June 26, 2014 The Collaborative Commons

Volume 17 | Issue 4

The emerging Internet of Things is leading to a zero marginal cost society and the rise of a new economic system. The Collaborative Commons

A new economics system is beginning to flourish alongside the capitalist market. The Collaborative Commons is already changing the way we organize economic life, offering the possibility of dramatically narrowing the income divide and democratizing the global economy in the first half of the twenty-first century.

Zero Marginal Cost and the Internet of Things
What’s precipitating this great economic transformation is the extraordinary success of the marketplace. There lies a paradox at the very heart of the capitalist ethos that has been responsible, in large part, for its great success over the past two centuries, but that is now giving birth to its potential successor. Private enterprises are continually seeking new technologies to increase productivity and reduce the marginal cost of producing and distributing goods and services so they can lower prices, win over consumers, and secure sufficient profit for their investors. (Marginal cost is the cost of producing additional units of a good or service, if fixed costs are not counted.) Businesses, however, never imagined that extreme productivity might one day bring marginal costs to near zero, making many goods and services nearly free, and no longer exchangeable in the capitalist market. That’s now beginning to happen.

The zero marginal cost phenomenon invaded the information goods sector in the past decade. Hundreds of millions of consumers turned prosumers, producing and sharing their own music, videos, and other forms of entertainment, as well as news and knowledge, at near zero marginal cost, bypassing the capitalist marketplace. Music industry revenues plummeted. Newspaper and magazine revenues also shrank, with many publications going out of business, unable to compete with free web media and blogs, operating at near zero marginal cost. Similarly, book publishing shriveled while retail bookstores closed their doors as more prosumers published free e-books. More recently, the zero marginal cost phenomenon burst into the field of higher education, wreaking havoc on the traditional learning model. Six million students are currently enrolled in free Massive Open Online Courses (MOOCs), that operate at near zero marginal cost, and are being taught by world-class academics, and receiving college credits.

Economists acknowledge the deep disruption that near zero marginal cost has had on the above mentioned industries but, until late, have argued that the phenomenon would be restricted to information goods, and not spill over to the world of physical goods and services. No longer.

A new general purpose technology platform is evolving with the potential of reducing marginal costs across large sectors of the industrial economy. The ubiquitous Communication Internet is expanding its global reach by connecting with an incipient renewable Energy Internet, and an embryonic automated Logistics and Transport Internet, creating a distributed neural network, combining communications, power, and mobility in a single operating system—a Third Industrial Revolution. This more encompassing super Internet of Things (IoT) is designed to connect every thing and every human being across the economic value chain in an indivisible intelligent web that functions like a global brain. Twelve billion sensors are already attached to natural resources, road systems, warehouses, vehicles, factory production lines, the electricity grid, retail stores, offices and homes, continually feeding Big Data to the Communication Internet, Energy Internet, and Logistics Internet. By 2030, upwards of 100 trillion sensors will be connected to the IoT.

Business enterprises and prosumers will be able to connect to the IoT and use Big Data and analytics to develop predictive algorithms that can speed efficiency, dramatically increase productivity, reduce the use of energy and other resources, and lower the marginal cost of producing and distributing physical things to near zero.

For example, the bulk of the energy we use to heat our homes and run our appliances, power our businesses, drive our vehicles, and operate every part of the global economy will be generated at near zero marginal cost and be nearly free in the coming decades. That’s already the case for several million early adopters who have transformed their homes and businesses into micro-power plants to harvest renewable energy on-site. Even before the fixed costs for the installation of solar and wind are paid back—often as little as 2 to 8 years—the marginal cost of the harvested energy is nearly free. Unlike fossil fuels and uranium for nuclear power, in which the commodity itself always costs something, the sun collected on rooftops and the wind travelling up the side of buildings are nearly free. The IoT will enable prosumers to monitor their electricity usage, optimize their energy efficiency, and share surplus green electricity with others on the Energy Internet.

Similarly, hundreds of thousands of hobbyists and thousands of startup companies are already printing out their own manufactured products using free software, and cheap recycled plastic, paper, and other locally available feedstock at near zero marginal cost. The additive manufacturing process uses one tenth of the materials of traditional factory production, resulting in a dramatic reduction in the use of the earth’s resources. By 2020, prosumers will be able to share their 3D printed products with others on the Collaborative Commons by transporting them in driverless electric and fuel cell vehicles, powered by near zero marginal cost renewable energy, facilitated by an automated Logistics and Transport Internet.

The distributed, peer-to-peer nature of the Internet of Things platform allows millions of small players—social enterprises and prosumers—to come together in a global Collaborative Commons, and produce and share green energy and 3D printed manufactured products directly with one another at near zero marginal cost and for nearly free, just as we’ve done in producing and sharing information goods on the Internet. This fundamental technological transformation in the way economic activity is organized and scaled portends a great shift in the flow of economic power from the few to the multitudes and the democratization of economic life.

The Rise of the Collaborative Commons
Millions of people are transferring bits and pieces of their economic life to the global Collaborative Commons. Prosumers are not only producing and sharing their own information, entertainment, green energy, 3D-printed goods, and enrolling in massive open online courses on the Collaborative Commons at near zero marginal cost. They are also sharing cars, homes, and even clothes with one another via social media sites, rentals, redistribution clubs, and cooperatives, at low or near zero marginal cost.

Forty percent of the US population is actively engaged in the collaborative sharing economy. For example, 800,000 individu als in the US are now using car sharing services. Each car share vehicle eliminates 15 personally owned cars. Concurrently, millions of apartment dwellers and home owners are sharing their dwellings with millions of travelers, at near zero marginal cost around the world, via online services like Airbnb and Couchsurfing. In New York alone, Airbnb’s 416,000 guests who stayed in houses and apartments between 2012 and 2013 cost the New York hotel industry 1 million lost room nights. The result is that “exchange value” in the marketplace is increasingly being replaced by “shareable value” on the Collaborative Commons.

Global companies, operating in the profit-driven marketplace, will likely remain with us far into the future, albeit in an increasingly streamlined role, primarily as an aggregator of network services and solutions, allowing them to thrive alongside the Collaborative Commons as powerful partners in the coming era. The financial sector will also play a critical part in the collaborative age, funding the build out of the Third Industrial Revolution Internet of Things infrastructure. The capitalist market, however, will no longer be the exclusive arbiter of economic life. We are entering a world partially beyond markets where we are learning how to live together in an increasingly interdependent global Collaborative Commons.

Jeremy Rifkin is the author of The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism. Rifkin is an advisor to the European Union and to heads of state around the world, and is the president of the Foundation on Economic Trends in Washington, DC.

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