Money For Nothing & Marginal Utility

In today’s world, critics are claiming that people who spend money on virtual products such as download videos and music, greeting cards, virtual flowers, avatars, artwork, games, photographs, and a whole world of virtual stuff are throwing money down the drain.

The truth is that the virtual market is gaining such momentum that literally billions of pounds will be changing hands in the next few years. Chris Anderson’s book The Long Tail in 2006 demonstrated that one of the quickest and biggest ways to make money from now on is by selling binary ones and zeros, and then gathering together a band of associates, affiliates and agents to sell even more of them. In other words, video, e-books, music, and anything that can be turned into ones and zeros on a computer and then sold.

I even went down to PC World just recently to purchase a copy of Adobe Elements 7 and was told, Sorry, pal, we no longer stock it Рyou have to buy it online. Strangely, they sold the instruction book but not the software. I went home, found it on the web, paid my money and downloaded it Рeffectively spending about £60 on a heap of ones and zeros.

In Throwing Sheep In The Boardroom a brilliant book just out by Matthew Fraser and Soumitra Dutta, and fast becoming a best selling book because it is so well written, they explain much the same thing. It’s called marginal utility – the phrase has been around for years, but I suspect you are going to hear a lot more abou marginal utility as time passes.

For example, if you buy a virtual card for someone costing, say one pound and send it to them over the internet, it has more marginal utility than popping into town to buy a card for someone. The reason is that a digital card requires a lot less effort and you get to know that it arrives on time. It is likely to be kept for longer than a real card would be and what is more, all the recipient’s friends on their social networking site will no doubt get to know that you sent the card. (That’s apart from other values such as saving the trees.) In other words, the ones and zeros of a digital card are far more valuable than a REAL card – more marginal utility in the process.

This is going to be highly important in the next decade because if anything you make can be turned into ones and zeros, then you probably need to be doing it or at least investigating your options. This includes anything which is visual or audible. It is expected that within the next three years, DVDs will vanish just like the tapes did only three years ago. Most manuals of all types are now online rather than printed. If it can be converted to ones and zeros then you can bet it will be real soon. In the meantime, don’t fight it – question how YOU can take advantage of this new phenomenon.

Copyright John Edmonds (April 2009)