Free Delivery

Is free the future of our business?

Another thought-provoking piece (soon to be a book) by Wired editor Chris Anderson examines the future of free, as a defining element of a digital economy.

"It’s now clear that practically everything Web technology touches starts down the path to gratis, at least as far as we consumers are concerned. Storage now joins bandwidth (YouTube: free) and processing power (Google: free) in the race to the bottom. Basic economics tells us that in a competitive market, price falls to the marginal cost. There’s never been a more competitive market than the Internet, and every day the marginal cost of digital information comes closer to nothing."  (read the rest of the article here.)

The shift from an economy based on scarcity to one based on abundance is already having profound effects on businesses touched by the digital demons — the music industry is one wildly obvious example, but so too is the news business. Information doesn’t just want to be free, it busted out of the joint a long time ago and we have all been very slow to understand what that means and how to take advantage of it.
Not everybody, viz the Metro papers. But imagine if 10 years ago you marched into your publisher’s office and said: "I’ve got great idea! Let’s make a cheap, crappy tabloid paper, cram it full of truncated wire copy, and then each day we’ll give away 300,000 copies!"
Anderson’s piece, while not focusing on the media (other than to point out our advertising-based model was one of the first workable business models to emerge in a Free economy) should be a must read for anyone moving information around digitally.
These ideas are not new. (Dave Winer and Doc Searls and Corey Doctorow among others have been beating the drums on the economy of abudance for a couple of years now.)
But I still am left with more questions than answers (Why or why didn’t I take economics in University?)
For instance:  When the unit costs of manufacturing and distributing a product approach zero (as they now do in the news business) but there is still a high demand for the product, how do you get the REAL costs paid? (Our traditional answer, and one Anderson points to, is to bring a third party (advertiser) into the transaction – and they pay the costs. In that case the transaction is us selling the readers attention to the advertiser.
Or this: The Free model works well (or at least seems to) when the real costs are distributed over so many units the per unit cost becomes assymptopic – it approaches zero (i.e. the New York Times content, or the ad sense ads distributed across a million blogs). But what about us local news types? Our real costs remain relatively high, even on a per unit basis and that makes advertising not a very great model (because it’s so cheap elsewhere).

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