The Role of the Selfish, Single, Working, Man
Who was the first person to purchase a DVD player? What brave soul paid hundreds of dollars for a device that could only play a very limited selection of movies? Were the first owners of DVD players willing to gamble that more movies would become available, despite witnessing the debacle of the videodisk player just a few years earlier? It seems rather amazing that people would make such a purchase. It is even more amazing that businesses would develop new technology and products that depart from previously established markets. There is risk. The company must start producing the new good before it can be purchased, cost must be incurred before the profit (maybe) arrives. The initial consumers must be willing to tolerate poor film selection, poor support, and an expensive piece of equipment that become obsolete very rapidly. Yet once enough people have purchased the good the benefits can be significant. Though this example specifically refers to DVD players, it can easily be seen how the same pattern has applied to many other goods.
A ‘networks effect’ is the term economists use to describe a good or process that experiences an increase in value as its use becomes more and more widespread. This also means that it is relatively less valuable to use/produce the good earlier rather than later. Companies would rather produce a good after it is seen to have market potential. Discerning consumers would rather wait to spend their hard-earned money until prices drop and use is sufficiently common to have raised consumer value to near its maximum level.
Companies can choose to develop new products or improve old. Each choice has its own risks and rewards. An old product has the advantage of an established market, but the risk that maybe something new will come along and supplant it. A new product has the advantage of perhaps developing a new market, replacing an old good, or gaining market share, but also has the risk of being, well, risky. Any new product carries uncertainty about whether it is a viable product.
So what gives a company the confidence to introduce a new good opening a new market such as some new gadget, equipment, or electronics device? Likewise, what possesses a consumer to purchase something so new no one really know how readily it will become a part of society? Why be the first to own a good that is expected to benefit from significant network effects, when at first the usage and network benefits will be rather small?
The answers to these questions are very intricate and require careful thought on the many factors involved, but I believe there is one element that has often been overlooked. This element can be summed up in two words. Boys. Toys.
Men, often relatively young and single but not necessarily either, seem to have a proclivity toward owning things that are “new” or “high tech” simply because they are. There is a strong flavor of competition in this – a man wanting either to have something before any of his friends does or wanting something because all of his friends already have it. Not all of this (generally) male behavior can be explained by competition though; a fair amount must be caused by just general male-nature. Gadgets, new “stuff, “toys” typically interest guys. All guys like new stuff that is high tech and interesting, but it is the single man, earning a decent wage, who can afford to indulge his taste for the latest new idea. Narrow selfishness causes him to purchase for his own enjoyment and to show off his new stuff for his friends, but in doing so he starts the ball rolling on network effects for the rest of us. It is the known existence of such consumers that give companies the confidence to delve into new products and new markets.
Back to the DVD player example. Starting from a small number of initial buyers, DVD makers have continued to develop and improve their products, numerous films have now been released on DVD, and we are well on our way to seeing the DVD burner become a normal method of recording data and video. Not bad for selfish young men with money to burn.
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