ast year, Yahoo announced that Yahoo Mail, its free webmail service, would provide unlimited storage
Highlighted by
quilly
From the consumer's perspective, though, there is a huge difference between cheap and free. Give a product away and it can go viral. Charge a single cent for it and you're in an entirely different business, one of clawing and scratching for every customer. The psychology of "free" is powerful indeed, as any marketer will tell you.
This difference between cheap and free is what venture capitalist Josh Kopelman calls the "penny gap." People think demand is elastic and that volume falls in a straight line as price rises, but the truth is that zero is one market and any other price is another. In many cases, that's the difference between a great market and none at all.
Highlighted by
blpgirl
From the consumer's perspective, though, there is a huge difference between cheap and free. Give a product away and it can go viral. Charge a single cent for it and you're in an entirely different business, one of clawing and scratching for every customer. The psychology of "free" is powerful indeed, as any marketer will tell you.
This difference between cheap and free is what venture capitalist Josh Kopelman calls the "penny gap." People think demand is elastic and that volume falls in a straight line as price rises, but the truth is that zero is one market and any other price is another. In many cases, that's the difference between a great market and none at all.
Highlighted by
blpgirl
A typical online site follows the 1 Percent Rule — 1 percent of users support all the rest. In the freemium model, that means for every user who pays for the premium version of the site, 99 others get the basic free version. The reason this works is that the cost of serving the 99 percent is close enough to zero to call it nothing
Highlighted by
quilly
Ryanair, for instance, has disrupted its industry by defining itself more as a full-service travel agency than a seller of airline seats
Highlighted by
quilly
he first is the extension of King Gillette's cross-subsidy to more and more industries.
Highlighted by
quilly
the audience-building merits of zero
Highlighted by
quilly
y giving away the razors, which were useless by themselves, he was creating demand for disposable blades.
Highlighted by
quilly
cross-subsidy: You'd get one thing free if you bought another, or you'd get a product free only if you paid for a service.
Highlighted by
quilly
free versus pay online are ending
Highlighted by
quilly
He sold millions of razors to the Army at a steep discount, hoping the habits soldiers developed at war would carry over to peacetime.
Highlighted by
quilly
Free! Why $0.00 Is the Future of Business
Highlighted by
hanswobbe
Worth hi-liting...
Annotate each of the 6 basic models.
At the age of 40, King Gillette was a frustrated inventor, a bitter anticapitalist, and a salesman of cork-lined bottle caps. It was 1895, and despite ideas, energy, and wealthy parents, he had little to show for his work. He blamed the evils of market competition. Indeed, the previous year he had published a book,
The Human Drift, which argued that all industry should be taken over by a single corporation owned by the public and that millions of Americans should live in a giant city called Metropolis powered by Niagara Falls. His boss at the bottle cap company, meanwhile, had just one piece of advice: Invent something people use and throw away.
Highlighted by
drichards
One day, while he was shaving with a straight razor that was so worn it could no longer be sharpened, the idea came to him. What if the blade could be made of a thin metal strip? Rather than spending time maintaining the blades, men could simply discard them when they became dull.
Highlighted by
jimjee
In its first year, 1903, Gillette sold a total of 51 razors and 168 blades.
Highlighted by
jimjee
He sold razors in bulk to banks so they could give them away with new deposits
("shave and save" campaigns).
Highlighted by
msday38
on 2008-03-25 by
msday38
This was a good idea. The public would get use to his product and want to purchase it on his or her own.
The freebies helped to sell those products, but the tactic helped Gillette even more. By giving away the razors, which were useless by themselves, he was creating demand for disposable blades. A few billion blades later, this business model is now the foundation of entire industries: Give away the cell phone, sell the monthly plan; make the videogame console cheap and sell expensive games; install fancy coffeemakers in offices at no charge so you can sell managers expensive coffee sachets.
Highlighted by
jimjee
he was creating demand for disposable blades.
Highlighted by
kaeanne
A few billion blades later, this business model is now the foundation of entire industries: Give away the cell phone, sell the monthly plan; make the videogame console cheap and sell expensive games; install fancy coffeemakers in offices at no charge so you can sell managers expensive coffee sachets.
Highlighted by
joel
this business model is now the foundation of entire industries: Give away the
cell phone, sell the monthly plan; make the videogame console cheap and sell
expensive games; install fancy coffeemakers in offices at no charge so you can
sell managers expensive coffee sachets.
Highlighted by
msday38
on 2008-03-25 by
msday38
This is so true. I never looked the business quite like this, but it is true. Give away the main product and sell the "make-it-work" feature for a high price.
For example, cell phones cost almost nothing to make - just like the Swatch - but they sell it for 10x times the price to the "cell junkies" like myself for an arm, leg, and possibly kidney (smile).
on 2008-03-29 by
kaeanne
i can completely relate to that! consumers are willing to pay whatever they have to so they could have state of the art merchandise, when it required a fraction of the cost to produce it!
Thanks to Gillette, the idea that you can make money by giving something away is
no longer radical.
Highlighted by
msday38
on 2008-03-25 by
msday38
I don't know how true this statement is in other product worlds, but it is still very popular with the cell phone companies.
But until recently, practically everything "free" was really just the result of what economists would call a cross-subsidy: You'd get one thing free if you bought another, or you'd get a product free only if you paid for a service.
Highlighted by
joel
But until recently, practically everything "free" was really just the result of what economists would call a cross-subsidy: You'd get one thing free if you bought another, or you'd get a product free only if you paid for a service.
Highlighted by
shuwesley
Over the past decade, however, a different sort of free has emerged. The new model is based not on cross-subsidies — the shifting of costs from one product to another — but on the fact that the cost of products
themselves is falling fast.
Highlighted by
jimjee
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.
Highlighted by
paulallenmay
You know this freaky land of free as the Web. A decade and a half into the great online experiment, the last debates over free versus pay online are ending. In 2007
The New York Times went free; this year, so will much of
The Wall Street Journal. (The remaining fee-based parts, new owner Rupert Murdoch announced, will be "really special ... and, sorry to tell you, probably more expensive." This calls to mind one version of Stewart Brand's original aphorism from 1984: "Information wants to be free. Information also wants to be expensive ... That tension will not go away.")
Highlighted by
joel
the last debates over free versus pay online are ending. In 2007
The New York Times went free; this year, so will much of
The Wall Street Journal.
Highlighted by
shuwesley
"Information wants to be free. Information also wants to be expensive ... That tension will not go away."
Highlighted by
jimjee
Virtually everything Google does is free to consumers, from Gmail to Picasa to
GOOG-411.
Highlighted by
msday38
on 2008-03-25 by
msday38
For this reason, Google is VERY popular.
on 2008-03-26 by
kaeanne
i agree, i use google several times a day and i know friends who depend on it!
practically everything "free" was really just the result of what economists would call a cross-subsidy: You'd get one thing free if you bought another, or you'd get a product free only if you paid for a service.
Highlighted by
doobii
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.
Highlighted by
joel
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.
Highlighted by
hennerfehr
Which is to say, the trend lines that determine the cost of doing business online all point the same way: to zero.
Highlighted by
jimjee
But tell that to the poor CIO who just shelled out six figures to buy another
rack of servers. Technology sure doesn't feel free when you're buying it by the
gross. Yet if you look at it from the other side of the fat pipe, the economics
change. That expensive bank of hard drives (fixed costs) can serve tens of
thousands of users (marginal costs). The Web is all about scale, finding ways to
attract the most users for centralized resources, spreading those costs over
larger and larger audiences as the technology gets more and more capable. It's
not about the cost of the equipment in the racks at the data center; it's about
what that equipment can do. And every year, like some sort of magic clockwork,
it does more and more for less and less, bringing the marginal costs of
technology in the units that we individuals consume closer to zero.
Highlighted by
msday38
on 2008-03-25 by
msday38
Okay, all this is Yiddish to me. Are the saying the "free" purpose is to allow the users to see how useful the services are and eventually make them pay in the future?
on 2008-03-29 by
kaeanne
I agree...no matter how many times i re-read this, i fail to comprehend what is going on.
The Web is all about scale, finding ways to attract the most users for centralized resources, spreading those costs over larger and larger audiences as the technology gets more and more capable. It's not about the cost of the equipment in the racks at the data center; it's about what that equipment can do. And every year, like some sort of magic clockwork, it does more and more for less and less, bringing the marginal costs of technology in the units that we individuals consume closer to zero.
Highlighted by
joel
The Web is all about scale, finding ways to attract the most users for centralized resources, spreading those costs over larger and larger audiences as the technology gets more and more capable. It's not about the cost of the equipment in the racks at the data center; it's about what that equipment can do. And every year, like some sort of magic clockwork, it does more and more for less and less, bringing the marginal costs of technology in the units that we individuals consume closer to zero.
Highlighted by
vincenz
As much as we complain about how expensive things are getting, we're surrounded
by forces that are making them cheaper.
Highlighted by
msday38
on 2008-03-25 by
msday38
This is so true!!
on 2008-03-29 by
kaeanne
i found that ironically valid as well!
Digital technology benefits from these dynamics and from something else even more powerful: the 20th-century shift from Newtonian to quantum machines. We're still just beginning to exploit atomic-scale effects in revolutionary new materials — semiconductors (processing power), ferromagnetic compounds (storage), and fiber optics (bandwidth). In the arc of history, all three substances are still new, and we have a lot to learn about them. We are just a few decades into the discovery of a new world.
Highlighted by
joel
In 2007
The New York Times went free; this year, so will much of
The Wall Street Journal. (The remaining fee-based parts, new owner Rupert Murdoch announced, will be "really special ... and, sorry to tell you, probably more expensive." This calls to mind one version of Stewart Brand's original aphorism from 1984: "Information wants to be free. Information also wants to be expensive ... That tension will not go away.")
Highlighted by
doobii
What does this mean for the notion of free?
Highlighted by
kaeanne
Last year, Yahoo announced that Yahoo Mail, its free webmail service, would provide unlimited storage.
Highlighted by
shuwesley
Last year, Yahoo announced that Yahoo Mail, its free webmail service, would provide unlimited storage. Just in case that wasn't totally clear, that's "unlimited" as in "infinite."
Highlighted by
jimjee
So the market price of online storage, at least for email, has now fallen to zero
Highlighted by
jimjee
For good reason: 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.
Highlighted by
joel
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.
Highlighted by
vincenz
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.
Highlighted by
vincenz
The Web has become the land of the free.
Highlighted by
msday38
on 2008-03-25 by
msday38
"free" as far as money is concerned, but we pay in other ways such as viruses, pop ups, spyware, being spyed on by the government, and a source other other "issues" that I am not even aware of.
The Web has become the land of the free.
Highlighted by
hennerfehr
The first is the extension of King Gillette's cross-subsidy to more and more industries. 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.
Highlighted by
shuwesley
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
Highlighted by
vincenz
anything that touches digital networks quickly feels the effect of falling costs.
Highlighted by
vincenz
The second trend is simply that anything that touches digital networks quickly feels the effect of falling costs. There's nothing new about technology's deflationary force, but what is new is the speed at which industries of all sorts are becoming digital businesses and thus able to exploit those economics. When Google turned advertising into a software application, a classic services business formerly based on human economics (things get more expensive each year) switched to software economics (things get cheaper). So, too, for everything from banking to gambling. The moment a company's primary expenses become things based in silicon, free becomes not just an option but the inevitable destination.
Highlighted by
joel
There's nothing new about technology's deflationary force, but what is new is the speed at which industries of all sorts are becoming digital businesses and thus able to exploit those economics.
Highlighted by
vincenz
Their role was to conserve transistors, and they not only decided what was worthy but also encouraged programmers to make the most economical use of their computer time. As a result, early developers devoted as much code as possible to running their core algorithms efficiently and gave little thought to user interface. This was the era of the command line, and the only conceivable reason someone might have wanted to use a computer at home was to organize recipe files. In fact, the world's first personal computer, a stylish kitchen appliance offered by Honeywell in 1969, came with integrated counter space.
Highlighted by
joel
The purpose of this profligate eye candy? Ease of use for regular folks, including children. Kay's work on the graphical user interface became the inspiration for the Xerox Alto, and then the Apple Macintosh, which changed the world by opening computing to the rest of us. (We, in turn, found no shortage of things to do with it; tellingly, organizing recipes was not high on the list.)
Highlighted by
joel
The second trend is simply that anything that touches digital networks quickly feels the effect of falling costs.
Highlighted by
shuwesley
The moment a company's primary expenses become things based in silicon, free becomes not just an option but the inevitable destination.
Highlighted by
shuwesley
the 20th-century shift from Newtonian to quantum machines. We're still just beginning to exploit atomic-scale effects in revolutionary new materials — semiconductors (processing power), ferromagnetic compounds (storage), and fiber optics (bandwidth).
Highlighted by
doobii
What's interesting is that transistors (or storage, or bandwidth) don't have to be completely free to invoke this effect. At a certain point, they're cheap enough to be safely disregarded
Highlighted by
vincenz
f the unitary cost of technology ("per megabyte" or "per megabit per second" or "per thousand floating-point operations per second") is halving every 18 months, when does it come close enough to zero to say that you've arrived and can safely round down to nothing? The answer: almost always sooner than you think.
Highlighted by
vincenz
In economics, the parallel is this: If the unitary cost of technology ("per megabyte" or "per megabit per second" or "per thousand floating-point operations per second") is halving every 18 months, when does it come close enough to zero to say that you've arrived and can safely round down to nothing? The answer: almost always sooner than you think.
Highlighted by
jimjee
What Mead understood is that a psychological switch should flip as things head toward zero. Even though they may never become entirely free, as the price drops there is great advantage to be had in treating them as if they
were free. Not too cheap to
meter, as Atomic Energy Commission chief Lewis Strauss said in a different context, but too cheap to
matter. Indeed, the history of technological innovation has been marked by people spotting such price and performance trends and getting ahead of them.
Highlighted by
neuralbomb
And the stunning thing is that nobody was surprised; many had assumed infinite free storage was already the case.
Highlighted by
doobii
From the consumer's perspective, though, there is a huge difference between
cheap and free. Give a product away and it can go viral. Charge a single cent
for it and you're in an entirely different business, one of clawing and
scratching for every customer. The psychology of "free" is powerful indeed, as
any marketer will tell you.
Highlighted by
msday38
on 2008-03-25 by
msday38
I don't understand how we can continue to allow an openly deceiving word such as "free" to entice and seduce us into meaningless crap. NOTHING IS FREE!!
on 2008-03-29 by
kaeanne
nothing may be free, but they do a great job of convincing us it is. by having us believe and buy into their ploys they make more money and their bussiness grows.
Actually most free software is really free, noone tries to market anything with it. Authors just give it away because they want and can.
Wikipedia is free. And no adds either!
From the consumer's perspective, though, there is a huge difference between cheap and free.
Highlighted by
vincenz
From the consumer's perspective, though, there is a huge difference between cheap and free. Give a product away and it can go viral. Charge a single cent for it and you're in an entirely different business, one of clawing and scratching for every customer. The psychology of "free" is powerful indeed, as any marketer will tell you.
This difference between cheap and free is what venture capitalist Josh Kopelman calls the "penny gap." People think demand is elastic and that volume falls in a straight line as price rises, but the truth is that zero is one market and any other price is another. In many cases, that's the difference between a great market and none at all.
Highlighted by
joel
From the consumer's perspective, though, there is a huge difference between cheap and free.
Highlighted by
neuralbomb
It's now clear that practically everything Web technology touches starts down the path to gratis
Highlighted by
doobii
Storage now joins bandwidth (YouTube: free) and processing power (Google: free) in the race to the bottom.
Highlighted by
doobii
This difference between cheap and free is what venture capitalist Josh Kopelman calls the "penny gap." People think demand is elastic and that volume falls in a straight line as price rises, but the truth is that zero is one market and any other price is another. In many cases, that's the difference between a great market and none at all.
Highlighted by
vincenz
This difference between cheap and free is what venture capitalist Josh Kopelman calls the "penny gap." People think demand is elastic and that volume falls in a straight line as price rises, but the truth is that zero is one market and any other price is another. In many cases, that's the difference between a great market and none at all.
Highlighted by
blpgirl
This difference between cheap and free is what venture capitalist Josh Kopelman calls the "penny gap." People think demand is elastic and that volume falls in a straight line as price rises, but the truth is that zero is one market and any other price is another. In many cases, that's the difference between a great market and none at all.
Highlighted by
jimjee
There's never been a more competitive market than the Internet, and every day the marginal cost of digital information comes closer to nothing.
Highlighted by
doobii
s why Google doesn't show up on your credit card. It's why modern Web companies don't charge their users anything. And it's why Yahoo gives away disk drive space. The question of infinite storage was not
if but
when. The winners made their stuff free first.
Highlighted by
folasm
The huge psychological gap between "almost zero" and "zero" is why micropayments failed.
Highlighted by
vincenz
The huge psychological gap between "almost zero" and "zero" is why micropayments failed.
Highlighted by
neuralbomb
The huge psychological gap between "almost zero" and "zero" is why micropayments failed
Highlighted by
hennerfehr
huge psychological gap between "almost zero" and "zero"
Highlighted by
caweldude
Traditionalists wring their hands about the "vaporization of value" and "demonetization" of entire industries.
Highlighted by
vincenz
But free is not quite as simple — or as stupid — as it sounds. Just because products are free doesn't mean that someone, somewhere, isn't making huge gobs of money. Google is the prime example of this. The monetary benefits of craigslist are enormous as well, but they're distributed among its tens of thousands of users rather than funneled straight to Craig Newmark Inc. To follow the money, you have to shift from a basic view of a market as a matching of two parties — buyers and sellers — to a broader sense of an ecosystem with many parties, only some of which exchange cash.
Highlighted by
joel
Just because products are free doesn't mean that someone, somewhere, isn't making huge gobs of money. Google is the prime example of this. The monetary benefits of craigslist are enormous as well, but they're distributed among its tens of thousands of users rather than funneled straight to Craig Newmark Inc. To follow the money, you have to shift from a basic view of a market as a matching of two parties — buyers and sellers — to a broader sense of an ecosystem with many parties, only some of which exchange cash.
Highlighted by
jimjee
To follow the money, you have to shift from a basic view of a market as a matching of two parties — buyers and sellers — to a broader sense of an ecosystem with many parties, only some of which exchange cash.
Highlighted by
vincenz
To follow the money, you have to shift from a basic view of a market as a matching of two parties — buyers and sellers — to a broader sense of an ecosystem with many parties, only some of which exchange cash.
The most common of the economies built around free is the three-party system. Here a third party pays to participate in a market created by a free exchange between the first two parties.
Highlighted by
neuralbomb
The most common of the economies built around free is the three-party system.
Here a third party pays to participate in a market created by a free exchange
between the first two parties. Sound complicated? You're probably experiencing
it right now. It's the basis of virtually all media.
Highlighted by
msday38
To follow the money, you have to shift from a basic view of a market as a matching of two parties — buyers and sellers — to a broader sense of an ecosystem with many parties, only some of which exchange cash.
Highlighted by
caweldude
The most common of the economies built around free is the three-party system. Here a third party pays to participate in a market created by a free exchange between the first two parties. Sound complicated? You're probably experiencing it right now. It's the basis of virtually all media.
Highlighted by
caweldude
In the traditional media model, a publisher provides a product free (or nearly free) to consumers, and advertisers pay to ride along.
Highlighted by
vincenz
In the traditional media model, a publisher provides a product free (or nearly free) to consumers, and advertisers pay to ride along. Radio is "free to air," and so is much of television. Likewise, newspaper and magazine publishers don't charge readers anything close to the actual cost of creating, printing, and distributing their products. They're not selling papers and magazines to readers, they're selling readers to advertisers. It's a three-way market.
Highlighted by
joel
In the traditional media model, a publisher provides a product free (or nearly free) to consumers, and advertisers pay to ride along. Radio is "free to air," and so is much of television. Likewise, newspaper and magazine publishers don't charge readers anything close to the actual cost of creating, printing, and distributing their products. They're not selling papers and magazines to readers, they're selling readers to advertisers. It's a three-way market.
Highlighted by
blpgirl
hey're selling readers to advertisers.
Highlighted by
vincenz
They're not selling papers and magazines to readers, they're selling readers to advertisers.
Highlighted by
neuralbomb
what the Web represents is the extension of the media business model to industries of all sorts
Highlighted by
vincenz
This is not simply the notion that advertising will pay for everything. There are dozens of ways that media companies make money around free content, from selling information about consumers to brand licensing, "value-added" subscriptions, and direct ecommerce (see
How-To Wiki for a complete list). Now an entire ecosystem of Web companies is growing up around the same set of models.
Highlighted by
vincenz
In a sense, what the Web represents is the extension of the media business model to industries of all sorts. This is not simply the notion that advertising will pay for everything. There are dozens of ways that media companies make money around free content, from selling information about consumers to brand licensing, "value-added" subscriptions, and direct ecommerce
Highlighted by
caweldude
A TAXONOMY OF FREE
Between new ways companies have found to subsidize products and the falling cost of doing business in a digital age, the opportunities to adopt a free business model of some sort have never been greater. But which one? And how many are there? Probably hundreds, but the priceless economy can be broken down into six broad categories:
· "Freemium"
What's free: Web software and services, some content. Free to whom: users of the basic version.
This term, coined by venture capitalist Fred Wilson, is the basis of the subscription model of media and is one of the most common Web business models. It can take a range of forms: varying tiers of content, from free to expensive, or a premium "pro" version of some site or software with more features than the free version (think Flickr and the $25-a-year Flickr Pro).
Highlighted by
paulallenmay
The moment a company's primary expenses become things based in silicon, free becomes not just an option but the inevitable destination.
Highlighted by
doobii
"Freemium"
What's free: Web software and services, some content. Free to whom: users of the basic version.
Highlighted by
vincenz
· "Freemium"
What's free: Web software and services, some content. Free to whom: users of the basic version.
Highlighted by
neuralbomb
· "Freemium"
What's free: Web software and services, some content. Free to whom: users of the basic version.
Highlighted by
blpgirl
But for digital products, this ratio of free to paid is reversed. A typical online site follows the 1 Percent Rule — 1 percent of users support all the rest. In the freemium model, that means for every user who pays for the premium version of the site, 99 others get the basic free version. The reason this works is that the cost of serving the 99 percent is close enough to zero to call it nothing.
Highlighted by
joel
But for digital products, this ratio of free to paid is reversed. A typical online site follows the 1 Percent Rule — 1 percent of users support all the rest. In the freemium model, that means for every user who pays for the premium version of the site, 99 others get the basic free version. The reason this works is that the cost of serving the 99 percent is close enough to zero to call it nothing.
Highlighted by
neuralbomb
But for digital products, this ratio of free to paid is reversed. A typical online site follows the 1 Percent Rule — 1 percent of users support all the rest. In the freemium model, that means for every user who pays for the premium version of the site, 99 others get the basic free version. The reason this works is that the cost of serving the 99 percent is close enough to zero to call it nothing.
Highlighted by
caweldude
A typical online site follows the 1 Percent Rule — 1 percent of users support all the rest. In the freemium model, that means for every user who pays for the premium version of the site, 99 others get the basic free version.
Highlighted by
jimjee
Advertising
What's free: content, services, software, and more. Free to whom: everyone.
Highlighted by
vincenz
· Advertising
What's free: content, services, software, and more. Free to whom: everyone.
Highlighted by
blpgirl
All of these approaches are based on the principle that free offerings build audiences with distinct interests and expressed needs that advertisers will pay to reach.
Highlighted by
caweldude
· 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.
Highlighted by
vincenz
· 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.
Highlighted by
blpgirl
When Wal-Mart charges $15 for a new hit DVD, it's a loss leader. The company is offering the DVD below cost to lure you into the store, where it hopes to sell you a washing machine at a profit.
Highlighted by
jimjee
the original "free lunch" was a gratis meal for anyone who ordered at least one beer
Highlighted by
kaeanne
In any package of products and services, from banking to mobile calling plans, the price of each individual component is often determined by psychology, not cost. Your cell phone company may not make money on your monthly minutes — it keeps that fee low because it knows that's the first thing you look at when picking a carrier — but your monthly voicemail fee is pure profit.
Highlighted by
joel
On a busy corner in São Paulo, Brazil, street vendors pitch the latest "tecnobrega" CDs, including one by a hot band called Banda Calypso. Like CDs from most street vendors, these did not come from a record label. But neither are they illicit. They came directly from the band. Calypso distributes masters of its CDs and CD liner art to street vendor networks in towns it plans to tour, with full agreement that the vendors will copy the CDs, sell them, and keep all the money. That's OK, because selling discs isn't Calypso's main source of income. The band is really in the performance business — and business is good. Traveling from town to town this way, preceded by a wave of supercheap CDs, Calypso has filled its shows and paid for a private jet.
The vendors generate literal street cred in each town Calypso visits, and its omnipresence in the urban soundscape means that it gets huge crowds to its rave/dj/concert events. Free music is just publicity for a far more lucrative tour business. Nobody thinks of this as piracy.
Highlighted by
blpgirl
The vendors generate literal street cred in each town Calypso visits, and its omnipresence in the urban soundscape means that it gets huge crowds to its rave/dj/concert events. Free music is just publicity for a far more lucrative tour business. Nobody thinks of this as piracy.
Highlighted by
caweldude
Zero marginal cost
What's free: things that can be distributed without an appreciable cost to anyone. Free to whom: everyone.
Highlighted by
vincenz
· Zero marginal cost
What's free: things that can be distributed without an appreciable cost to anyone. Free to whom: everyone.
This describes nothing so well as online music. Between digital reproduction and peer-to-peer distribution, the real cost of distributing music has truly hit bottom.
Highlighted by
blpgirl
Between digital reproduction and peer-to-peer distribution, the real cost of distributing music has truly hit bottom.
Highlighted by
jimjee
That force is so powerful that laws, guilt trips, DRM, and every other barrier to piracy the labels can think of have failed. Some artists give away their music online as a way of marketing concerts, merchandise, licensing, and other paid fare. But others have simply accepted that, for them, music is not a moneymaking business.
Highlighted by
caweldude
· 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.
Highlighted by
vincenz
· 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.
You can get free porn if you solve a few captchas, those scrambled text boxes used to block bots. What you're actually doing is giving answers to a bot used by spammers to gain access to other sites — which is worth more to them than the bandwidth you'll consume browsing images. Likewise for rating stories on Digg, voting on Yahoo Answers, or using Google's 411 service (see "How Can Directory Assistance Be Free?"). In each case, the act of using the service creates something of value, either improving the service itself or creating information that can be useful somewhere else.
Highlighted by
paulallenmay
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.
You can get free porn if you solve a few captchas, those scrambled text boxes used to block bots. What you're actually doing is giving answers to a bot used by spammers to gain access to other sites — which is worth more to them than the bandwidth you'll consume browsing images. Likewise for rating stories on Digg, voting on Yahoo Answers, or using Google's 411 service (see "How Can Directory Assistance Be Free?"). In each case, the act of using the service creates something of value, either improving the service itself or creating information that can be useful somewhere else.
Highlighted by
joel
· 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.
Highlighted by
blpgirl
You can get free porn if you solve a few captchas, those scrambled text boxes used to block bots. What you're actually doing is giving answers to a bot used by spammers to gain access to other sites — which is worth more to them than the bandwidth you'll consume browsing images.
Highlighted by
neuralbomb
· Gift economy
What's free: the whole enchilada, be it open source software or user-generated content. Free to whom: everyone.
Highlighted by
vincenz
· Gift economy
What's free: the whole enchilada, be it open source software or user-generated content. Free to whom: everyone.
Highlighted by
blpgirl
In a sense, zero-cost distribution has turned sharing into an industry. In the monetary economy it all looks free — indeed, in the monetary economy it looks like unfair competition — but that says more about our shortsighted ways of measuring value than it does about the worth of what's created.
Highlighted by
caweldude
Read your college textbook and it's likely to define economics as "the social science of choice under scarcity." The entire field is built on studying trade-offs and how they're made. Milton Friedman himself reminded us time and time again that "there's no such thing as a free lunch.
"But Friedman was wrong in two ways. First, a free lunch doesn't necessarily mean the food is being given away or that you'll pay for it later — it could just mean someone else is picking up the tab. Second, in the digital realm, as we've seen, the main feedstocks of the information economy — storage, processing power, and bandwidth — are getting cheaper by the day. Two of the main scarcity functions of traditional economics — the marginal costs of manufacturing and distribution — are rushing headlong to zip. It's as if the restaurant suddenly didn't have to pay any food or labor costs for that lunch.
Highlighted by
neuralbomb
Milton Friedman himself reminded us time and time again that "there's no such thing as a free lunch.
"But Friedman was wrong in two ways. First, a free lunch doesn't necessarily mean the food is being given away or that you'll pay for it later — it could just mean someone else is picking up the tab. Second, in the digital realm, as we've seen, the main feedstocks of the information economy — storage, processing power, and bandwidth — are getting cheaper by the day. Two of the main scarcity functions of traditional economics — the marginal costs of manufacturing and distribution — are rushing headlong to zip. It's as if the restaurant suddenly didn't have to pay any food or labor costs for that lunch.
Surely economics has something to say about that?
Highlighted by
jimjee
on 2008-03-11 by
jimjee
Perhaps the core idea of the article...
"But Friedman was wrong in two ways. First, a free lunch doesn't necessarily mean the food is being given away or that you'll pay for it later — it could just mean someone else is picking up the tab.
Highlighted by
paulallenmay
It does. The word is externalities, a concept that holds that money is not the only scarcity in the world. Chief among the others are your time and respect, two factors that we've always known about but have only recently been able to measure properly. The "attention economy" and "reputation economy" are too fuzzy to merit an academic department, but there's something real at the heart of both. Thanks to Google, we now have a handy way to convert from reputation (PageRank) to attention (traffic) to money (ads). Anything you can consistently convert to cash is a form of currency itself, and Google plays the role of central banker for these new economies.
There is, presumably, a limited supply of reputation and attention in the world at any point in time. These are the new scarcities — and the world of free exists mostly to acquire these valuable assets for the sake of a business model to be identified later. Free shifts the economy from a focus on only that which can be quantified in dollars and cents to a more realistic accounting of all the things we truly value today.
Highlighted by
joel
The word is
externalities, a concept that holds that money is not the only scarcity in the world. Chief among the others are your time and respect, two factors that we've always known about but have only recently been able to measure properly. The "attention economy" and "reputation economy" are too fuzzy to merit an academic department, but there's something real at the heart of both.
Highlighted by
hennerfehr
It does. The word is
externalities, a concept that holds that money is not the only scarcity in the world.
Highlighted by
fullness
The word is
externalities, a concept that holds that money is not the only scarcity in the world. Chief among the others are your time and respect, two factors that we've always known about but have only recently been able to measure properly.
Highlighted by
caweldude
Thanks to Google, we now have a handy way to convert from reputation (PageRank) to attention (traffic) to money (ads). Anything you can consistently convert to cash is a form of currency itself, and Google plays the role of central banker for these new economies.
Highlighted by
hennerfehr
Thanks to Google, we now have a handy way to convert from reputation (PageRank) to attention (traffic) to money (ads). Anything you can consistently convert to cash is a form of currency itself, and Google plays the role of central banker for these new economies.
There is, presumably, a limited supply of reputation and attention in the world at any point in time.
Highlighted by
jimjee
There is, presumably, a limited supply of reputation and attention in the world at any point in time. These are the new scarcities — and the world of free exists mostly to acquire these valuable assets for the sake of a business model to be identified later. Free shifts the economy from a focus on only that which can be quantified in dollars and cents to a more realistic accounting of
all the things we truly value today.
Highlighted by
caweldude
Well, consider this analogy: In 1954, at the dawn of nuclear power, Lewis Strauss, head of the Atomic Energy Commission, promised that we were entering an age when electricity would be "too cheap to meter." Needless to say, that didn't happen, mostly because the risks of nuclear energy hugely increased its costs. But what if he'd been right? What if electricity had in fact become virtually free?The answer is that everything electricity touched — which is to say just about everything — would have been transformed. Rather than balance electricity against other energy sources, we'd use electricity for as many things as we could — we'd waste it, in fact, because it would be too cheap to worry about.
Highlighted by
joel
Well, consider this analogy: In 1954, at the dawn of nuclear power, Lewis Strauss, head of the Atomic Energy Commission, promised that we were entering an age when electricity would be "too cheap to meter."
Highlighted by
caweldude
Today it's digital technologies, not electricity, that have become too cheap to meter. It took decades to shake off the assumption that computing was supposed to be rationed for the few, and we're only now starting to liberate bandwidth and storage from the same poverty of imagination. But a generation raised on the free Web is coming of age, and they will find entirely new ways to embrace waste, transforming the world in the process. Because free is what you want — and free, increasingly, is what you're going to get.
Highlighted by
joel
Today it's digital technologies, not electricity, that have become too cheap to meter. It took decades to shake off the assumption that computing was supposed to be rationed for the few, and we're only now starting to liberate bandwidth and storage from the same poverty of imagination. But a generation raised on the free Web is coming of age, and they will find entirely new ways to embrace waste, transforming the world in the process. Because free is what you want — and free, increasingly, is what you're going to get.
Highlighted by
vincenz
Today it's digital technologies, not electricity, that have become too cheap to meter. It took decades to shake off the assumption that computing was supposed to be rationed for the few, and we're only now starting to liberate bandwidth and storage from the same poverty of imagination. But a generation raised on the free Web is coming of age, and they will find entirely new ways to embrace waste, transforming the world in the process. Because free is what you want — and free, increasingly, is what you're going to get.
Highlighted by
caweldude
Chris Anderson (
canderson@wired.com)
is the editor in chief of Wired
and author of The Long Tail
. His next book, FREE
, will be published in 2009 by Hyperion.
Highlighted by
jimjee
on 2008-03-11 by
jimjee
A cool illustration of the discussed concepts - a paid book based on a free article :o)
on 2008-03-26 by
kaeanne
i thought that was funny!
The huge psychological gap between "almost zero" and "zero" is why micropayments failed.
Highlighted by
doobii
Traditionalists wring their hands about the "vaporization of value" and "demonetization" of entire industries.
Highlighted by
doobii
To follow the money, you have to shift from a basic view of a market as a matching of two parties — buyers and sellers — to a broader sense of an ecosystem with many parties, only some of which exchange cash.
Highlighted by
doobii
They're not selling papers and magazines to readers, they're selling readers to advertisers. It's a three-way market.
Highlighted by
doobii
Anything you can consistently convert to cash is a form of currency itself,
Highlighted by
tobogan
A typical online site follows the 1 Percent Rule — 1 percent of users support all the rest. In the freemium model
Highlighted by
doobii
Broadcast commercials and print display ads have given way to a blizzard of new Web-based ad formats: Yahoo's pay-per-pageview banners, Google's pay-per-click text ads, Amazon's pay-per-transaction "affiliate ads," and site sponsorships were just the start. Then came the next wave: paid inclusion in search results, paid listing in information services, and lead generation, where a third party pays for the names of people interested in a certain subject. Now companies are trying everything from product placement (PayPerPost) to pay-per-connection on social networks like Facebook. All of these approaches are based on the principle that free offerings build audiences with distinct interests and expressed needs that advertisers will pay to reach.
Highlighted by
doobii
Web sites and services. Free to whom: all users, since the act of using these sites and services actually creates something of value.
Highlighted by
doobii
Public Comment
on 2008-03-01 by viv2004
on 2008-03-11 by jimjee