Will Near-Zero Pricing Happen with Medical and Legal Advice?

Legendary venture capitalist Vinod Khosla predicts free medical and legal advice in about a decade, because of artificial intelligence. Some will dismiss the prediction as fanciful, given many similar predictions in the past. 

As outlandish as that might appear, it is a common belief or prediction in the digital era, though there were some predictions that electricity, for example, would be “free” in the older analog world. 

There were inaccurate predictions that nuclear power, for example, would be so cheap it would not be worth metering its use. 

Study Title/Publication	Prediction	Date of Prediction	Publisher	Reason for Inaccuracy
"The Promise of Nuclear Power" by Lewis Strauss, Chairman of the U.S. Atomic Energy Commission	Predicts that nuclear power will become so cheap that it will be "too cheap to meter."	1954	U.S. Atomic Energy Commission	Underestimated the costs of constructing and maintaining nuclear power plants, as well as the risks associated with nuclear accidents.
"Nuclear Power: The Answer to the Energy Crisis" by Alvin Weinberg, Director of the Oak Ridge National Laboratory	Predicts that nuclear power will make electricity "too cheap to meter" by 1969.	1960	Public Affairs Press	Overestimated the rate at which nuclear power plants would be built and underestimated the costs of building and operating them.
"Nuclear Energy and the Future of Power" by David Lilienthal, former Chairman of the U.S. Atomic Energy Commission	Predicts that nuclear power will provide "a virtually inexhaustible supply" of electricity at "extremely low cost."	1967	Basic Books	Underestimated the environmental and safety concerns associated with nuclear power.

In recent decades, predictions of dramatically-lower product pricing--essentially free or near zero--have been made in a variety of areas where digital technology was expected to operate. In virtually all cases, assumptions were made about substitute products that would operate so affordably that existing products would not be attractive. 

Study Title/Publication	Prediction	Date of Prediction	Publisher	Reason for Inaccuracy
"The World Without Cars" by Peter Newman and Jeff Kenworthy	Predicts that cars will become obsolete in cities by 2030.	1989	Pluto Press	Underestimated the continued popularity of cars and the challenges of transitioning to car-free cities.
"The Information Economy: How Digital Networks Will Transform the World" by Manuel Castells	Predicts that the information economy will lead to a more equitable society.	1996	Blackwell Publishers	Overestimated the potential of the information economy to reduce inequality.
"The Long Tail: Why the Future of Business Is Selling Less of More" by Chris Anderson	Predicts that the internet will allow niche products to become more profitable than mass-market products.	2006	Hyperion	Underestimated the power of marketing and branding in the digital age.
"The Second Machine Age: Work, Progress, and the Future of Mankind" by Erik Brynjolfsson and Andrew McAfee	Predicts that automation will lead to widespread unemployment.	2011	W. W. Norton & Company	Overestimated the speed at which automation will replace human workers.
"The Rise of the Robots: Automation and the Future of Work" by Martin Ford	Predicts that robots will eventually replace most human workers.	2015	Basic Books	Overestimated the capabilities of robots and underestimated the adaptability of human labor.

All that noted, predictions about near-zero pricing for any variety of products continue to be made. It might be too soon to know whether such predictions will prove incorrect. And relative abundance, in some instances, might have outcomes largely indistinguishable from predictions of absolute abundance. 

Internet access is not “free,” for example, but its price is low enough that usage is not a barrier. Many other products, such as search, shopping, social media and some forms of content cost so little that consumption can be subsidized fairly easy by advertising or low usage fees. 

Study/Story	Prediction	Date of Prediction	Publisher
"The Age of Free: Why We'll Soon Pay Nothing for Most of What We Use"	"Within the next two decades, many of the things we now pay for—electricity, food, transportation, housing, healthcare—will become essentially free."	2014	Jeremy Rifkin
"The Free Economy: When Everything's Free"	"In the future, we will be able to produce goods and services in great abundance at very low cost, or even for free."	2016	Tom Slee
"The Future of Abundance: How the Products of Human Ingenuity Will Make the World a Better Place"	"The abundance created by technology will eventually lead to a world where everyone has access to the basic necessities of life."	2019	Peter Diamandis and Steven Kotler
"Radical Abundance: How to Create a World of More Than Enough"	"The potential for abundance exists in every sector of the economy."	2020	Marianne Williamson
"The World We Made: How Our Future Will Be Shaped by Technology - For Better or for Worse"	"We are on the cusp of a new era of abundance, in which the cost of producing goods and services will continue to decline, and the potential for human flourishing will expand."	2021	Michael J. Sandel
"The Future of Electricity: Scenarios and Forecasts to 2040" by the International Energy Agency (IEA)	Electricity prices will fall significantly in the coming decades, with the average price in industrialized countries expected to be about 50% lower in 2040 than in 2018.	2019	IEA
"The Free Economy" by Jeremy Rifkin	The marginal cost of producing and delivering many goods and services, including electricity, information, and transportation, is approaching zero. This will lead to a new era of economic prosperity in which many products and services will be essentially free to consumers.	2014	Jeremy Rifkin
"The Zero Marginal Cost Society" by Thomas Philippon	The marginal cost of producing and delivering many goods and services, including electricity, information, and transportation, is approaching zero. This will lead to a new era of economic inequality in which a small number of companies will control the vast majority of wealth.	2019	Thomas Philippon
"The Rise of the Sharing Economy" by Rachel Botsman	The rise of digital technologies is making it easier for people to share goods and services, such as cars, homes, and clothes. This will lead to a new era of economic prosperity in which many products and services will be essentially free to consumers.	2013	Rachel Botsman
"The Age of Disruption" by Geoffrey G. Parker	The rise of digital technologies is disrupting many industries, including the energy, telecommunications, and transportation industries. This will lead to a new era of economic uncertainty in which many companies will struggle to survive.	2014	Geoffrey G. Parker
"The Economics of Energy" by Jeremy Rifkin	Predicts that solar power will become so abundant and inexpensive that it will be essentially free for consumers.	2014	Jeremy Rifkin
"The Future of Work" by Martin Ford	Predicts that automation will eventually make many jobs obsolete, leading to a situation where governments provide a universal basic income to all citizens.	2016	Basic Books
"The Age of Surveillance Capitalism" by Shoshana Zuboff	Predicts that data will become the most valuable resource in the world, and that companies will be able to extract immense profits from it by selling it to advertisers and other third parties.	2019	PublicAffairs
"The Next Revolution: Work, Wealth, and the Future of Capitalism" by Nathan Myhrvold	Predicts that artificial intelligence will eventually surpass human intelligence, leading to a new era of unprecedented economic prosperity.	2022	Crown Business
"The 21st Century Revolution: A New Economic Vision" by Jeremy Rifkin	Predicts that a third industrial revolution, based on renewable energy and distributed manufacturing, will eventually replace the fossil fuel-based industrial economy.	2021	St. Martin's Press

But sometimes, intangible products and digital products do approach near-zero pricing levels, reducing barriers to usage. And that is the reason some believe AI is going to attack price levels for any number of intangible products including advice and diagnosis. 

Near-zero pricing might seem outlandish, but not for intangible products. We already have seen that impact in content delivery, shopping and information discovery, as well as social media. And advice based on experience might be the next large set of areas to be affected by the near-zero pricing trend.

Near-Zero Pricing Forces Continue to Operate in Much of Telecom Business

One of the biggest long-term trends in the communications business is the tendency for connectivity services to constantly drop towards “zero” levels. That is arguably most true in the capacity parts of the business (bandwidth), the cost of discrete computing operations, the cost of storage or many applications.

One can see this clearly in voice pricing, text messaging and even internet access (easier to explain in terms of cost per bit, but even absolute pricing levels have declined).

The reason it often does not seem as though prices have declined is that the value keeps increasing, as retail prices drop or remain the same.

In large part, marginal cost pricing is at work. Products that are "services," and perishable, are particularly important settings for such pricing. Airline seats and hotel room stays provide clear examples.

Seats or rooms not sold are highly "perishable." They cannot ever be sold as a flight leaves or a day passes. So it can be a rational practice to monetize those assets at almost any positive price.

Whether marginal cost pricing is “good” for traditional telecom services suppliers is a good question, as the marginal cost of supplying one more megabyte of Internet access, voice or text messaging might well be very close to zero.

Such “near zero pricing” is pretty much what we see with major VoIP services such as Skype. Whether the traditional telecom business can survive such pricing is a big question.

That is hard to square with the capital intensity of building any big network, which mandates a cost quite a lot higher than “zero.”

In principle, marginal cost pricing assumes that a seller recoups the cost of selling the incremental units in the short term and recovers sunk cost eventually. The growing question is how to eventually recover all the capital invested in next generation networks.

source: Quartz

On the other hand, we also must contend with product life cycles. As we have seen, in developed markets people use voice services less, so there is surplus capacity, which means it makes sense to allow people unlimited use of those network resources.

That was why it once made sense for mobile service providers to offer reduced cost, or then eventually unlimited calling “off peak.”

Surplus capacity caused by declining demand also applies to text messaging, where people are using alternatives. If there is plenty of capacity, offering lower prices to “fill up the pipe” makes sense. And even if most consumers do not actually use those resources, they are presented by value propositions of higher value.

Video entertainment and internet access are the next products to watch. Video is more complicated, as it is an “up the stack” application, not a connectivity service. Retail pricing has to include the cost of content rights, which have not historically varied based on demand, but on supply issues.  

Linear video already has past its peak, while streaming alternatives are in the growth phase.

Internet access, meanwhile, is approaching saturation. That suggests more price pressure on linear video and internet access, as less demand means stranded supply, and therefore incentives to cut prices to boost sales volume.

source: FCC

Marketing practices also play a big part, as the economics of usage on a digital network can be quite different than on an analog network. And some competitors might have assets they can leverage in new ways.

In 1998, AT&T revolutionized the industry with its “Digital One Rate” plan, which eliminated roaming and long-distance charges, effectively eliminating the difference between “extra cost” long distance and flat-fee local calling.

Digital One Rate did not offer unlimited calling at first, but that came soon afterwards. In the near term, lots of people figured out they could use their mobiles to make all “long distance” calls, using their local lines for inbound and local calling only.

With unlimited calling, it became possible to consider abandoning landline service entirely.

At least in part, the growth of mobile subscriptions from 44 million in 1996 to 182 million by the end of 2004 is a result of the higher value of mobile services, based in part on “all distance” calling.

Mobile revenue increased by more than 750 percent, from 10.2 billion dollars in 1993 to more than 88 billion dollars in 2003.

source: FCC

During this same time period, long distance revenue fell by 67 percent to 4.3 billion dollars, down from 13.0 billion dollars.

The point is that connectivity prices and some application (voice, messaging) prices have had a tendency to drop closer to zero over time. Moore’s Law plays a part. Open source also allows lower costs, and therefore more-competitive prices.

Optical fiber and microwave play a part in boosting capacity and lowering unit prices.  Internet protocol also helps (lower network interface costs).

Competition has had a larger impact. Regulatory cost reductions have been key in some markets.