In the physical world scarcity is what leads to value.

In the digital world abundance is what leads to value.

There is no such thing as scarcity in digital goods. They can be
replicated instantly and as many times as you want without losing

This has led many who grew up in the world where scarcity was the
measure of value to conclude that digitatization equals value deflation.

But I believe the exact opposite happens. You must embrace what digital
offers. The ability to rapidly replicate is the way to create value in
the digital world.

Take the case of the Jonas Brothers, a band of three brothers based in New Jersey. Their record label, Columbia Records, spent a bunch of money recording
a series of music videos based on their single Mandy. They spent more money buying traffic to the Jonas Brothers website to showcase
the video. The result was very little traffic.

Then in a stroke of brilliance, Columbia Records put the video in an embeddable
player on the Jonas Brother’s myspace page.  Within weeks the video had
replicated all over myspace. The result was a huge amount of traffic
and increased sales of the song Mandy on iTunes. Masive viral replication drove sales.  Abundance at work.

Two weeks ago my daughter Emily became a bat mitzvah. Like most proud
parents we threw a party for her. At her sister’s party two years before we had a
photographer who shot the event and made the photos available via a
password protected website. The photos were watermarked. If you wanted
prints, you paid him for them.

We hired the same photographer at Emily’s party, but we also put up a
photobooth where the people who came to the party could take their own
photos. The photobooth pictures were all black and white. But these
photos were available the night of the party on a totally open website
where anyone could take them and do whatever they wanted with them.

The next day the photos from the photobooth had replicated all over the
web, to flickr, to photobucket, to typepad and blogger and, most of all,
to myspace. Three weeks later many of Emily’s friends still have photos
from the photobooth as their profile photo on myspace.

And the guy who put together the photobooth has gotten a ton of new
business from the people who came to our party and from the people who
saw the photos on the web. I even got a request to use the photos in an
advertising campaign.

Contrast that with the photos that were taken by the hired
photographer. They are locked behind the password protected site and
few if anyone will buy them other than our family.

I could go on and on aboiut this. But this is a blog post and I am writing it on my new blackberry 8700g and my thumb hurts.

My point is not that scarcity doesn’t matter anymore. Scarcity will remain the source of value in analog goods like oil and water.

But when something goes digital, the value creation exercise is about creating abundance, not scarcity.

#VC & Technology