What’s free today may not be free tomorrow.May 16th, 2009 View Comments |
Not to rehash the debate over “free”, but the economics behind free underlies nearly every conversation and business decision today. Let’s focus on one small part of the debate.
The economics behind “freeconomics” blurs the distinction between “customer” and “user”; even though the user may not bear the cost, someone does. Companies that provide services to users for free still bear the marginal costs of the free services, therefore their business models are based on finding people and companies to subsidize the free services.
If the people subsidizing “free” go away (and that includes cash cow product lines, investors, venture capital, advertisers, paying users, buyers of aggregated and structured data, etc.), then what’s free right now may not be free in the future.
While the debate around “free” tends to center on the web, the web is merely one of many networks in use today. Take the examples of telecommunications (fixed and wireless), transportation (automobile, train et. al.) and energy networks: each network contains an embedded technological and economic structure that dictates the rules and incentives behind each interaction over the network.
But these networks aren’t static, and as each network becomes structurally more like the web their fundamental economics will change.
An example? Let’s start with the “mobile web”; Aaron Chua starts the discussion with Can Amazon be the default payment API for the Web? and I add in my comment:
Touching back to the piracy issue, is the [different economics behind the "regular" web and the mobile web] a failure of pricing mechanisms or is it a failure of distribution networks and transaction costs (including non-priced transaction costs)?
The digital economy isn’t forcing prices to zero; it’s forcing prices to their marginal costs. Marginal costs are higher in mobile (and virtual) at the moment because they have different pipes, different gatekeepers, different marketmakers, creators have substantially different access to the tools of production and distribution, low standardization of interfaces, etc. All of those create higher marginal costs, and combined with the “controlled” nature of mobile and virtual, there simply isn’t the same level of competition as in the non-mobile Internet… for now.
A day will come when the difference between the “mobile web” and the “real web” are framed less by the pipes and more by the access devices and their interfaces. Viewed more broadly, as innovation changes the structure of our networks, new technological possibilities and constraints will re-frame our economic structures, behavioral incentives, business opportunities and usage behavior.
Viewed simply, tomorrow will not be like today, tomorrow’s strategies will not be today’s, and what’s free today may not be free in the future.
And what’s expensive today may be free tomorrow: literally.
May 17th, 2009 at 01:23
[...] What’s free today may not be free tomorrow. — 2:33pm via Google [...]
May 17th, 2009 at 07:40
I've been involved in a lot of industries where 'free' has caused pricing disruptions. Your statement here that sooner or later somebody has to pay for the 'free' item is what often gets lost in the various discussions and is a great point to start from. If the value of the user's attention does not equal the cost of the product then third party payment systems break down over time. In the past this usually means a short term reduction in price to the end user (for items used as loss leaders and premiums for example) but as time goes on prices go back up and/or selection declines (because mfgs. are forced into a low price strategy as consumers perception of value has been thrown off).
Pipeline and end-user device may be where those consumer payments end up coming from or other subscription methods like the Amazon api model you talk about. Point is, as the cash cow broadcast and cable model breaks down the cost structure that drives hollywood will have to adjust and other cash flow streams will have to be created. I don't think the advertising model will provide enough cash to keep the higher quality content coming even with drastic cost adjustments – (may be wrong, but doubt it – high quality is expensive) so the era of Free continues – but a layer consumer directed payments seems likely. As you say – 'tomorrow's strategies will not be today's'
May 17th, 2009 at 07:40
I've been involved in a lot of industries where 'free' has caused pricing disruptions. Your statement here that sooner or later somebody has to pay for the 'free' item is what often gets lost in the various discussions and is a great point to start from. If the value of the user's attention does not equal the cost of the product then third party payment systems break down over time. In the past this usually means a short term reduction in price to the end user (for items used as loss leaders and premiums for example) but as time goes on prices go back up and/or selection declines (because mfgs. are forced into a low price strategy as consumers perception of value has been thrown off).
Pipeline and end-user device may be where those consumer payments end up coming from or other subscription methods like the Amazon api model you talk about. Point is, as the cash cow broadcast and cable model breaks down the cost structure that drives hollywood will have to adjust and other cash flow streams will have to be created. I don't think the advertising model will provide enough cash to keep the higher quality content coming even with drastic cost adjustments – (may be wrong, but doubt it – high quality is expensive) so the era of Free continues – but a layer consumer directed payments seems likely. As you say – 'tomorrow's strategies will not be today's'
May 18th, 2009 at 06:23
There are two points here:
#1 “Free” works at certain points in product, company and industry lifecycle given the competitive environment, network economics, etc. Certain points, but not all at all times.
#2 We happen to be viewing “free” through our particular frame of reference over a short time frame (a couple years), not enough time to get a broader picture of how today's free strategies effects tomorrow's industry structure.
It's less about “free” as a strategy on its own, more about understanding how it fits in with the universe of strategies.
May 18th, 2009 at 06:23
There are two points here:
#1 “Free” works at certain points in product, company and industry lifecycle given the competitive environment, network economics, etc. Certain points, but not all at all times.
#2 We happen to be viewing “free” through our particular frame of reference over a short time frame (a couple years), not enough time to get a broader picture of how today's free strategies effects tomorrow's industry structure.
It's less about “free” as a strategy on its own, more about understanding how it fits in with the universe of strategies.
January 26th, 2010 at 10:52
[...] social networks through the year and we both found ourselves at Blog World Expo in October and literally tracked each other down so we could meet in person. I’m so glad we did (proof is in the [...]
May 13th, 2010 at 14:58
[...] Again, “free” has a cost. Someone pays for it, companies, users, society, etc. Saying it again, “What’s free today may not be free tomorrow.” [...]