Social media and the new economics of plenty

Hurricane

A recent Schumpeter article in The Economist lamented the “howling hurricane of noise” and “blizzard of buzz” in the world of social media (e.g., Twitter, Facebook, LinkedIn). The writer posits that these new modes of communication are potentially more trouble than they’re worth for companies and individuals, using the economics of scarcity as a foundation for his argument (i.e., that things derive value from their scarcity). He ultimately seems to conclude that because so much information is available through social media, it ultimately lacks value.

Scarcity and abundance

Scarcity (either natural or artificially enforced) is a fundamental aspect of modern economic theory. Lionel Robbins proposed a definition for economics, stating that it is “the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” The basic idea is that humans have limitless needs, while there are only finite resources available to meet these needs. A conflict (and equilibrium) thus arises between needs and resources.

But things have changed in the digital era.

Scarcity is not a problem for many digital goods and services (including content); the cost of reproduction and distribution has dropped to near zero, which has created a world of plenty for many things digital. In Cognitive Surplus, Clay Shirky argues that the digital world is one of abundance, and this lack of scarcity has turned common wisdom on its head in many cases (see my review for a synopsis). The ability now exists for everyone to create and publish work digitally, and Shirky argues this shift to “post-Gutenberg economics” has four consequences:

  1. The freedom to publish diminishes the average quality of all work published
  2. Experimentation in form increases (i.e., people can publish, then let the audience filter what they think is worth reading)
  3. Definitions of quality become more variable
  4. Distinctions are drawn (and arguments break out) over the difference between “professional” media and “amateur” media, and where the dividing line is (if anywhere)

In other words, the digital world is often ruled by the economics of plenty (not of scarcity), which makes it difficult to apply the same arguments about value.

Value in a world of digital abundance

So what can we say about value in the “howling hurricane” of information available through social media? The Economist article draws a sweeping conclusion:

Most commentary on social media ignores an obvious truth—that the value of things is largely determined by their rarity. The more people tweet, the less attention people will pay to any individual tweet. The more people “friend” even passing acquaintances, the less meaning such connections have.

Based on my arguments above (and those of Shirky and others), it is not an obvious truth that the economics of scarcity apply to social media communications and connections, or to any digital media for that matter (see this article by James L. McQuivey from Forrester for further amplification of this idea). It’s a different world with a new set of (evolving) rules and behaviors, and so arguments about value become much more nuanced.

In a world of lies, damn lies, and statistics, it’s dangerous to talk about the average value of any piece of social media, whether it be tweet, connection, or blog comment. The volume of social media content (and digitally published content in general) has grown exponentially, and to be sure, the average quality has decreased; quality doesn’t scale. However, this says nothing about the individual value of any one communication, nor anything about the total value of all such content and ideas.

An individual tweet can be incredibly powerful (see this list of Top Tweets of 2011 for examples). The use of Facebook and Twitter in the Arab Spring is another perfect example (though the author poo-poos this idea, following the basic line of reasoning used by Evgeny Morozov and others). Even if it’s difficult to pay attention to everything that flows by in the stream, lots of gold nuggets still surface, even though some may get lost.

Beyond the individual value of social media communications, I believe strongly that the total value to society outweighs the drop in average quality. These are transformative technologies that are reshaping the world in a net-positive way, even if there are negative uses and outcomes. It’s a balancing act, to be sure, but it’s critical to look at the bigger picture.

What it means for business

The Schumpeter article draws several dire conclusions for social media in the business world:

  • It causes companies to ignore customers outside of those “whinging on Twitter”
  • It won’t lead to improved customer service (since this won’t scale)
  • Companies will have to invest in ever more channels to capture the same number of ears

The first two points are certainly possibilities, though it depends entirely on execution. Certainly some companies will get it wrong (as many already have), and the net result will be bad for customers and bad for their bottom line. But many companies are also getting it right, and it’s still an evolving practice. It will take time before business practices evolve to match the speed with which customer expectations are changing.

The last point is a classic push marketing argument, and reflects a mental model of customers as ears, as opposed to people with whom a company forms a connection. If all companies want to do is capture more ears, then they need to invest in new social media channels (though not necessarily more, if it’s done properly, and monies are simply shifted from traditional advertising spends). The push-marketing mindset (akin to the one derided in The Cluetrain Manifesto more than 10 years ago) totally forgets the power of word-of-mouth marketing and conversation, where the scale of connections between people helps transmit messages about great products, services and content, without companies needing to do much at all. Anything that helps companies enhance real connections with people and deliver better products and services is a good thing, even if it’s a hard thing.

In the new world of social media, there is no doubt a hurricane of information, but rather than the howl of a banshee, it’s music to my ears, filled with a new kind of value pulled from the economics of plenty. In my opinion, it’s making the world a better place for people and businesses alike, and even though it will be a twisty road for everyone, it’s a journey worth taking.

So what do you think? Am I a Pollyanna who’s been spending too much time on Twitter drinking the Cool Aid? I’d love to hear your thoughts!

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