From inception Mclowd has been run along the strictest of Lean Start Up principles, and as a consequence of being capital constrained traditional marketing activity has been largely absent, both as to capabilities and execution.
Interestingly however, the Community has continued to grow, which has got me thinking about what the implications of Lean Start Up – and the wider issue of zero marginal cost – has for marketing more generally.
Marketing in the 21st Century
The marketing function has seen enormous change since the advent of the Internet, with a gradual (and now accelerating) migration from traditional mediums to digital.
This has lead to a decline in the per unit cost of campaigns, and opened up opportunities for rapid innovation, including mechanics and analytics.
But is this an end-point in the process, or just a way-point on our journey towards zero marginal cost?
What role (if any) will the marketing function play in a zero marginal cost society?
Zero Marginal Cost Society
In his book Zero Marginal Cost Society, author Jeremy Rifkin has documented the speed and scale of the deflationary forces which are now impacting on capitalism.
His key message can be summarised by the following quote:
“Summers and DeLong found themselves hopelessly trapped. Although economists and entrepreneurs never intended for the capitalist system to self-destruct (they expected it to reign forever), a careful look at its operating logic reveals the inevitability of a future of near zero marginal cost.
A near zero marginal cost society is the optimally efficient state for promoting the general welfare and represents the ultimate triumph of capitalism. Its moment of triumph, however, also marks its inescapable passage from the world stage.
While capitalism is far from putting itself out of business, it’s apparent that as it brings us ever closer to a near zero marginal cost society, its once unchallenged prowess is diminishing, making way for an entirely new way of organising economic life in an age characterised by abundance rather than scarcity.”
Price vs Marginal Cost
To a large extent capitalism (in its current form) exists in the space between price and marginal cost (this gap supports not just marketing, but much of the wages bill, office rent, etc).
By attributing certain values to a product or service, marketing seeks to support this gap, and over more than 100 years has been successful in this endeavour.
But what happens as that gap shrinks?
Mclowd makes its core accounting software available to trustees and practitioners for free because the marginal cost of an additional user is basically $0.00, and the price differential with incumbent vendors (100%) is delivering migration outcomes without any marketing function, let alone budget. (Mclowd is effectively using the economics of cloud computing to drive these outcomes at zero marginal cost).
I was in Perth over the recent Christmas period and while watching the cricket on TV every second ad was for solar power installers. It is forecast that within 15 years 50% of detached buildings in Australia will be covered in rooftop solar panels. (Renewable energy is already the largest source of power in countries like Germany, and the growth is accelerating in both developed and developing nations).
But as each panel is installed the available market for incumbent energy generators, distributors and retailers shrinks inexorably (with no obvious replacement in terms of value creation).
The marginal cost of solar energy is zero, and hence there will be no marketing activity associated with the ongoing generation of that energy – ever.
The same story is going to be repeated countless times across manufacturing (3D printing), education (MOOCs) and so on.
Start-ups have traditionally relied upon access to financial capital to fund marketing activity in order to acquire customers (and build up rent-seeking business models).
In comparison Mclowd has relied far more heavily on social capital, and leveraged a capital-light model and the economics of cloud computing to deliver marketing outcomes with no virtually no budget.
(When you are saving an accounting firm thousands of $$ per month in software licence fees you don’t need to spend a lot of money on marketing to convince them to become part of the Community).
If the experience of Mclowd is any indication, the marketing function faces considerable headwinds as we move towards a Zero Marginal Cost Society.