Investment Scarcity Banking (doesn’t work anymore.)

(from Mark Sigal at O’Reilly:)

George Gilder once pointed out that when the availability of a given resource shifts from scarcity to surplus, a lot of wealth is created. In the technology realm, one can think of processing power, storage and bandwidth as the great “wealth exponential-izers” of first the PC era, then the Internet era, and now, the Mobile Broadband era (as these resources went from scarcity to surplus items).

Beyond wealth creation for entrepreneurs, part of the miracle of surplus-powered markets is that they are generally a great boon for consumers as well, yielding them a greater diversity of offerings to choose from and democratizing markets by broadening accessibility and lower relative product costs.

By contrast, scarcity markets are kindred spirits of the toll road; they are all about pricing controls, and limiting both choice and access (think: cable/satellite TV, gas-powered cars, etc.).

While the entrenched incumbents understandably love scarcity markets, surplus markets are the proverbial rising tide that lifts all boats for consumers and upstarts alike.

One of the underlying causes of the financial crisis of ‘08 as I alluded to in my last post, was the obsolescence of a large swathe of the financial services industry’s business models. This didn’t happen overnight (or even in 2008) but was the culmination of a number of outside forces shaping the operating environment over the last decade or more. These business models, these ‘entrenched incumbents” relied on scarcity markets. But since (most of) financial services is a pure digital information business, in our day and age it is obviously now a surplus market.

There are no prizes for guessing which businesses and business models I find more compelling going forward. Indeed looking at companies through the scarcity/abundance prism is a very powerful analytical tool for trying to handicap future success.

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