IoT: Ain't Seen Nothing Yet as the Third Industrial Revolution Emerges

Marginal Costs Are the Costs of Producing an Additional Unit of a Product After Fixed Costs Are Covered

By Joe Feeley

Author Jeremy Rifkin has written about economic and social trends and issues for years. He says we've entered the third industrial revolution, and we'd better get ready for the changes it will bring.

His new book, The Zero Marginal Cost Society, foresees how the Internet of Things (IoT) will lead to nearly free goods and services, diminishing the influence of capitalism and ushering in a global "collaborative commons."

"We're just beginning to glimpse the outlines of the first new economic system since the emergence of capitalism and its antagonist socialism in the 19th century. It has long-term implications for us and our children and grandchildren," Rifkin said at a recent speaking engagement at Google ‘s headquarters.

Marginal costs, he reminds us, are the costs of producing an additional unit of a product after fixed costs are covered.

Rifkin talks of a paradox embedded in capitalism that is responsible for its great success, but is now leading to its demise. He says businesses always welcomed the reduction of marginal costs, but "they never anticipated a technological revolution so extreme in its productivity that it might reduce marginal costs to near zero across the value chain, making goods and services essentially priceless, abundant and not subject to a market exchange economy."

He says the first inkling of this paradox was Napster in 1999, which introduced file-sharing and bypassed the recording industry's royalties system. It has since invaded the entire information goods industry. Consumers became "prosumers," producing and sharing their own information goods with videos on YouTube, news blogs and ebooks, and decimated the publishing industry.

"Economists thought there's a firewall here, so these concepts won't cross into the world of brick and mortar goods and services," Rifkin said. "That's not the case."

Rifkin says the IoT Communication Internet is converging with an emergent Energy Internet and Logistics Internet to create a new technology platform that connects everything and everyone. Prosumers will use big data, analytics and algorithms to accelerate efficiency, dramatically increase productivity and lower the marginal cost of producing and sharing a wide range of products and services to near zero.

This spawns a hybrid economy—part capitalist market and part collaborative commons—with far-reaching implications for society, Rifkin says. Prosumers plug into the IoT to make and share their own information, green energy and 3D-printed products at near-zero marginal cost. They share cars, homes and other items via social media, rentals redistribution clubs and cooperatives at low marginal cost. Now social capital is as important as financial capital, access trumps ownership, sustainability supersedes consumerism, cooperation ousts competition and exchange value in the marketplace is increasingly replaced by "sharable value" on the collaborative commons.