Examples of freeconomics
The Rise Of Freeconomics. Why $0.00 Is the Future of Business (March 2008) : core argument is that the fixed IT costs are spread over a wider audience, thus the marginal cost tends to zero (there are a few economic notions that are embedded within this document). Offers examples of Gillette's cross-subsidy, Ryanair as a travel agent - not just an airline, Google advertising and processing capabilities; together with Freemium (Fred Wilson, VC) for subscription model to acquire additional 'pro' services, Banda Calypso in Brazil allowing their music to be copied and sold on the street ahead of their concerts, value creation through labour exchange (I suspect the value is most likely from advertising and possible click-through sales, but could also be from demographic data collection, sadly the comment lacks examples to backup the argument), and zero distribution cost - where your junk has value for someone else, who will come and collect it from you...
Freeconomics: The Danger of Free (January 2008) : the implications of not having to pay for something. Examples include IBM giving away an enterprise programming tool (an IDE), Eclipse; the Google sphere of influence that arose from an esteemed search facility; and the high expectations on free services and for free services. The author states there there is no free lunch and that the cost is recovered elsewhere. Personally, I don't find the content that well presented - the Eclipse/IBM example fails to realise the implications of Open Source and the benefits that are realised from accessing more contributors outside of IBM. It is not as simple as offering a free tool. The article has good comments, so I enter it here as food for thought so as to provoke additional consideration.
Beware of Freeconomics (February 2008) : assesses the economic model for monopolistic markets and complex transactions. The story goes that Yahoo offered a good free email, with extra storage for a fee, and that Google (with Gmail) entered with free email and loads of storage so as to disturb the market. Whilst certainly competitive, it is not necessarily monopolistic - both services are supported by advertising streams, they share some similarities in their business models, and therefore could replicate the services. There does exist the sticky issue that new entrants to the market for email now cannot compete on price alone - it is free, and one could argue that this has an impact on innovation - as sources of funding are tricky when you don't charge the users a rental fee. This is also an opportunity for more entrepreneurship - to find ways to offer a service that meets the needs a certain user groups. In the mean time I think we can expect more consolidation, whereby competitors are acquired for their complementary services and revenue streams - thus positioning for an upturn in the market and also erecting more barriers to market entry. There is an interesting impact on the free/almost-free services, often this service is offered at cost (or perhaps illegally below cost!) but that it is the additional paid services that bring the profit. A studious user might take a snack on a Ryanair flight, thus avoiding the high cost of an in-flight sandwich. The article remarks that the cost complexity is increased in such situations and raises the number of small revenue channels. Those who desire all inclusive can purchase the services of other companies, but if you are astute you can reap the advantage of the cheaper no-frills opportunities - just set your expectations at the right level before buckling your seat belt!
Free to be Commie: "Freeconomics" as Market Communism (February 2008) : the economic theory of Communism in the Freeconomics world. A good read that relates the Freeconomics perspective with the Communist Theory: free goods, public ownership, and consumption that matches needs/desires. Public ownership is not advocated, instead private enterprise distributes the services at (almost) zero cost to the consumer. The article then explains how Freeconomics circumvents the 3 problems that Sherman presented against pure communism:
1. Zero price, infinite demand, therefore lack of supply
2. Zero wages, Man is lazy, therefore lack of incentive to work
3. No rational prices, inability to plan, therefore inefficient system
1) Human psychology will lead free services to be taken for granted. Wasted services do not hurt the supplier (how many use the complete Gmail storage? how many have uploaded files into drafted emails for easy access at a later time?)
2) Creative products appear not to suffer from the indolence factor. How many bloggers are paid to create content?
3) Market corrections can occur more rapidly in the Internet World
The author then goes on to relate freeconomics with partial communism, and that the difference between the original Sherman proposal is an exchange of ratios. Partial communism offered mostly free services, whereas freeconomics expects more services to be priced by the market - and that a smaller percentage will be free. The article ends with a quoteffrom the original Communist Manifesto: "The feudal relations of property became no longer compatible with the already developed productive forces; they became so many fetters. They had to be burst asunder; they were burst asunder".
A good article, certainly worth the read; the comments less so.
