copper cable. Bandwidth scarcity disappeared almost overnight. The Malthusian trap is continually sidestepped by the creation of new abundances where scarcities reigned supreme a few years ago.
The foundation of future business models will also be based on the multi-layer fabric of ever changing abundances and scarcities. The exponential increase of bandwidth, storage space and processing power has and will create powerful new business models as new and novel ways are conceptualized to meet the core needs of the marketplace. Companies that once thrived by harnessing scarce resources in their value propositions are now faced by extinction.
The Five dimensions:
The ability to conceptualise and implement business models that are based on digital abundances is never an easy task, especially if the available business models in the marketplace are still based on the premise that bandwidth, storage space and processing power are scarce. A number of trends can help in this regard, especially if these trends are defined within dimensions that define the business value of digital abundances.
These dimensions are:
- Concreteness: This defines the degree to which value is based on the ‘physical’ (e.g. a car) or ‘abstract’ (transport).
- Velocity: The speed of finding the right connection. (e.g. time to find a service.)
- Granularity: The size of a thing that is perceived to have individual value (e.g. CD vs. single MP3.)
- Density: The density of the factors of production – land, labour, capital, information. This also links to the degree to which configurations of these may be ‘optimally’ packed or unpacked. (e.g. a message that is understandable (unpacked) in many domains is dense.)
- Agency: Who or what initiates change, and the degree of freedom to act off these.
Although these dimensions might seem disparate at first glance, it provides a useful guide in defining new services.
The iPod and iTunes combination launched by Apple provides a useful test case.
- The concreteness of the service offering is defined by the physical embodiment of the iPod and iTunes interface, augmented by the virtual nature of the music. The key concept is that music is sold in a virtual format over the Internet.
- The granularity of the service is finer than normal, as each song is defined as an item of value instead of a complete CD.
- The Density of the value offering is defined by all the supporting actors that enable the iPod value proposition: The Internet, inexpensive storage space, battery power, cheap computing power and the ecosystem of value added items that surrounds the iPod service offering.
- A value shift in the Velocity and Agency dimensions are experienced as both the speed of finding the item of value, as well as the way in which it is sold are redefined.
The dimensions not only help in redefining the character of the underlying assets, but also in the way the business model is redefined. The liquidity of the resources, and the ability to unbundle and rebundle resources allows companies to create brand new value propositions, while using the five dimensions to assist in this endeavour.
A few ideas in different industries might suffice to aid in the use of these new tools.
- Reframing the short-term insurance industry
Consider the motor vehicle insurance industry. Past practice was to define the risk profile of the user and the area in which he or she stayed. This was linked to a list of attributes that would help define the risk profile of the owner, and with it the monthly rate.
The 3 forces of digital abundance portray a situation whereby the car can be tracked in real time, at a very low cost. As the vehicle can be tracked, the risk profile of the user can be determined to a very fine level of detail. This implies that the granularity of the information regarding the use of the vehicle increases dramatically. This is due to the decreasing concreteness of the underlying elements of value, namely real-time information on the vehicles location, usage and speed. The velocity in terms of collecting the correct information is also redefined. This means that the agency dimension can be redefined as new business models become relevant that allows for a more advanced risk profiling methodology. This in turn implies a business model that works on variable insurance rates based on unique user characteristics. The density dimension becomes applicable as a new set of resources is used to create value in this new ecosystem. This business model also enables new ideas regarding agency as insurance can now be sold in a far more granular fashion.
These dimensions in themselves do not define the idea creation process, but they do provide an interesting guide by which your ideas can be measured.
The ubiquitous nature of the mobile internet enables a range of new services. Established services can also be reframed into new value systems as information becomes easier to find, more granular, more intangible and easier linked to new ecosystems of service delivery. All of these things allow organisations to develop a new agency model to provide a better service to their client base.
All you need to create these wonderful new business ecosystems is bit of insight, a bit of creativity and a bit of nerve so that you and your organisation can keep on challenging the status quo.
Written by Pieter Geldenhuys