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Friday, July 6, 2007

The Power of Free?

In The Long Tail, Chris Anderson says, "Understand the power of free...one of the most powerful features of digital markets is that they put free within reach; because their costs are near zero, their prices can be, too. Already, one of the most common business models on the Internet, from Skype to Yahoo! Mail, is to attract lots of users with a free service and convince some of them to upgrade to a subscription-based 'premium' service that adds higher quality or better features. Because digital services are so cheap to offer, the free customers cost the company so little that it can afford to convert only a tiny fraction of them to paying customers." (p. 223)

I think that the costs can be near zero only after considerable investment in startup for labor and advertising. Startup can take months and years, so there must be money to support the effort for some time. Alternatively, the labor can be unpaid and the equipment can be the personal property of the entrepeneurs, who keep their day jobs.

Internet services can stimulate physical services. Buying and selling on eBay has caused an explosion in mail and parcel delivery services. eBay always charged fees to sellers, but this has proved affordable for quite a few businesses and individuals. I wonder, what is the proportion of successful to unsuccessful sellers?

Returning to the theme of free services, I used to check SciFi.com regularly to read new and classic SF stories at no cost. The site is connected to a television channel, and its reviews of films, books and other products stimulates sales of those items. I'm more likely now to check recent interviews with authors, as well as reviews. I might base a decision to see a movie partly on SciFi's review, or be reminded of a book and look on Amazon or ExLibris or Abebooks for an inexpensive copy. Multiply my modest spending by a million viewers, add the big spenders, and the free service deserves to be paid by advertisers.

The wonderful world of the Web and the Internet is not exactly without cost. Where is all this electricity coming from? Mostly from oil and coal, I find. What does it contribute to environmental challenges? Lots and lots of heat, damming of streams, noxious minerals in discarded electronic equipment.

I think rejection of Anderson's economics of abundance arises from misunderstanding. It cannot be extended to all of the existing global economics.

What can be extended globally is free access to information and communication. That goal requires social and political implementation.


Indeterminacy said...

Very nice perspective on the Internet. At least in Germany, magazines, newspapers, etc. have been reluctant to offer free services. And some companies sell services like hosting, e-mail accounts which are worse than the free services available from USA, etc. But ebay is big here too.

Irene Grumman said...

Thanks for your comment. I had assumed that all the Internet-using countries had similar, locally based online businesses using the same model of free service to lure the customer.

Indeterminacy said...

Germany is very conservative - but I think it's changing - I think there are some free blog-hosts in Germany. www.blog.de, for example, but I am not sure what services they sell.