Rafi Mohammed

Is “Free” the Future of Business…

Posted on June 3th, 2008 (0 Comments)

…noted business thinker Chris Anderson thinks so. He argues in a recent Wired Magazine article that free is indeed the price of the future.

Coining the catchy term “freeconomics,” Anderson focuses on four models of free:

  • Complementary Products. Give the digital album away for free and profit from $100 concert tickets and $40 T-shirts.
  • Third Party Payers - consume courtesy of advertisers. The New York Times reported today that Google earns over 2 million dollars an hour from online advertising.
  • Build a community based on free…then profit. Craigslist offers free classified advertisements in most categories but charges for real estate and employment listings.
  • Giveaway the basic but charge for the better product. For example, photo sharing service Flickr offers both a free and $25 a year Flickr Pro versions.
  • So what makes $0.00 tomorrow’s price tag du jour? One of Chris’ key points is that bandwidth, storage, and processing costs – key components of Internet businesses (e.g., digital music, Google, Craigslist, etc) - are dropping exponentially. This makes it easier to offer Internet related products gratis. Additionally, if you don’t give it away, there’s a good chance your competitors will. How many of you would continue using Google if it started charging for Internet searches?

    So are Chris’ and my pricing ideas at odds? Not really…in fact our pricing perspectives complement each other. For every price of “free,” there has to be a value based price for another product (e.g., concert tickets, advertising, select classifieds, or premium products). Someone has to pay the bills. And while free is particularly possible for Internet businesses, most products in our economy can’t take advantage of low cost bandwidth, storage, or technology. Take for example gas…it’s doubtful that oil companies will be offering gas “on the house” anytime in the future.

    So while tomorrow’s prices won’t all be $0.00, there’s a good chance that many NEW prices will be. With our society becoming increasingly Internet centric…the big future business opportunities will utilize cheap bandwidth, storage, and processing. As a result, FREE may just be the future of business.

    On another note, I need your help! I’m in heavy research mode for my forthcoming pricing book. I’d love to hear any interesting pricing story leads that you’ve experienced or know of. Your emails will be much appreciated.

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