Outklass

Wired magazines cover story from their March, 2008 proclaims “Free is the future of business“. Catchy for sure, who does not like free? Everyday I interact with customers who are looking to enter, expand or refine their business online. Chris Anderson does a good job of outlining the 6 so called free business models. Here they are with some commentary.

1. Freemium
   When businesses look to enter the marketplace entirely on the web, this inevitably is the model they hits home first. Lets provide some of the service for free and create a premium service for advanced features or convert the initiated customers after they drink the cool aid. To me, this is one of the biggest side effects of the freeconomy. Customers of web services looks for free or move on. Why, because the web is so vast, that if they happen to find your offering, and can not sample it out in a meaningful way, they tend to move on. This can be costly in a landscape where business are spending marketing dollars in a real way to drive traffic to their offering. So having the hook of a real value proposition that users can try in a real way at times is the only way to get customers to take the leap.
2. Advertising
   I really like Anderson’s description of this. Bring two parties together and charge a third to tag along. Everyones dream is to provide content so inspiring and magnetic, that the road to revenue is a simple advertising revenue model away. Agreed, internet advertising is growing and will continue to displace traditional advertising channels, but I think the web is a different beast. Relevance to the user and they are experience can create added value to the user, where poorly related ads are quickly ignored.
3. Cross Subsidies
   Take a loss of a product to see the money maker later. A bit different than the Freemium, where it really is getting to consumer into your marketplace with a offer to good to pass up, or offering free cell phones knowing the revenue is tied to locking the customer into a 2 year contract with nice margins on the service. Seems the challenge to this approach is as the consumer becomes more aware of the tactics employed, they will begin to adjust. Airlines are beginning to get serious about charging for additional luggage to attempt to offset fuels costs and create new profit centers. No doubt will travels begin to rethink their luggage plans as checking luggage was painful, but paying $30 per bag will generate creative packing solutions.
4. Zero Marginal Cost
   When the cost of producing the next copy of the product is zero, there is a choice to be made. Some business choose to hold the rights to their product with an iron fist, using copyright, patent, drm and everything possible to make their product scarce. Forcing an artificial limit on supply to try keep prices up. It will be interesting to see how this plays out. Will the widening net of content producers simply dilute the industries of music and entertainment. The direction of music industry revenues, the most “touched” by digital networks may be a big hint
5. Labor Exchange
   Jump through some hoops, and a product or service can be provided at reduced or no cost. Harnessing the power of large masses of minds and consumers has very interesting possibilities for value conversion. It may be relatively valueless to have a single individual vote on a movie or favorite restaurant, but when large groups participate, unprecedented resources can be created.
6. Gift Economy
   This may not be the most flattering way of describing peer production and the open source movement, but this seems to be a important trend. As the cost of very valuable goods and services heads south, the ability to find value in things that do not generate a direct monetary reward or wage seems to be in the rise. Some describe the status and sense of accomplishment created by interacting in a open source project or participating in community to be extremely powerful.

I think one of the key phenomenon to watch is the move towards these free product and services able to escape the confines of the web and become pervasive in our economy as a whole? Seems like a long shot in the short view, but in the long view, major changes are bound to take place.