This link has been bookmarked by 50 people . It was first bookmarked on 26 Feb 2008, by Michael Maurer.
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29 Sep 11
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05 Oct 09
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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.
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"Information wants to be free. Information also wants to be expensive ... That tension will not go away."
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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.
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As much as we complain about how expensive things are getting, we're surrounded by forces that are making them cheaper.
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Storage now joins bandwidth (YouTube: free) and processing power (Google: free) in the race to the bottom.
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The second trend is simply that anything that touches digital networks quickly feels the effect of falling costs.
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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
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The psychology of "free" is powerful indeed, as any marketer will tell you.
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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.
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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.
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28 Jul 09
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28 May 09
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The Web has become the land of the free.
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the extension of King Gillette's cross-subsidy to more and more industries
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Advertising
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Advertising
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Advertising
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huge psychological gap between "almost zero" and "zero" is why micropayments failed
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"Freemium
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think Flickr and the $25-a-year Flickr Pro).
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· Advertising
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Yahoo's pay-per
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pageview banners
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Google's pay-per-click text ads
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Amazon's pay-per-transaction "affiliate ads
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site sponsorships
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pay-per-connection on social networks
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(PayPerPost
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based on the principle that free offerings build audiences with distinct interests and expressed needs that advertisers will pay to reach.
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· Cross-subsidies
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Zero marginal cost
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Some artists give away their music online as a way of marketing concerts, merchandise, licensing, and other paid fare.
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Labor exchange
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zero-cost distribution has turned sharing into an industry
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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
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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.
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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.
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02 Apr 09
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09 Feb 09
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16 Sep 08
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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. It's as if the price of steel had dropped so close to zero that King Gillette could give away both razor and blade, and make his money on something else entirely. (Shaving cream?) 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.
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? (The answer is that you can't: Once you're within a few nanometers, atomic repulsion forces become too strong for you to get any closer.)
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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.
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The huge psychological gap between "almost zero" and "zero" is why micropayments failed. It'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.
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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.
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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.
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the act of using the service creates something of value, either improving the service itself or creating information that can be useful somewhere else.
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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.
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<div id="printbody"><br/><div id="article"><br/><div id="article_body"><br/><div id="article_text"><br/><p><strong>THE ECONOMICS OF ABUNDANCE</strong> <br>Enabled by the miracle of <br/>abundance, digital economics has turned traditional economics upside down. Read <br/>your college textbook and it's likely to define economics as "the social science <br/>of choice under scarcity." The entire field is built on studying trade-offs and <br/>how they're made. Milton Friedman himself reminded us time and time again that <br/>"there's no such thing as a free lunch. </p><br/><p>"But Friedman was wrong in two ways. First, a free lunch doesn't necessarily <br/>mean the food is being given away or that you'll pay for it later — it could <br/>just mean someone else is picking up the tab. Second, in the digital realm, as <br/>we've seen, the main feedstocks of the information economy — storage, processing <br/>power, and bandwidth — are getting cheaper by the day. Two of the main scarcity <br/>functions of traditional economics — the marginal costs of manufacturing and <br/>distribution — are rushing headlong to zip. It's as if the restaurant suddenly <br/>didn't have to pay any food or labor costs for that lunch.</p><br/><p>Surely economics has something to say about that?</p><br/><p>It does. The word is <em>externalities</em>, a concept that holds that money <br/>is not the only scarcity in the world. Chief among the others are your time and <br/>respect, two factors that we've always known about but have only recently been <br/>able to measure properly. The "attention economy" and "reputation economy" are <br/>too fuzzy to merit an academic department, but there's something real at the <br/>heart of both. Thanks to Google, we now have a handy way to convert from <br/>reputation (PageRank) to attention (traffic) to money (ads). Anything you can <br/>consistently convert to cash is a form of currency itself, and Google plays the <br/>role of central banker for these new economies.</p><br/><p>There is, presumably, a limited supply of reputation and attention in the <br/>world at any point in time. These are the new scarcities — and the world of free <br/>exists mostly to acquire these valuable assets for the sake of a business model <br/>to be identified later. Free shifts the economy from a focus on only that which <br/>can be quantified in dollars and cents to a more realistic accounting of <br/><em>all</em> the things we truly value today.</p><br/><p><strong>FREE CHANGES EVERYTHING</strong><br>Between digital economics and the <br/>wholesale embrace of King's Gillette's experiment in price shifting, we are <br/>entering an era when free will be seen as the norm, not an anomaly. How big a <br/>deal is that? Well, consider this analogy: In 1954, at the dawn of nuclear <br/>power, Lewis Strauss, head of the Atomic Energy Commission, promised that we <br/>were entering an age when electricity would be "too cheap to meter." Needless to <br/>say, that didn't happen, mostly because the risks of nuclear energy hugely <br/>increased its costs. But what if he'd been right? What if electricity had in <br/>fact become virtually free?The answer is that everything electricity touched — <br/>which is to say just about everything — would have been transformed. Rather than <br/>balance electricity against other energy sources, we'd use electricity for as <br/>many things as we could — we'd waste it, in fact, because it would be too cheap <br/>to worry about.</p><br/><p>All buildings would be electrically heated, never mind the thermal conversion <br/>rate. We'd all be driving electric cars (free electricity would be incentive <br/>enough to develop the efficient battery technology to store it). Massive <br/>desalination plants would turn seawater into all the freshwater anyone could <br/>want, irrigating vast inland swaths and turning deserts into fertile acres, many <br/>of them making biofuels as a cheaper store of energy than batteries. Relative to <br/>free electrons, fossil fuels would be seen as ludicrously expensive and dirty, <br/>and so carbon emissions would plummet. The phrase "global warming" would have <br/>never entered the language.</p><br/><p>Today it's digital technologies, not electricity, that have become too cheap <br/>to meter. It took decades to shake off the assumption that computing was <br/>supposed to be rationed for the few, and we're only now starting to liberate <br/>bandwidth and storage from the same poverty of imagination. But a generation <br/>raised on the free Web is coming of age, and they will find entirely new ways to <br/>embrace waste, transforming the world in the process. Because free is what you <br/>want — and free, increasingly, is what you're going to get. </p><br/><p><em>Chris Anderson</em> (<a rel="nofollow" href="http://www.wired.com/mailto:canderson@wired.com">canderson@wired.com</a>) <em>is the editor in <br/>chief of</em> Wired <em>and author of</em> The Long Tail<em>. His next <br/>book,</em> FREE<em>, will be published in 2009 by Hyperion.</em></p><br/><p> </p><br/><script language="JavaScript1.2" type="text" /><br/> if (typeof drawDropCap == "function") {<br/> var arrExcludeDivs = new Array("article_itemlist");<br/> drawDropCap("articletext", arrExcludeDivs);<br/> }<br/> </script><br/></div><!-- end article content --><br/><div id="toolbox_art_bot"><br/><div class="float_r" id="pagination"></div><br/><div id="social_bkmrks"><span class="social" id="sb_art_reddit"><br/><script>reddit_url='http://www.wired.com/print/techbiz/it/magazine/16-03/ff_free';</script><br/><br/><script>reddit_title='Free! 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Rotkapchen .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 th
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Olifante *"money is not the only scarcity in the world. Chief among the others are your time and respect ... we now have a handy way to convert from reputation (PageRank) to attention (traffic) to money (ads).... and Google plays the role of central banker"
free business_model strategy marginal_cost scarcity abundance economy attention reputation business internet
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