No such thing as a free lunch

Posted 05/03/2008 by jaimes

“There’s no such thing as a free lunch.” Milton Friedman

“Over 6488.537018 megabytes (and counting) of free storage” Google Mail

Long Tail author, Chris Anderson’s recent work is on free business models. The book, FREE, is due to be published by Hyperion in 2009 and he recently outlined some of his ‘freeconomy’ ideas in Wired (which he edits).

He says that the Web challenges the traditional economic model of rational choices in a world of scarcity. As the cost of owning and operating a technical infrastructure approaches zero or close enough to zero not to matter, the primary scarcities become not the actual commodity or money, but the time and perception of value of the user. He argues that what Google achieved with PageRank is a means to convert attention to currency.

He posits several categories of free:

• “Freemium”: where the basic version of a service is free to use
• Advertising: where the service is paid for by a third party at the cost of impurity
• Cross-subsidy: where you get something free when you pay for something else
• Zero marginal cost: where distribution has almost zero cost which is met by an interested party
• Labor exchange: where you create value in using a service thus paying for your access
• Gift economy: where the content is user generated or open-source and thus gifted to fellow users

The ideas as outlined in the article are an interesting analysis of the state of play today. The book will hopefully address in more detail the economic underpinnings of a free strategy for more traditional business models. In some ways it feels like we haven’t come very far from Web 1.0 audience grabbing in simply categorising how it manifests itself now. What I’d like to see is concrete examples of businesses other than Google converting audience into revenue, but Anderson has made a stab at laying out how the web economy actually works.

Read the whole article here