The dynamic equation between value and cost is being redefined by the semantic web.
|Scooped by Martin (Marty) Smith|
Another great "value system" post by author David Amerland. I'm going to quote a big chunk and then come back with some thoughts:
From David's Post
The message of the 21st century is clear: The cost of production is immaterial if the value of a product is uncertain. Companies that understand that operate differently. Amazon invests an incredible amount of money in warehousing technology and delivery infrastructure to make shopping easier (the value is being transferred to the experience). Google spends untold millions in research and development of products it gives away free (the value becomes apparent only when a brand-based purchasing opportunity arises, like in advertising or a Google product). Apple now disregards the cost of upgrades to its iOS because it values the sustained attention of its customers.
These three companies understand that the real value comes in achieving a balanced equation of personal use of their products (uniqueness) rather than scarcity. As a matter of fact their value equation then becomes Value = Uniqueness/Scarcity where the lower the scarcity value is the greater will be the delivery of overall value even if uniqueness remains the same.
I read those paragraphs several times and then did the math. Doing the math helped (lol). Let's say a product has a uniqueness value of 10 and a scarcity value of 2:
Value 5 = 10 (uniqueness) / 2 (Scarcity)
Value 10 = 20 (uniqueness) / 2 (Scarcity)
Now let's up the scarcity value and see what happens to the product's
"perceived" or overall value:
Value 2 = 10 (uniqueness) / 5 (Scarcity)
Value 4 = 20 (uniqueness / 5 (Scarcity)
This reminds me of a conversation I had with J. Langdon when he was the President of Topps baseball cards. I knew J from my tenure at M&M/Mars. J. explained how he knew he was feeding a losing proposition.
His product, baseball cards, needed to have a high scarcity value for it to continue to matter in the artificial marketplace they and other manufacturers created.
The rub was Topps needed to sell baseball (and fantasy) cards in numbers that drove their scarcity numbers down.They suffered a Sophie's choice: either sell enough cards to be able to pay their fixed costs and stock holders and so destroy the market (of perceived exclusivity) or sell too few cards to cover costs keeping perceived exclusivity up but destroying the business none-the-less.
And then the mobile phone was born and bye bye baseball and fantasy cards. Topps needed an Apple-lke pivot. They needed to GIVE the baseball cards away free in support of something ore unique and valuable - the experience of a crowdsourced mobile game or a Threadless-like community where people compete to win coveted printing contracts much the way baseball players compete to get paid God-like sums.
Topps was a casualty of David's "new math". The greater the scarcity of the core product the more nails in the business model's coffin. This discussion reminds me of another conversation. When the founder of Tough Mudder said, "Experience is the new branding" it struck me as highly significant.
I would build on David's thoughts to note the reason scarcity wrecks such havoc with a product or brand's value is COMMUNITY CAN"T FORM. Community is the experience we seek. If community can't form value or "perceived value" as J used to call it goes down rapidly just ask any baseball card collector :).
David's core "value system" post is here (and a #mustread):