Free! Why $0.00 is the Future of Business
In this month’s Wired Magazine, Chris Anderson, editor in chief of Wired, discusses why free is the future of business. If you are in doing business in the “Web” space and are trying to figure out your business model, read the article for trends, tips, and ideas.
Here are some of the points that Chris makes:
- Once a marketing gimmick, free has emerged as a full-fledged economy. Offering free music proved successful for Radiohead, Trent Reznor of Nine Inch Nails, and a swarm of other bands on MySpace that grasped the audience-building merits of zero. The fastest-growing parts of the gaming industry are ad-supported casual games online and free-to-try massively multiplayer online games. Virtually everything Google does is free to consumers, from Gmail to Picasa to GOOG-411.
- The rise of “freeconomics” is being driven by the underlying technologies that power the Web. Just as Moore’s law dictates that a unit of processing power halves in price every 18 months, the price of bandwidth and storage is dropping even faster. Which is to say, the trend lines that determine the cost of doing business online all point the same way: to zero.
- It’s now clear that practically everything Web technology touches starts down the path to gratis, at least as far as we consumers are concerned. Storage now joins bandwidth (YouTube: free) and processing power (Google: free) in the race to the bottom. Basic economics tells us that in a competitive market, price falls to the marginal cost. There’s never been a more competitive market than the Internet, and every day the marginal cost of digital information comes closer to nothing.
The result: Two trends driving the spread of free business models across the economy.
1. Technology is giving companies greater flexibility in how broadly they can define their markets, allowing them more freedom to give away products or services to one set of customers while selling to another set.
2. Anything that touches digital networks quickly feels the effect of falling costs.
Chris goes on to list six business models of the “Free” Business Models:
- “Freemium” – What’s free: Web software and services, some content. Free to whom: users of the basic version.
- Advertising – What’s free: content, services, software, and more. Free to whom: everyone.
- Cross-subsidies – What’s free: any product that entices you to pay for something else. Free to whom: everyone willing to pay eventually, one way or another.
- Zero marginal cost – What’s free: things that can be distributed without an appreciable cost to anyone. Free to whom: everyone.
- Labor exchange – What’s free: Web sites and services. Free to whom: all users, since the act of using these sites and services actually creates something of value.
- Gift economy – What’s free: the whole enchilada, be it open source software or user-generated content. Free to whom: everyone.
You can also read a post on “Free Love“, published by TrendWatching.com that discusses the five manifestations of FREE LOVE: ‘Any excuse to advertise’, ‘Courting saturated consumers’, ‘C2C’, ‘Swapping, not spending’, and ‘Less is more’.
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