Sep 13, 2020

Scarcity as an API

Scarcity produces status. Expect software companies to attempt to master the art of the drop.

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For a time, my MTA Subway card gave me joy. A heartbreakingly pitiful confession, but it was no ordinary rectangle of laminated plastic.

Split by a magnetic stripe was a picture: a young David Bowie under red light, shirt unbuttoned, fringe falling across his forehead, mouth open. A portrait of campy seduction.

The magical David Bowie subway card, 6sqft

I am not a David Bowie fanatic, which I understand is a kind of sacrilege to some. At the time, I considered him an intriguing character and, as someone who hopes to write a great piece of fiction, admired the literariness of his life and music. (His list of 100 books is an illuminating artifact.)

But the card?

Every morning I felt a tiny flush of pleasure pulling it out of my wallet, a frisson of specialness as if I were gaining access to an elite club rather than flipping the mucky turnstiles of the Bedford L. No one else seemed to have one, this piece of art in miniature, this little symbol of unearned good taste.

Then the machine ate it.

It was my own fault. Low on funds, I’d elected to top up my card — after all, that was its function. I slotted Bowie into the mouth of the machine, punched in $20, and waited. He never returned. Instead, I was greeted by the old mawkish yellow, unattractive, and unspecial.

Look, I warned you this was a rather pathetic tale, and yes, nearly two years later, I still think about a Subway card. But as it turns out, I was not the only one to have found them alluring. With only 250,000 released, they caused a craze that I was unaware of, creating a market to which I was oblivious. On eBay, Bowie subway cards — theoretically purchasable at $2.75 — sold for $190. An instantaneous 70x for whoever made such a trade. Unwittingly, I was part of a “drop” — a hyped limited-edition run — albeit of the banalest variety. The mania-in-microcosm of that experience is endemic to today’s fashion and music culture. It is creeping into tech. It may be the start of a broader push to inculcate artificial scarcity at a programmatic level..

Taxonomies of artificial scarcity

Mencius, the “second sage” of Confucianism, is believed to have said, “In abundance, prepare for scarcity.” While the philosopher was likely hammering the importance of foresight, if viewed with a squint, read more as koan than dictum, it feels particularly suited to our current era. In our age of tech-endowed abundance, we must still prepare for scarcity. We just need to invent it.

This is an old game. In precious stones, new pharmaceuticals, patents, copyright law, the planned obsolescence of devices, we see the hand of invented or artificial scarcity, dearths created to preserve certain products’ value.

In some, but not all cases, scarcity impacts our sense of status. It is not that “cool” to own a patent, but owning a large diamond may be. The object made scarce influences status earned.

So too does the mechanism used to create scarcity. Restricting access to a media product by putting in place a paywall is a mechanism to produce artificial scarcity. But it’s unlikely to endow buyers with much status. No one thinks I’m “cool” because I subscribe to Spotify or Netflix. Presuming prices are accessible within your peer group — i.e., paying $9 for Netflix is not a problem for you, your friends, or the people a little above you that you’d like to impress — products made scarce only by pay-gating don’t grant status.

(An example of how inaccessible prices within a peer group may endow status: I Am Rich was a non-functional app that sold for $999.99 on the App Store. People bought it.)

I Am Rich, Wikipedia

While pay-gating is a mechanism of artificial scarcity that does not give status, others do. Instead of requiring a certain amount of money, though, they require effort or implied effort. You cannot buy 100K engaged Twitter followers with money, but you may be able to “buy” it with effort, either on the platform or renown external to it. (Alex Danco’s series on Gift Culture is a thoughtful disquisition of scarcity and the concept of work endowing status.)

One such mechanism is the “drop.”

The drop

Rather than merely making products more expensive, brands like Supreme, Stussy, and Palace “drop” their newest items. In many cases, drops are only available in limited supply, at certain times, in specific locations — creating a high-effort gate to access the product. Because of this, items purchased in a drop grant higher status than if purchased by another mechanism. (Those that buy it online afterward benefit from the implied effort of acquiring it.)

“Drop culture” has a relatively modern history. What began with Nike’s Jordan sneakers in the 1980s was subsumed by skate culture in the 1990s and early 2000s. Scarcity drove demand and garnered status to those in possession of the newest drop.

Sports Illustrated

The internet escalated the practice. With the ability to buy and sell second-hand items online came a thriving reseller’s market. A buyer of a Supreme hoodie could confidently spend $50 in the knowledge that somewhere online, someone would gladly pay $100, $200, $500. Getting a hold of the latest drop not only conferred status, but it also could make you real money.

Those dynamics have contributed to drops being the most culturally important scarcity mechanism today. It’s been borrowed by brands across sectors, diverging from its initial association with apparel. Fast-casual chains like Shake Shack and Dos Toros traffic in menu drops while toothbrush brand Quip “dropped” collaborations with charity: water and RED. Often, the object doesn’t matter. In 2016, to much fanfare, Supreme dropped a brick. It was branded with its famous box logo, but it was still just a brick. While it’s hype owes as much, if not more, to the brand loyalty created by the company over the years, part of its appeal was a consequence of the methodology used to create scarcity. It sold at $30 online and is available to purchase today for $190.

Supreme's brick, High Snobiety

Software “drops”

Who will be the Supreme of the internet?

Just as other sectors have dabbled in the drop, so too have software and online media companies.

The closest parallel is MSCHF, an entity that can only be described as “an internet business.” A product studio when it feels like it, an agency that doesn’t seem to want clients, a game developer on a whim. Whatever it is, MSCHF has mastered the art of the online drop. Every two weeks, the company shares its newest creation, whether that’s a horoscope-inspired trading app or an Amazon Alexa blocker. In its brutalist design and focus, MSCHF draws inspiration from streetwear culture and drops. “Jesus Shoes” saw MSCHF inject holy water into a pair of Nikes, while "MSCHF X" brought ten brands — including Stussy and Supreme — into a single shirt. Both sold out.

In these drops, MSCHF is playing with the definition of the mechanism. Some are genuinely scarce in that supply is limited (see: Jesus Shoes, X), but others live on after the fact. Boomer Email, for example, continues, as do several others. In this case, scarcity is less clear though being an early subscriber or fan may grant status.

Other startups toy with the term. Stir, a software startup focused on creators, bills its new projects as “Drops.” Though these projects do not seem artificially scarce, the framing takes inspiration from the same cultural sources.

Scarcity as an API

There must have been a moment when being on the Clubhouse app felt intoxicating. To be surrounded by tech’s anointed, to feel one’s self being blessed.

When I try to visualize it, Goodfellas comes to mind. If you have watched the movie, you will know the scene I’m thinking of before I’ve named it. The Copacabana shot is a long single-take tracking the film’s protagonist Henry, as he brings his new girlfriend, Karen, into the exclusive nightclub. It’s a feat of technical achievement as well as the embodiment of the feeling of arrival. Of being special.

The Copacabana Shot, Clued Down

By the time I got to Clubhouse, it was just an app. There were a few names I recognized but nothing that gave me a sense of star power or proximity to it. In a matter of months, perhaps less, what once sent an entire capital class green with envy now feels passé. Whatever jolt of dopamine earned when first receiving the app disappeared quickly. I feel no status gain in noting that I have access.

This is the problem faced by any app that trades on scarcity. Limiting invites and charming influencers may yield a long waitlist and rabid testers, but status diminishes the larger the user base grows. In that respect, apps like Clubhouse have negative network effects, as the ratio of famous person to fan decreases.

To make the transition, to keep users, startups have to offer a differentiated, valuable product. Seeing “Sent with Superhuman” was once a status symbol in venture capital, less so now. It is too widely used to be a flex. But the excellence of the product, the utility derived by the user, more than compensates.

Clubhouse, NYT

What would it mean to program scarcity?

If we accept that scarcity drives status if correctly applied, and that humans will change their behavior and open their wallets to attain status, creating it reliably and repeatedly should be valuable.

What would Scarcity-as-an-API look like?

Dopamine Labs, later called Boundless, provided a behavioral change API. The promise was that almost any app could benefit from gamification and the introduction of variable reward schedules. The goal of the company was to make apps more addictive and hook users. Like Dopamine Labs, a Scarcity API would likely be net-evil. But it could be a big business. What if a new software company could programmatically “drop” new features only to users with sufficient engagement, or online at the time of an event? What if unique styles could be purchased only in a specific window of time?

Which is to say: if Virgil Abloh designed a theme for Notion or Roam, wouldn’t you be keen to try it?

The best of these would generate an external-facing trophy. While “Sent with Superhuman” may no longer be VC-cool, “Sent with Superhuman x Adam Grant” would spark my curiosity. The opportunities to create limited-edition collaborations and roll them out programmatically could fundamentally alter software companies’ hype-span.

“A soldier will fight long and hard for a bit of colored ribbon,” Napoleon once said. It’s a phrase I think about whenever I find myself striving for something particularly meaningless. Like a subway card, for example.

This is how we are built, though. To compete, and chase, and accumulate ribbons. There is much money to be made in directing desire for status, with drops proving a particularly fruitful mechanism. They’ve escalated in importance in the last decade, changing marketing in apparel and beyond.

As tech and culture further co-mingle, we should expect more startups to follow MSCHF’s lead, using drops to win attention. In the process, programmatic methods may rise to contrive scarcity reliably, at scale, online.

We may live in an age of abundance, but with our sense of self tied to the proprietorship of rivalrous assets, scarcity will need to exist. Even if we must code it ourselves.

The Generalist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. Our work may feature entities in which Generalist Capital, LLC or the author has invested.