Kevin Kelly -- Chapter 4: Follow The Free

While it is true that automobiles will never be free, the cost per mile of driving will dip toward the free. It is the function (moving the body) per dollar that continues to drop. This distinction is important. Because while the function costs head toward zero, the expenditure share can remain steady, or even balloon. With cheaper costs we travel more, way more. With cheaper computation we consume billions of more calculations. Yet for vendors to make a profit, they must anticipate this cheapening per unit.

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In the new order, as the law of plentitude kicks in and the nearly free take over, both of these curves are turned upside down. Paul Krugman, an economist at MIT, says that you can reduce the entire idea of the network economy down to the observation that "in the Network Economy, supply curves slope down instead of up and demand curves slope up instead of down." The more a resource is used, the more demand there is for it. A similar inversion happens on the supply side. Because of compounded learning, the more we create something, the easier it becomes to create more of it. The classic textbook graph is inverted.

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But how are companies to make a profit in a world of constantly sinking prices? In the supply. Technology and knowledge are driving up demand faster than it is driving down prices. And demand, unlike prices, has no asymptote to limit it. The extent of human needs and desires is limited only by human imagination, which means, in practical terms, there is no limit.

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The task, then, is to create new things to send down the slide—in short, to invent items and services faster than they are commoditized.

This is easier to do in a network-based economy because the crisscrossing of ideas, the hyperlinking of relationships, the agility of alliances, and the nimble quickness with which new nodes are created all support the constant generation of new goods and services.

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If goods and services become more valuable as they become more plentiful, and if they become cheaper as they become valuable, then the natural extension of this logic says that the most valuable things of all should be those that are ubiquitous and free.

Ubiquity drives increasing returns in the network economy. The question becomes, What is the most cost-effective way to achieve ubiquity? And the answer is: give things away. Make them free.

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One might argue that this frightening dynamic works only with software, since the marginal cost of an additional copy is already near zero (now that software can be distributed online). But "following the free" is a universal law. Hardware, when networked, also follows this mandate. Cellular phones are given away in order to sell cell phone services. We can expect DirecTV dishes to be given away for the same reasons. This principle applies to any object whose diminishing cost of replication is exceeded by the advantages of being plugged in.

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The natural question is how companies are to survive in a world of such generosity? Three points will help.

First, think of "free" as a design goal for pricing. There is a drive toward the free—the asymptotic free—that, even if not reached, makes the system behave as if it has been reached. A very cheap rate can have an effect equivalent to being outright free.

Second, pricing a core product as free positions other services to be expensive. Thus, Sun gives Java away to help sell servers, and Netscape hands out consumer browsers to help sell commercial server software.

Third, and most important, following the free is a way to rehearse a service’s or a good’s eventual fall to free. You structure your business as if the thing that you are creating is free in anticipation of where its price is going. Thus, while Sega game consoles are not free to consumers, they are sold as loss leaders to accelerate their journey toward their eventual destiny—to be given away in a network economy.

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The only factor becoming scarce in a world of abundance is human attention.

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Following the free also works in the other direction. If one way to increase product value is to make products free, then many things now free may contain potential value not yet perceived. We can anticipate the eruption of new wealth on the frontier by tracking down the free.

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But the migration from ad hoc use to commercialization cannot be rushed. To reach ubiquity you need to pass through sharing.

Increasingly we see technologies pass through a protocommercial stage. Huge numbers of people, exerting millions of hours of collective effort, will jointly craft hundreds of thousands of creations, but without the exchange of money. An entire society following the free! Author Lewis Hyde long ago called this arrangement a gift economy. The central task in a gift economy is to keep the gifts moving. By social debt, barter, and pure charity, gifts circulate and generate happiness and wealth.

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Releasing incomplete "buggy" products is not > cost-cutting desperation; it is the shrewdest way to complete a product > when your customers are smarter than you are. >

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What can you give away? This is the most powerful question in this book. You can approach this question in two ways: What is the closest you can come to making something free, without actually pricing it at zero? Or, in a true gesture of enlightened generosity, you can figure out how to part with something very valuable for no monetary return at all. If either strategy is pursued with intelligence, the result will be the same. The network will magnify the value of the gift. But giving something away is not usually easy. It must be the right gift, given in the proper context.

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Turn off the meter, charge for joining. Flat or monthly fixed pricing is one way of pricing "as if free." Fees are paid, but there is no meter running.

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The ancillary market is the market.

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