Serendipity35

Freeconomics

The past six months I've been thinking and writing occasionally about what I call "open everything." That idea comes from a newly emerging open source approach to many things besides software.

It has me attuned to references to all things open and free. That includes ads I see for a free weekend getaway, free parking, free samples, free downloads. It doesn't take a marketing major to know that using free incentives can lead to paying customers down the line. Well, it should lead to paying customers. Ask the record industry if "free" (as in illegal) downloads has led to increased record sales and you will get a differing opinion.

So, I was very interested to see in my new non-digital edition of Wired magazine (16.03) an article called "Free! Why $0.00 Is the Future of Business" by Chris Anderson.

Anderson is the editor-in-chief of Wired and the author of The Long Tail. It looks like this article is the launch of some ideas that he'll be expanding on in his next book, FREE, which will be published in 2009.

He's talking about the same generation I'm thinking about (K-20 students and my own sons) who are growing up on the free Web. More and more they want and expect free content and many sources are offering it to them.

This idea of "freeconomics" (not to be confused with freakonomics) is powered by web technologies and the availability of increased bandwidth and storage.

Anderson talks about some classic marketing via free such as Gillette razors. In their early days, they hit on the idea of giving away razors and making the profit on selling the blades. Today we would point to the cheap printer (maybe "free" with a computer purchase) that sells the expensive cartridges, or the underpriced game console that sells expensive games.

It's the same model the cell phone industry once embraced when they gave you a basic phone to get you to sign a contract for service. (That example may be changing since the Apple iPhone had folks buying an overly expensive phone and getting the contract as a secondary purchase.) How much is that bottled water dispenser for the office? Wow, that's a deal. All we have to do is buy their bottled water and have it delivered.

Anderson gets into the economics of all this -

"Over the past decade, however, a different sort of free has emerged. The new model is based not on cross-subsidies — the shifting of costs from one product to another — but on the fact that the cost of products themselves is falling fast. It's as if the price of steel had dropped so close to zero that King Gillette could give away both razor and blade, and make his money on something else entirely."

Economics was the only course I ever failed (with a high "D" thanks to a pass/fail option), so this is not my field. The economic water gets a bit cloudy for me on this freeconomics idea. Take The New York Times going free online last year. Great. How do they make money from that? Will they lure us in and get us to pay for "premium" content? Rupert Murdoch seems to be following that economic model with his newly-acquired The Wall Street Journal offering a lot free with premium content (I don't think it's all in place as I write this) for a fee.

I wrote a post last October called "Radiohead Meets the Bursar" that wondered about the open courseware being offered by many colleges.

We offer some of those same courses for thousands of dollars in tuition so that you get the premium version with a teacher, tests, discussion, grades, and the very important credits and degrees.

At my old homebase at NJIT, using iTunes U, you can download many course podcasts free and not pay the tuition. I know that the top administration there never saw the value to the university in doing this. There is cost in producing it, but can you show hard numbers that show there's a conversion to new applicants or transfer students? We know there's attention to the the school and cachet to getting the material out there and in being part of the kind of elite group of schools featured in the iTunes U part of iTunes. (People were pleased to see NJIT right next to MIT on the list - even if it's just an alphabetical thing.) But the marketing/admissions side of the house wants more than that.

Chris Anderson will argue that while free was once a marketing gimmick it "has emerged as a full-fledged economy."

You might point to a success story like Google which to most web users is a free set of services - ones you probably use like search, Gmail, maps, web pages - and new things that you probably haven't discovered yet like Picasa for photos or their new phone information service GOOG-411. I dialed GOOG-411 just now to find a restaurant in Paterson, NJ and the service picked up all my audio responses perfectly.

It's all free, but we know how they are making money. Advertising. It's an old business model. It's free broadcast television with commercials. Cheap newspapers with ads. Free online video with a pre-roll commercial.

I need to do some more reading on all this (maybe give my finance-major son a call too for some economics help!), but I really believe there's a powerful trend gaining strength here.

UPDATE continues with part 2