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The Zero Marginal Cost Society: The Internet of Things, the Rise of the Collaborative Commons, and the Eclipse of Capitalism

By Jeremy Rifkin

A new economic system is entering onto the world stage. The Collaborative Commons is the first new economic paradigm to take root since the advent of capitalism—and its antagonist socialism—in the early 19th century. The Collaborative Commons is already transforming the way we organize economic life, with profound implications for the future of the capitalist market.

The triggering agent that's precipitating this great economic transformation is Zero Marginal Cost (ZMC). Marginal cost is the cost of producing an additional unit of a good or service after fixed costs have been absorbed. Businesses have always sought new technologies that could increase productivity and reduce the marginal cost of producing and distributing goods and services, in order to lower their prices, win over consumers and market share, and return profits to their investors. They never anticipated, however, a technology revolution that might unleash "extreme productivity" bringing marginal costs to near zero, making information, energy, and many physical goods and services nearly free, abundant, and no longer subject to market exchanges. That's now beginning to happen.

The near zero marginal cost phenomenon wreaked havoc across the "information goods" industries over the past decade as millions of consumers turned prosumers and began to produce and share their own music via file sharing services, their own videos on YouTube, their own knowledge on Wikipedia, their own news on social media, and even their own free e-books on the World Wide Web. The Zero Marginal Cost phenonomen brought the music industry to its knees, shook the film industry, forced newspapers and magazines out of business, and crippled the book publishing market.

Meanwhile, six million students are currently enrolled in free Massive Open Online Courses (MOOCs) that operate at near zero marginal cost and are taught by some of the most distinguished professors in the world, and receiving college credits, forcing universities to rethink their costly business model.

Economists acknowledge the powerful impact Zero Marginal Cost has had on the information goods industries, but until recently, have argued that it would not pass across the firewall of the virtual world into the brick-and-mortar economy of energy, and physical goods and services. That firewall has now been breached.

A powerful new technology revolution is evolving that will allow millions—and soon hundreds of millions—of prosumers to make and share their own energy, and an increasing array of physical products and services, at near zero marginal cost. The Communication Internet is converging with a fledgling Energy Internet and nascent automated Transport and Logistics Internet, creating a new technological infrastructure for society that is going to fundamentally alter the global economy in the first half of the 21st century. Billions of sensors are being attached to every device, appliance, machine, and contrivance, connecting every thing with every human being in a seamless neural network that extends across the entire economic value chain. Already 14 billion sensors are attached to resource flows, warehouses, road systems, factory production lines, the electricity transmission grid, offices, homes, stores, and vehicles, continually monitoring their status and performance and feeding big data back to the Communication Internet, Energy Internet, and Logistics and Transportation Internet. By 2030, it is estimated there will be more than 100 trillion sensors connecting the human and natural environment in a global distributed intelligent network. Prosumers will be able to connect to the Internet of Things (IoT) and use Big Data and analytics to develop predictive algorithms that can speed efficiency, dramatically increase productivity, and lower the marginal cost of producing and distributing physical things to near zero, just as billions of prosumers now do with information goods.

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 party 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 already 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 Internet of Things will enable prosumers to monitor their electricity usage in their buildings, optimize their energy efficiency, and share surplus green electricity with others on the Collaborative Commons.

Similarly, hundreds of thousands of hobbyists and 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. 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 prosumer-driven laterally scaled value chain, made possible by the Internet of Things, virtually eliminates all the middlemen and markups that accompany a traditional vertically integrated production and distribution system, pushing marginal costs to near zero.

Hundreds of millions of people are transferring bits and pieces of their economic life from capitalist markets 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 already actively engaged in the collaborative sharing economy. For example, 800,000 individuals in the US are now using car sharing services. Each car share vehicle eliminates 15 personally owned cars. At the same time, over a million 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 capitalist 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 flourish alongside the Collaborative Commons as powerful partners in the coming era. 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 president of the Foundation on Economic Trends in Washington, DC.

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