Monday, May 26, 2008

Free, Business Models, and the Greater Good

Very good article on "free" and how it works in the marketplace. The author makes several extremely exact and concise statements that are worth sharing at length.

" give away the infinite goods, not the scarce goods. Your time is a scarce good. No one is saying that everything needs to be free -- they're saying that infinite goods will be free, because of it's very nature in economics."

I've been noticing an interesting trend lately. While more folks aren't totally averse to the idea that they need to somehow embrace "free," they're mishandling what they do with "free" and then going on to complain how "free" doesn't work. The basic problem is this: they hear about the importance of "free" and so they give something away for free. But they don't have a business model around the free content. They don't understand the economic forces at work. They just give stuff away and pray... and then whine when nothing happens. As we've pointed out before, no one says that "free" by itself pays the bills. You need to have a more complete strategy than that -- and it involves a lot more than "give it away and pray."

There are two big take homes that stand out from the article - first the business take home: you have to tie a real business model to free. What you give away for free could be most easily viewed as a marketing expense to sell something else. YOU STILL HAVE TO SELL SOMETHING. Broadcast television uses free to sell advertising, some bands use free to sell attendance at live performances, software companies can use free to create a large user base to whom you can then sell support services - or you can give away a free piece of software to get your non-free piece of software in front of the consumer.

The second big take home relates to societal development. Infinite goods are defined as those having zero or near zero marginal cost (the cost to produce an additional unit). These goods have value to the people who consume them (music, art, literature, software) so every unit that is created adds to the "wealth" of that person and society. Think about that for a second...the colossal amount of wealth that is created by this cumulative volume of goods and information - and it is carried forward and enlarged perpetually. The sheer size of it is mindboggling, and unrepresented in any official economic statistic that I have ever seen. It's existence and accessibility instantly makes the world a wealthier place, but that's just the beginning. All those goods and information have the potential to act as a massive economic multiplier. Take publicly available educational resources - with broadband internet access one reasonably has access to all the information and discussion one needs to attain undergraduate proficiency and often graduate level proficiency in almost every field. So by eliminating the marginal cost of the actual university attendance, the only cost in obtaining that level of proficiency is time. And it just so happens that a tremendous amount of time is available.

To me that is tremendously exciting...we are fast approaching a point when anyone in the developed world has the opportunity to rise to the upper limits of their ability. We're not that far off from the point where ignorance becomes purely a choice. And with the right focus in development efforts, there is absolutely no reason we could not start opening that opportunity to every citizen of the world. Free does nothing by itself - adding the right model to leverage it can change the world.

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