In 1969, the Neiman Marcus catalog offered the first home PC, a stylish stand-up model called the Honeywell Kitchen Computer, priced at $10,600. The picture shows an aproned housewife caressing the machine, with this tag line: "If she can only cook as well as Honeywell can compute." That image should be on every cubicle in Silicon Valley; it's a testament both to what technologists get right and what they get badly wrong.
The cost of distribution is now low enough to round down to free. Today, it costs a content provider like Netflix about a nickel to stream a two-hour movie to one person. Next year it will be four cents. A year later it will likely be three. Which is why YouTube's founders decided to give it away. The result is messy and runs counter to every instinct of a television professional, but this is what abundance both requires and demands. If YouTube hadn't done it, someone else would have.
What this boils down to is the difference between abundance- and scarcity-based business models. If you're controlling a scarce resource, like the prime-time broadcast schedule, you have to be discriminating. There are real costs associated with those half-hour chunks of network time, and the penalty for failing to reach tens of millions of viewers with them is calculated in red ink and lost careers. No wonder TV executives fall back on sitcom formulas and celebrities—they're safe bets in an expensive game.
But if you're tapping into an abundant resource, you can afford to take chances, since the cost of failure is so low. Nobody gets fired when your YouTube video is viewed only by your mom.
This is the power of waste. When scarce resources become abundant, smart people treat them differently, exploiting them rather than conserving them. It feels wrong, but done right it can change the world.
The TV networks saw an opportunity in this failing and created a competing video service, Hulu. It offers mostly commercial video, most of it taken from TV, but it is as convenient and accessible as YouTube. Because the content is a known quantity, often the same thing advertisers are already buying on TV, they're happy to insert their commercials as pre-rolls, post-rolls, and even interruptions in the programming. It's free, of course, but unlike on YouTube, you're paying something in time and annoyance—just like on regular TV. However, if it's 30 Rock you want, and you want it now, in your browser, this is the simplest way you're going to get it.
The YouTube model is totally free—free to watch, free to upload your own video, free of interruptions. But it doesn't make money. Hulu is only free to watch, and you have to pay the good old-fashioned way, by watching ads you may or may not care about. Yet it generates healthy revenue. These two video outlets illustrate the tension between different variations on the free business model. Although consumers may prefer 100 percent free, a little artificial scarcity is the best way to make money.
Sound schizophrenic? That's the nature of the hybrid world we're entering, where scarcity and abundance exist side by side. We're good at scarcity thinking — it's the 20th-century organizational model. Now we have to get good at abundance thinking, too.