FREE LOVE
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The Danger of Free - ReadWriteWeb
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Network effect - Wikipedia, the free encyclopedia
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Beware of Freeconomics - ReadWriteWeb
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The argument that it cost Google nothing to develop and offer GMail is wrong. Likely it costs millions of dollars each year.
The fact of the matter is that GMail was offered for free mostly because Google could afford it. This is a standard monopolistic
tactic used to enter a new market - drive the price down (in this case to $0) and kill off the competition. Yahoo! was actually first
to market and had a perfectly good product with a fair model: they offered a basic product for free and a premium product with more storage for a price. But when Google made its move, Yahoo! could not compete. -
Perhaps the biggest worry of free are startups. To begin with, how do you compete with free? Suppose someone hasAdd Sticky Note
a great idea for improving web mail. Entering the market is really difficult. A lot of inertia is now behind Google and in the new world of freeconomics, you can no longer compete on price. Not that long ago the
concept of better and cheaper allowed startups to make the bet. But now that cheaper has been replaced with free,
that axis is shut out.- Entrepreneurs just try to invent new communication ways.posted by joel on 2008-02-29 17:00:41
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The downside of freeconomics is a monopolistic market, with barriers to entry,
and little incentive to innovate. In addition the middle-man and transactional complexities are the other side effects of this new economic trend. -
Likewise, Flickr/Yahoo gives away free image space to attract 1) a huge community to which they can market stuff, 2) a massive volume of page views (i.e. ad revenue) based on user-generated content, and 3) a fantastic pool of tagged images that Yahoo can serve as search results.
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In this freeconomics world, startups still have a chance because startup costs are rock-bottom low. However, it is not enough to build a "killer app". They have to build a "killer honey pot" that uniquely attracts workers/customers that generate the content that both attracts page view "honey" and (virally) more workers/customers.
Is this bad or complex? Not really, just a different skillset. In this "honey pot" world, effective social architecture is more important than sheer quantity of application features. You don't charge (or charge much) for the "application." Instead, you harvest value out of the content/attention of your worker-bee customers.
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It is unbalanced not to mention things like Google Apps and Google Search. Google follows the freemium model on many of its products: Google Apps is competing directly with Zoho. The google search appliance has many large corporate competitors. I am sure there are others. In this day and age, a free product can compete by being better. Larger companies will buy the user base, and shoulder the cost of "free." Witness Google's acquisition of YouTube for $2 billion; even though it already had Google Video, which was just as free. This is how it's done.
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One of the biggest problems that I have with the "free" argument, which you've mentioned in your article, is the whole idea of marginal costs of zero, or virtually zero. Generally speaking (and I can't think of a good counter-example), the only way that you get to such low costs is through significant capital investment and mass production so that, over time, fixed costs are distributed over a huge volume of product.
Anything that's mass produced, or mass distributed, still requires a rather large up front investment. That takes deep pockets, which many smaller companies don't have. You've indicated this above in your comments about Gmail overpowering Yahoo Mail (although Hotmail is still around...?)
Free! Why $0.00 Is the Future of Business
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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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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.
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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.")
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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.
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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. 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.
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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.
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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.
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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.
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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.
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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.)
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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.
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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
与女儿谈商业模式之6:我要办电力公司-陈志武-搜狐博客
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美国式商业模式的最大诀窍其实很简单,专门找人们每天要用、要吃或者要住的东西,最好是每天要换个样、每天要几件或多次的重复需要的东西,你如果生产、销售这种商品,市场潜力就大得不得了,特别是像中国有十三亿人,任何每天没人要用的东西,都隐含巨大的商机。市场规模和生产规模两者既连在一起,又不完全一样,但这基本是美国两百年商业史的核心,也是中国正在发生的商业革命的要点。
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“电的确是人人都用,而且现在几乎没有电就无法生活了。这是好主意。但是,有一点得知道,就是世界上几乎所有国家都对电价进行管制,把电价定得不高不低,让电力公司的资本一年正好有10%左右的回报。所以,如果你要办电力公司,赚大钱的机会有限。”
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“当然,像房地产这样的市场,如果政府不控制土地供应、不控制房地产商,这应该是一个充分竞争的市场,只要没有垄断剥削,就不该由政府来插手。但是,电力市场可能有差别,主要原因是,一旦一家电力公司将电网线路接到我们家门口,这家公司就拥有该电力线路,也就拥有了我们家作为它的客户,于是,其它公司不可能来了,至少没有太多别的公司再愿花钱另铺新电线到我们家。因此,第一家公司就独占我们家,使我们成了它的固定客户,我们没有太多灵活性、没什么选择了。按经济学的话说,这家公司对我们家有某些自然垄断,他们就可以对我们随便提高电价了。按中国的话说,这些电力公司一旦拥有我们,它们即可‘关起门来打狗’,自然垄断使客户没有选择,只能听任这些电力公司摆布了。
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“的确是这样,过去这些年,电力行业难有太多新技术创新。只要电力公司的利润空间有限,它们投资做新技术开发的动力就不大,潜在投资者也不愿意进来,所以,过去很多年,大家都把电力行业投资看成稳定性的,而不是高风险、高回报的投资领域。电价管制的结果,是抑制了对新技术的投入。到最近几年,能源价格、电力价格被放松管制了,能源危机感上也来了,就像你们老师在学校讲的那样,终于有新的风险资本进入新能源技术开发了。”
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她意识到,像涉及到基本民生的行业,虽然规模和潜力都大,但所牵涉的政治也会太复杂,特别是那些已经很成熟的民生行业,会有太多既定的条框,让任何新手进入都难。
与女儿谈商业模式 (5):糖果连锁店?-陈志武-搜狐博客
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陈笛:“我们的老师说,18世纪,英国通过‘三角贸易’获得银子:英国货船先从本土装上制造品、烈酒等物品,运到非洲海岸卖掉,完成第一笔交易;再用得到的钱买下非洲黑人,装上船,运到中美洲如墨西哥等地,把非洲运来的黑人做奴隶卖给那里的农场主,即完成第二笔交易;这些利润一部分用来购买美洲白糖、棉花、咖啡,剩下的是以银子形式运回英国,墨西哥等中美洲国家盛藏白银,运回英国再卖掉,即完成第三笔交易。按你这么一说,当时的这些美洲白银,对英国在亚洲的贸易很重要啦?”
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“在18世纪末,东印度公司形成了一个新的‘三角贸易’,即英国、印度与中国的三边贸易圈。东印度公司的货船从英国装上制造品,运到印度卖掉,再装上印度盛产的鸦片,然后,运到广东沿岸,把鸦片在中国卖掉,换成茶叶、丝绸,装上船运回英国,就这样完成整个英、印、中‘三角贸易’。换句话说,正因为有了印度的鸦片,才大大减轻了英国公司的银两压力,不用银子支付,而是用鸦片换茶叶、丝绸。解决了跨国贸易的支付问题后,中国的茶叶与丝绸出口量当然猛增,但,同时进入中国的鸦片也大增。1730年中国进口鸦片15吨,1773年增长到75吨,到1820年升至900吨。”
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“但是,鸦片是毒品,当初是帮助解决了外贸支付问题,可是,随着鸦片进口量的增加,太多中国人吸鸦片上瘾了,一天没鸦片就无法活了。从19世纪初,鸦片进口已不再是帮助解决外贸支付问题,而是为了满足不可收拾的毒瘾,毒瘾开始毁灭中国人的意志。到1834年,鸦片年进口量已超过1400吨,中国的茶叶与丝绸出口已远不够支付进口鸦片的钱,要付银子,中国的银子开始大量流出。
“1839年,道光皇帝派林则徐前往广州,禁止鸦片进口,违者要被杀头。林则徐到后,立即执行禁令,把大量鸦片扔进大海。那年,林则徐发函质问英国女王,为什么英国在其本土、爱尔兰以及苏格兰禁止鸦片销售,知道鸦片对人体有害,却把大量鸦片贩卖到中国?为什么他们为了贸易赚钱可以这么没有道德,采用双重标准?
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“鸦片战争的负面意义在于当年大英帝国的不仁与霸道,在于它对中国主权的侵略,在于它的‘不管好钱、坏钱,是钱就赚’的一面。从更长的历史视角看,那次战争以及其结局也有积极的一面,逼着中国开放了,让中国接触世界,加入全球体系,走向现代化。试想,如果1793年马戛尔尼访问乾隆中国时,皇帝和朝廷大臣们能够有开放的眼光,而不是封闭自大,如果那次能积极利用英国与中国贸易的愿望,努力建立某种双赢的贸易体系,那么,鸦片贸易或许不至于走到那种地步。由于当时中国对世界不了解,世界也不了解中国,在那种情况下,任何矛盾、任何误解都可能导致武力冲突。那次战争给中国社会带来巨大的冲击,危机迫使社会精英谋求自强,迫使中国正视世界。比如说,如果没有那场危机,或许就没有你爸爸到美国来了,中国和世界也可能是另一种样子。”
Business English Pod :: The Business English Podcast for Professionals
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Trading for their own account
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We see the same pattern at Amazon, which is aggressively pursuing authors for direct publishing on the kindle and seeking to displace publishers by making themselves the sole source for books on the device.
Ultimately, I think we see this pattern in the economic development of every innovation. When a new technology is introduced, there's a lot of green-field opportunity, and so much value is being created that there's no need to capture it all. But as the technology matures, the winners need to capture more of the total value being created. They gradually crowd out suppliers as well as competitors.
Josh Kaufman: Inside My Bald Head » The Personal MBA
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all in the head — Five Most Important Considerations
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