Christopher Golda

In this month’s Wired, Chris Anderson discusses “Free”:

There is, presumably, a limited supply of reputation and attention in the world at any point in time. These are the new scarcities — and the world of free exists mostly to acquire these valuable assets for the sake of a business model to be identified later.

Suffice to say, the best investors lack interest in business models. Radical and disruptive business models are created through experimentation, iteration; they can’t be designed or planned. Ironically, giving a product away for free should be part of your business model. Free maximizes the potential for value creation (by increasing market size, etc) and free, abundant goods/resources make existing scarce resources more valuable. Alex Iskold at ReadWriteWeb thinks that’s too complex:

The downside of freeconomics is a monopolistic market, with barriers to entry, and little incentive to innovate. In addition the middle-man and transactional complexities are the other side effects of this new economic trend.

Free doesn’t create monopolies — it just helps kill incrementalism. That gives you more incentive to innovate. As usual, Umair says it best:

Liberating value creation from the strictures of price is the story of nearly every radical innovator in the last 5 years. It’s the story of Google - how far would Google have got, if at it’s birth, it worried about free vs not free, and charged us all pennies for search? Clearly, not very far.

Abundance thinking–understanding the implications of “practically free”–is a core competence of our age. It brought us everything from the iPod to Gmail. -Chris Anderson

The economy of abundance suggests that the consumer will choose abundance over scarcity. There are several examples of this - just think of YouTube, the television of abundance. The problem is that the premise of an economy of abundance is that advances in technology have driven costs to zero. This isn’t the case, as cost is entirely electricity-based in the IT world, and this becomes poignant with the same example of YouTube. Simply put, YouTube was not a profitable business. It then becomes obvious that true, sustainable success will be based on innovative business models and frugal computing. It’s no coincidence that Google are pioneers in frugal computing, as advocates of a new power supply standard for computers, innovators in hardware efficiency, etc. It’s clear that the economy of abundance is realized by companies with well-established infrastructure like Google, Yahoo, Amazon, et al. The rest of us can expect to be investing in services such as Amazon’s S3, which have great prospects of reducing the non-zero costs.

Addendum: For a more in-depth analysis of the paradox of abundance, read Nicholas Carr’s post on frugal computing.