Freeconomics - or is that freakonomics! Sunday, November 26, 2006
Chris Anderson has coined a phrase of freeconomics to describe to growing incidence of things that could be considered to be of value being made available free.
Understanding when to shift out of scarcity mode and start giving away what you once held dear is a core competence for our age.
Michael Schrage had a good column in the FT that talks more about the power of free, and the policy quandaries it creates.
"Never in history has so much innovation been offered to so many for so little. The world’s most exciting businesses – technology, transport, media, medicine and finance – are increasingly defined by the word “free”. Whereas WalMart, the world’s largest retailer, promises “everyday low prices”, entrepreneurs and ultra-competitive incumbents develop business models predicated on providing more for free. It is a difficult proposition to beat."
Does raise an interesting question of how people make money in such an environment and what motives them to provide these facilities for free. Clearly altruism is one reason. But one other model may reflect circumstances in which all output has a marginal cost of zero once the capability to produce the first "widget" has been created, and has been done at low cost.
I've recently asked lots of tech folks how much they would pay for an RSS reader - it's clearly of value to we users; Universal answer has been "Zero"! Why? Because we know that we can get them for free and that despite this "price", people still seem willing to make them available with ongoing innovations/improvements.
When expectations are set, it is nearly impossible to shift them - rather like the withdrawal of free retail banking is causing poor PR, defections.....
What's the consequence of the environment Chris Anderson is describing - in my view we'd better start getting smarter about how else we can make money before investing our time/effort/money in such giveaways. Moreover, when you don't reward effort & innovation, it may just diminish to all our detriments.
- At 12:29 PM, said...
And yet so many businesses rely on the wikipedia, rss feeds, public libraries, publicly financed education, message boards and so many other free sources of knowledge to create the very value they profit from. No long term economic growth is possible without innovation. And no innovation is possible without learning. All these 'freebies' may seem like a great business opportunity from the microeconomic perspective of the individual small business. From the macro perspective limiting these abundant prerequisites to innovation is akin to shooting ourselves in the foot...