The Economics of Free
Tuesday, February 26th, 2008
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.
