The Paradox of Plenty
Abundance Creates Value. Scarcity Destroys Value. But Scarcity *in* Abundance Collects Value.
The central economic question of our time isn't about managing scarce resources; it's about navigating overwhelming abundance. We are drowning in information, products, and connections. In this new world, value isn't created by controlling supply; it's captured by building a moat around a new kind of scarcity that solves a problem of abundance.
Abundance Creates Value
The first principle is the most straightforward: abundance creates value. The existence of a vast, freely available resource is the foundation upon which everything else is built.
In the digital realm, the internet's value isn't the physical infrastructure but the boundless information it connects us to. The value of a social network isn't the code; it's the millions of connections it enables.
In the physical world, the value of a car isn't the steel or the rubber. It's the abundant, global supply chain that provides millions of parts and the abundant fuel sources that power it. The value is in the system, not the components.
The takeaway is that you can't build a valuable business on an empty field. You need the ecosystem of abundance to exist first.
Scarcity Alone Destroys Value
Here’s where things get interesting. When an entity captures a core piece of this abundant system and restricts access, it doesn't create new value—it just extracts existing value. Scarcity alone destroys value by acting as a tax on the system.
Consider a patent troll in the digital world. They don't innovate; they simply own a piece of intellectual property that creates a bottleneck for others. This kind of scarcity stifles progress and makes the entire ecosystem less productive.
The same is true for a company like Comcast, which for years held a local monopoly on the "last mile" cable to your home. They weren't creating new content or better services; they were simply rent-seeking on the scarcity of an alternative connection.
This behavior isn't value creation; it's value extraction. It’s a parasitic relationship that ultimately makes the abundant system less dynamic.
The Art of Leveraging Scarcity Within Abundance
The true genius—and where the real fortunes are made—is in leveraging scarcity within abundance to collect value. The most successful platforms and companies don't create scarcity; they solve a problem that only exists because of abundance.
Google Search operates not in a world of scarce information but in a world of overwhelming abundance. Their value isn't in providing information; it's in providing a scarce resource—attention—by creating a system that finds the most relevant information within that near-infinite abundance.
Starbucks doesn't sell a scarce commodity. Coffee beans are a globally abundant resource. The scarcity they provide is a unique, consistent branded experience and a curated "third place" between home and work. They collect value by transforming an abundant commodity into a valuable, scarce brand identity.
Luxury car brands don’t sell scarce raw materials. Steel and rubber are abundant. They sell scarce craftsmanship, design, and a brand legacy that signals status and quality. The value isn't in the car's parts but in the unique and non-replicable reputation it carries.
That’s the Paradox of Plenty: The modern business imperative is to identify a new problem created by an abundance of some kind and then build a system that creates a new, valuable, and scarce resource to solve that problem. This is how you shift from a value extractor to a value creator.
Truly great modern businesses create their own abundance. Facebook/Meta, though oft maligned for some good reasons, is an interesting case here: Most of the advertisers on Meta were created by Meta: They only exist because Meta advertising can match a bunch of small businesses to specific customers. The advertisers on meta are not the old Proctor and Gamble you see in the grocery stores. They are one off, niche brands that only need a few thousand customers, and Meta will find them.
AI is all the rage now. There is a brand new abundance: intelligence too cheap to meter. The hard question is not “what will be abundant?”, but “what will be scarce/hard in this new, abundant world?”
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Update: I got a good question saying, sort of “but the models are not so cheap yet, good model quality is scarce based on the amount of compute and monthly subscription costs and…”
That’s true right now, I agree. Two things: (1) these costs tend to trend towards either zero or near-zero margin (2) there’s still an abundance of models at difference price/quality points that can be solved with a scarcity: switching a customers’ query amongst the models based on price/quality matching for them.