Arasmus

Got Acorns?

Posted in Anthropology, Economics, Technology by Arasmus on August 24, 2006

If you like what you do for a living then you should be worried, that is unless you are a pervert. Let me explain. Wired Magazine recently published an article about “crowd-sourcing”. In it a professional photographer described how competition in his business had become overwhelming, given the proliferation of high quality photographs on online databases ranging from iStockphoto to Flickr. The article started me thinking about what sorts of other markets might be vulnerable to crowd-sourcing.

At the outset, the most vulnerable markets are those for products that have a low marginal cost of production and by that I mean that the cost of producing one additional unit of the product is low. Thus, for example, Apple has probably spent millions developing OSX, but once developed, the cost of making a copy of the operating system is nothing more than the cost of burning a copy of the program onto a DVD or putting it on a website for consumers to download. “Digital products” such as software, e-books, music and photographs easily fall into this category. The markets for these products are vulnerable because the low distribution cost allows anyone in the world to easily sell these products to anyone anywhere.

But fixed costs or semi-fixed also have a role. If fixed costs are too high then a market will not be vulnerable to crowd-sourcing. The difficulty or cost in developing the Google search algorithm ensures that there is not a cottage industry for search algoritms. If fixed cost is zero then no one is willing to pay for the product because it has little or no value or it is just as easy for the consumer to make it themselves – e.g. the market for people to set your alarm clock. However if fixed costs are falling then a market may become vulnerable to crowd-sourcing. Fixed costs fall when the price of the means of production falls. For the purposes of crowd-sourcing I want to focus on the cost of labor which can be more of a semi-fixed cost than a variable cost depending on the labor market and regulations. The cost of labor is the price at which a worker is willing to sell utility or alternatively buy disutility. Returning to the example of photos – “workers” are willing to sell photographs for very little because they actually get utility rather than disutility out of taking them. This is all fancy language for saying a much more simple proposition which is that people are willing to work for less if they enjoy what they are doing. If technology can increase the utility a worker gets from their job then the salary for that job will fall because more people are willing to do it for less.

The film business offers an interesting example. Back in the 1930’s making a film was beyond the ability of the average Joe – i.e. it was hard work and you had to pay people to do it – indeed you still have to pay people today. However, technologies such as iMovie and high quality video cameras now allow you to make films that would have amazed audiences in the 1930’s. Indeed, film-making has not only become feasible for the average Joe it has become fun – in other words, for some portion of the workforce, making films has gone from being disutility to utility. As a result, you have television programs such as America’s Funniest Home Videos that show hours and hours of videos that cost them nothing because the people that made them enjoyed doing it. The internet is full of video footage and even independent films that you can consume for absolutely nothing.
What’s the bottom line? If you enjoy what you do and if other people would enjoy doing it too – be afraid. If you make a digital product – be very afraid. The world is full of people who want to have just as much fun as you and you will get to exchange Cyworld acorns with them on the one-way train to the badlands. Only those that enjoy what others do not enjoy will survive and the richest of these will be the most perverted. Quel change?

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