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Jeremy Rifkin Blog

The Marriage Between Zero-Margin Production and the Internet of Things

Although many may not be aware, we are on the outskirts of a new economic system that has a sole focus on collaboration and distribution. Despite the evolution seen in sectors such as technology, it may surprise to learn that this is the first new paradigm introduced into society since the advent of socialism and capitalism seen in the early part of the 19th century.

What’s interesting is the reason why a new economic system is being born, and that’s zero-marginal cost. Marginal costs are the costs of production after fixed costs are taken care off. Despite many professionals and businesses being aware of this concept, the general public overall isn’t. However, the concept of zero-marginal costs is something that will affect every single person in the coming years.

There is a paradox that’s heavily present at the centres of the capitalist market system that has been undisclosed and is responsible for the vast amount of success that capitalism has experienced over the last 200 years. The irony of this is that the paradox is essentially leading to an endgame, with a new paradigm focused on collaborative commons.

In the traditional market, sellers will be pro-actively seeking out new technologies that can increase productivity and reduce their marginal costs which in turn allows businesses to offer cheaper products and services that win over new customers and give profit back to investors.

Businesses never dreamed that technology would essentially reach a revolution that might reduce these margins of cost to almost zero which would mean products and services are essentially free, priceless and bypass the market exchange economy. However, this is now happening in the real world.

The beginnings of the zero-margin cost phenomenon were first seen when the World Wide Web was introduced in 1990. Although primitive in its initial guise, the rise and popularity of the Internet has allowed people to stay up to date with news as well as communicating with each other via audio, video and email at near zero-marginal cost.

This meant that the millions of people who were consumers in the past now become prosumers. News blog and websites are being created, as are a multitude of videos. This has been enough to impact some of the big industries, especially those that operate in the newspaper and magazine industry. Some newspapers went of business as they just couldn’t compete with near-zero marginal costs. The same with those producing magazines.

There where industries who believed that the distribution of information was a good thing. Many believed that the distribution of freemiums would encourage the purchasing of premiums. An example of this can be when a musician starting out will give away music to make their presence known. The idea behind this thinking is that fans will start to build loyalty and then make purchases in the future.

Another example is the way some news platforms have adjusted their business model in the hope that freemiums will convert into a premium subscription. The New York Times will allow online users to view around ten articles for free a month in the hope that the users will then apply to its subscription model. This very rarely happens and demonstrates how the world has changed in relation to the distribution of content.

In the past, this hasn’t impacted the physical world in the sense that physical goods can be created using a zero-margin cost method. The new technological revelation will mean that as well as being able to share their own information, but also energy and physical goods.

The Internet of Things is an expansion of the online world that has been taken place over the last few years. This concept of the Internet of Things is that it acts as a central hub for the millions of sensors already in existence.

IBM estimates that as we head in 2020, we can expect over 30 billion sensors to be in existence, which is made possible thanks to the Internet of Things. As well as allowing people to manage their devices and appliances from almost anywhere, it is also possible to genre big data.

All this data can be used to create analytics in the same way search engines do but allow a shareable platform. The use of big data ensures that we have more accurate information to hand and ensuring that data can be distributed in a proactive way ensures that businesses can reduce marginal cost in the production of physical items.