Talking of getting something for free, most people grown up in the twentieth century were rightly suspicious and being doubtful of its viability in the business world. Surely “free” is nothing of the sort – we all will pay for it sooner or later.
In the twenty first century, almost everything digital is free. You could surf the net with Google or Bing search engine. Keep your photos and documents in cloud computers, using one of the services provided by Google/ Yahoo/Microsoft or Dropbox. All these are for free and with little or no advertising to watch.
Chris Anderson, Author of The Long Tail, had classified them under “cross subsidies”. All forms of Free boil down to variations of the same thing: shifting money around from product to product, person to person, between now and later, or into non-monetary markets and back out again.
1) Paid products subsidizing free products- The popcorn that subsidizes the loss-making movie to the expensive wine subsidizing the cheap meal in a restaurant.
2) Paying later subsidizing free now – The free cell phone with a two year-subscription contract is a classic example of the subsidy over time.
3) Paying people subsidizing free people – Children below certain age (by height measurement) are provided free travel in public transport, accompanied by fee paying adult companion.
The most common of the economies built around Free is the three party system. A publisher provides a product free (or nearly free) to consumers, and advertisers pay to ride along. Again radio is “free to air”, and so much is television.
In the digital world, products are provided free to basic users and a Paid Version to about 5% of Premium users. The reason this works is that the cost of serving the nineteen is close enough to zero to call it nothing.
In the digital realm, the advent and manufacture of better, faster and cheaper microchips had turned out many high-tech products at record pace. This is the root of the abundance that leads to Free in the digital world. Any industry where information becomes the main ingredient will tend to follow this compound learning curve and accelerate in performance while it drops in price.
What’s Next?
Free is the best marketing tool for trying to get traction in a newly start-up.
Sooner or later, the company has to figure out a viable and sustainable Business. It need to generate revenue through its products and services, to not only finance the business operations but also make profits for distribution to its investors.
Knowing how the value of a customer changes over time can help you figure out what the right time for Free is, and when it’s no longer necessary.
Note: Most of the above are extract from Chris Anderson book, “Free, The Future of a Radical Price”.
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