day 104

alice in wired world 8: software economics

Yesterday we saw that in the software economy model, demand follows production. A company either mainstreams or dies. A FutureBusiness optimistically applies the rule: production is boosted so that the supply can double, thereby lowering price according to learning curve theory. When prices are lowered, demand also goes up (assuming demand varies inversely with price). Lowered prices that stimulate more demand are the positive feedback mechanism of frictionless capitalism. There is no looking back: production is constantly forced upward until market saturation and mainstreaming is achieved. Figure 1 (yesterday) dramatizes the fundamental difference between classical and FutureBusiness models: Demand and Price work together in the old model, but they work in opposite directions in the new model. This is called inverse economics. It is a principle of the software age. The goal is to apply inverse economics as fast as you can, produce as cheap as you can, and mainstream by winning or buying market share at light speed. Inverse economics produces some perverse effects in the software age. For example, it makes it possible for a Toyota to be as good as a Mercedes-Benz. It means that it is possible for the Internet to be better than TV -- or worse!

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