The “eco-system” of free content

One of last week’s discussion questions asked How can a company or organization reap economic value from distributing “free content”?

I found a great blog post by Chris Anderson that discusses how the increasing availability of   processing power, bandwidth, and storage creates an economy of “free.”

“Just because products are free doesn’t mean that someone, somewhere, isn’t making huge gobs of money….you have to shift from a basic view of a market as a matching of two parties — buyers and sellers — to a broader sense of an ecosystem with many parties” (Anderson)

Similar to the technology “ecology” that Nardi and O’Day describe, Anderson refers to the “eco-system” of an economy of free.  A shift  in on piece of that ecosystem – in this case price – effects the rest of the environment.

So with the increasing availability of free materials, how do businesses make money?

(Re) Creating Business Models

Anderson describes six new business models that emerge from the taxonomy of free including “freemiums” and “cross-subsidies.”

“Freemiums”

There will always be people who want things for free and those who want to pay.  A market for customers who want a free “basic” product and customers who want a premium product.

For example, it’s tax season.  I’m single, don’t own property, have kids, etc, so your basic, free tax prep software fits my needs.  On the other hand, my parents have more complex tax needs that require a the premium services of an accountant.

Cross-subsidies

Anderson uses King Camp Gillette’s business model of giving away a product (razor) and charging for the “service” (blade).

This business model is commonly used today. Take a look at Amazon, for example. You can purchase a Kindle for under $100 (or download the app for free). Amazon is not profitting on the product purchases, rather from the services, content and subscriptions offered through the Kindle.

Apple uses a similar model by selling (relatively) inexpensive products – ipod shuffles are also under $100, itunes software is free – they can distribute content. While some is offered free, much of the content is offered for a price.

New Scarcities

With an abundance of options, how does a company reach a potential customer?  How does a customer know which material/good/service is the best?

“Free shifts the economy from a focus on only that which can be quantified in dollars and cents to a more realistic accounting of all the things we truly value today.”

In an economy of free, traditional economic considerations like cost and distribution marginalized, and attention and reputation become new scarcities.  Companies need to more strategic and adjust business models according to how their free materials will reach customers and ultimately drive an action that leads to revenue.

For more examples of how companies make money from free content, check out this Wired post.

Sources:

Anderson, Chris. “Free! Why $0.00 Is the Future of Business.” http://www.wired.com/techbiz/it/magazine/16-03/ff_free?currentPage=all

Nardi, Bonnie A., and Vickie L. O’Day. Information Ecologies: Using Technology with Heart.  The MIT Press, Cambridge; 1999.

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