The relationship between supply and demand forms the basis for our economic activities. It’s interesting to observe how products that did not even exist a year ago are suddenly generating significant demand.
We can distinguish between two different kinds of products. One kind are the so-called “me too” products: yet another brand of hair gel, yet another type of shampoo. Their rapid-fire introduction doesn’t signal innovation, but rather hints at the gigantic marketing machinery that dominates the market for beauty products. Consumers are presented with a story about the product and with an image of the world that resonates with them.
The second kind of products that generate new demands result from technological progress. The laptop is a good example: its lightweight design became possible once computer technology was sufficiently advanced, and it has now turned into a staple of our work environment. Fuel-efficient cars are another example: over the past decade, they have started to dominate the market through the use of lightweight materials and technological innovations like efficient engines. German car manufacturers have invested time and money in the development of these technologies that have resulted in new car models.
Apple products are interesting hermaphrodites. On the one hand, they owe their success to good design (it’s fair to say that owning an iPhone or an Apple computer has become a status symbol for many people), but each model also introduces technological innovations. In the case of Apple, marketing and innovation go hand in hand.
The question of supply and demand is a regular focus of discussion. Are we whipping up artificial demand for products that aren’t worthy of the attention because they don’t satisfy any of our basic human needs? But thankfully, we have moved beyond basic needs in many Western countries.
Once we have satisfied one desire, another desire often arises from it. Maybe our human nature is conditioned in such a way as to prevent complete satisfaction. We are always striving for something new. Throughout human history, groups have tried to resist this trend – for example, the Stoics in ancient Greece, who sought to reduce our sense of entitlement and who wanted to tailor demand to the supply of existing goods. But this approach required constant concentration and training. We are not naturally inclined to forsake our desires. The Czech economist Thomas Sedlacek (whose work I hold in high regard) makes this point in his recent book “The Economics of Good and Evil.”
But this is a column about the start-up industry, and the question we must thus ask is whether start-ups belong to the first or to the second kind of business. Many “me too” companies exist in the start-up industry, no doubt. And not all enterprises that are billed as “driven by technology” are truly innovative. But many young companies are currently working on products that would have been unimaginable without the technological developments of recent years. Many of these companies operate in niche markets. They use technologies to offer a superior product to a specific group of customers – and thus create the second kind of demand.
Soundcloud is a good example. it works like YouTube except for audio files. Audio is more than music: it includes sounds and tones. Soundcloud is constantly reinventing itself as an online radio, as a platform for artists, or as a social media hub for the sharing of personal recordings. Countless people benefit from its product.
Would our lives be happier, more content, or better without the constant social media noise? Barack Obama and Mitt Romney offered an interesting answer during their last TV debate. Romney accused Obama of downsizing the US Navy to the level of 1917 (as measured by the number of ships). Obama countered that horses were still the preferred mode of transportation in 1917, that the comparison was flawed, and that Romney surely didn’t desire a return to the early 20th century. Obama argued that today’s battleships are more technologically advanced and more capable than the ships in 1917. Technology is what counts, he said.
The same holds true for audio. Those of us who can remember noisy cassette tapes (and the frustration of having to rewind them with a pencil sometimes) will surely appreciate Soundcloud.
It’s part of our nature to want more. Some products are junk, and some products turn from useful gadgets into fetish objects. But we should not underestimate our aptitude for common sense: car manufacturers could still pretend that bigger cars were better – but they don’t. The president of the German Association of Automobile Manufacturers recently said in an interview that he sometimes likes to use his bike instead of a car. This, of course, doesn’t nullify his desire to make use of a car in other situations.
Urban mobility is changing. Car-sharing services like DriveNow (an initiative by BMW) are emerging as a result. These new products satisfy demands that were implicitly present even before. Or does anyone want to go back to horses and carriages?
Newconomy is the new weekly column for the start-up industry. It focuses on the intersection of classical and new economies and of politics and entrepreneurialism. Newconomy is sponsored by Factory, the new start-up hub in Berlin.