Chris Anderson: Free! Why $0.00 Is the Future of Business(wired.com)
wired.com
Chris Anderson: Free! Why $0.00 Is the Future of Business
http://www.wired.com/techbiz/it/magazine/16-03/ff_free
35 comments
Have the laws of economics really changed? Almost everything free on the internet is cross-subsidized by advertising. Since television has being doing this for about 50 years, I don't see how this is the "future of business". More like an effective business method has gained much wider applicability.
You are right that this article talks of a "wider applicability" of the business model where services are cross-subsidized by advertising.
But, there's more:
The article emphasizes that the "costs" for an Internet Service, which hitherto have been cross-subsidized by advertising are, for all practical purposes, not relevant any more. It is true that this article talks only of the bandwidth, storage and computation costs and excludes the cost of labor. But much has been said before about the costs of labor decreasing via improved frameworks and tools.
The question then becomes, "What does it mean now, that the costs to be cross-subsidized are so low?" This goes back to what PG, Marc Andreessen and others have been claiming all along: we are going to see more startups, a LOT more startups. Also, according to Chris Anderson's Long Tail, LOTS of startups in niche domains. Startups operating in niches, might not make a whole lot of money through advertising. But, this is precisely the point of the article, given the cross-subsidization needs being so low, some startups would be happy making a couple of thousand or tens of thousands a month (instead of millions).
But, there's more:
The article emphasizes that the "costs" for an Internet Service, which hitherto have been cross-subsidized by advertising are, for all practical purposes, not relevant any more. It is true that this article talks only of the bandwidth, storage and computation costs and excludes the cost of labor. But much has been said before about the costs of labor decreasing via improved frameworks and tools.
The question then becomes, "What does it mean now, that the costs to be cross-subsidized are so low?" This goes back to what PG, Marc Andreessen and others have been claiming all along: we are going to see more startups, a LOT more startups. Also, according to Chris Anderson's Long Tail, LOTS of startups in niche domains. Startups operating in niches, might not make a whole lot of money through advertising. But, this is precisely the point of the article, given the cross-subsidization needs being so low, some startups would be happy making a couple of thousand or tens of thousands a month (instead of millions).
You're using a free website right now with no advertising.
YC uses this as advertising.
YC uses this as advertising.
That's always going to be the exception, though it might become a larger one.
If it hasn't happened yet, something like this has to happen soon.
Money isn't really wealth, money is just a representation of wealth. At some point, the overhead of using money will not be worthwhile.
Money isn't really wealth, money is just a representation of wealth. At some point, the overhead of using money will not be worthwhile.
I agree about the money not equaling wealth, but please explain the part about the overhead of money not being worth while.
Money has value because we can receive it in return for value we've created (a sort of universal value system), and transform it into another form of value or wealth. I don't see how it could ever get to the point where it's not worth having a universal medium of wealth. If it did get to that point, we'd have to resort to bartering. The only alternative is to have EVERYTHING be free - not just information products, but physical products, like cars, houses, and services. And if communist countries are any clue, this isn't the best way to do things.
Money has value because we can receive it in return for value we've created (a sort of universal value system), and transform it into another form of value or wealth. I don't see how it could ever get to the point where it's not worth having a universal medium of wealth. If it did get to that point, we'd have to resort to bartering. The only alternative is to have EVERYTHING be free - not just information products, but physical products, like cars, houses, and services. And if communist countries are any clue, this isn't the best way to do things.
This definitely can't happen with material objects. I'd say things are different in the information realm, though.
The faster, more fine grained, and more dynamic a system is, the less money makes sense, since the cost of managing the money comes closer to the value of the money being managed.
The faster, more fine grained, and more dynamic a system is, the less money makes sense, since the cost of managing the money comes closer to the value of the money being managed.
So how would you spend this hypothetical wealth? The abstract concept of money is what allows the development of a highly specialized economy. Greater specialization leads to greater productivity, and hence increased wealth.
Also, on your specialization point, there is great value found in integration. I don't know if you are a _n_x programmer, but the level of integration among all the specialized tools makes it a much more valuable system (at least for a programmer) than a balkanized Microsoft box.
You also see this realization in the current trend of Services Oriented Architectures, which is basically the UNIX philosophy writ large.
You also see this realization in the current trend of Services Oriented Architectures, which is basically the UNIX philosophy writ large.
Spending is a misnomer. If the things you would spend your money on are part of the very system of wealth you contribute to, then you don't need money. This is what we're seeing with the web.
I don't understand your point. Are you talking about some sort of digital bartering system? And what exactly is the "overhead" of using money (I hope you aren't referring to the fact that it has to be earned)?
No, the overhead is in the charging and tracking of money. If your system is dynamic and fine grained enough, then it can cost just as much to maintain the financial representation of what is happening as the event itself. Thus, you don't really make anything.
A very hypothetical example: say you have millions of simultaneous users all over the world who are constantly, but unpredictably, using your web service. The value of all these people using your service together is very high. However, since people use the service irregularly, charging them a significant amount would make it not worthwhile for them to use your system, and you lose your crowd. On the other hand, the amount that you could reasonably charge them is so small that it would only cover the cost of transaction, and would make the psychological overhead great enough that you would again lose your crowd. So, overall, it is best to not charge anything, and instead extract value in other ways, such as demographic information mining.
A very hypothetical example: say you have millions of simultaneous users all over the world who are constantly, but unpredictably, using your web service. The value of all these people using your service together is very high. However, since people use the service irregularly, charging them a significant amount would make it not worthwhile for them to use your system, and you lose your crowd. On the other hand, the amount that you could reasonably charge them is so small that it would only cover the cost of transaction, and would make the psychological overhead great enough that you would again lose your crowd. So, overall, it is best to not charge anything, and instead extract value in other ways, such as demographic information mining.
[deleted]
"If the things you would spend your money on are part of the very system of wealth you contribute to, then you don't need money."
Better to talk about currency than money. You are right, its place is where what you want to consume and what you (want to) produce are different goods. I don't see why the web would change that basic principle. You may contribute your expertise to Hacker News, an open source project and a couple of Wikipedia pages. But surely you don't want to consume only your own products. But maybe the producers of your desired "goods" (whether purely informational bits and bytes or real physical apples or oranges) derive no direct benefit from your aforementioned products. You will necessarily arrive at some medium, whether you call it credits or miles or dollars.
Better to talk about currency than money. You are right, its place is where what you want to consume and what you (want to) produce are different goods. I don't see why the web would change that basic principle. You may contribute your expertise to Hacker News, an open source project and a couple of Wikipedia pages. But surely you don't want to consume only your own products. But maybe the producers of your desired "goods" (whether purely informational bits and bytes or real physical apples or oranges) derive no direct benefit from your aforementioned products. You will necessarily arrive at some medium, whether you call it credits or miles or dollars.
This got me thinking. Can a clever digital barter system make money obsolete? Did anyone try it?
Yeah, people tried and try it all the time. Then they arrive at some imaginary medium/currency other than "money". Only, if it's a medium for exchanging goods or services, it ends up being money no matter what it is called. And if you try to get rid of a medium altogether (one-to-one bartering), you end up with a vastly less attractive market exchange.
An excellent article. "Invest in needed disposables" is always good advice and seems, to me, to be the real point of the article.
Another, more morbid analog to the Gilette example, is why it's always good to invest in lead and copper when the country goes to war. FMJ ammunition suddenly becomes a much-needed and much expended commodity and the raw materials prices sky rocket.
Another, more morbid analog to the Gilette example, is why it's always good to invest in lead and copper when the country goes to war. FMJ ammunition suddenly becomes a much-needed and much expended commodity and the raw materials prices sky rocket.
I once thought I would have a career in media, but I switched to software in part because I realized that my customer was going to be corporations, and the product was audience attention. It saddens me that ads are invading the software world too.
Advertisements are not a neutral way to make money. That model rewards massive infrastructure investment, control of information distribution, and overall low quality of the actual product.
It's very strange that one of Facebook's big problems is that their content is too interesting and meaningful to their users.
Advertisements are not a neutral way to make money. That model rewards massive infrastructure investment, control of information distribution, and overall low quality of the actual product.
It's very strange that one of Facebook's big problems is that their content is too interesting and meaningful to their users.
It's not true that you need bad content for advertising to work. You just need advertising that's better than the content. I watch Superbowl ads willingly, and I read basically every ad in WIRED that doesn't look crappily designed.
That said, it's hard to make content more important than my friends...
That said, it's hard to make content more important than my friends...
At the OReilly Tools of Change publishing conference I just went to, Tim OReilly gave a great talk on "Free is more complicated than you think". The old school publishers that don't use the web nearly as well as OReilly are shaking in the boots because of things like Wikipedia.
They just don't get it.
Chris is 100% right here.
They just don't get it.
Chris is 100% right here.
http://www.paulgraham.com/webstartups.html
"There's something interesting happening right now. Startups are undergoing the same transformation that technology does when it becomes cheaper."
"There's something interesting happening right now. Startups are undergoing the same transformation that technology does when it becomes cheaper."
I love "freemium" business models, but only when the negative externalities aren't seen by the "users of the basic version" and especially when the positive externalities _are_ seen by the "users of the basic version".
The money always comes from somewhere, even it's now twice- or thrice-removed.
Follow the money.
Follow the money.
"we now have a handy way to convert from reputation (PageRank) to attention (traffic) to money (ads)"
... on the attention economy (previously on hn)
... on the attention economy (previously on hn)
google sell advertisement, not email accounts
google sell advertisement, not end user applications
google sell advertisement and to do so they attrack the audience by offering free things ... the idea itself it very simple, the brilliant thing is, google kept the audience hooked
google's ecommerce model is a by the book case, offer free content and services and sell ads
moral is, google didnt start by, we will offer this for free and they will come, they must have started by we wonna sell ads on the web, how can we make ppl come
if they do it any other way they will eventually vanish
google's ecommerce model is a by the book case, offer free content and services and sell ads
moral is, google didnt start by, we will offer this for free and they will come, they must have started by we wonna sell ads on the web, how can we make ppl come
if they do it any other way they will eventually vanish
well .. actually the opposite. google didnt start with the concept of ads at all. they started out by offering free search. ads were nowhere in their initial plans. it was later they discovered that ads actually helped them make money.
in that case, they didnt have a business model, they just got lucky!
if this is what you want to believe, fine, but there are those fields called strategic management, marketing and economics, where people study and discuss how you can make a real plan to make real money, and believe it or not it works, and many many companies survived thanks to those reasearches from those fields, and many many companies failed for ignoring those exact things
and in business just like in development, implementing is way harder than knowing, so just because you know whats right, doesnt mean you can do whats right
if this is what you want to believe, fine, but there are those fields called strategic management, marketing and economics, where people study and discuss how you can make a real plan to make real money, and believe it or not it works, and many many companies survived thanks to those reasearches from those fields, and many many companies failed for ignoring those exact things
and in business just like in development, implementing is way harder than knowing, so just because you know whats right, doesnt mean you can do whats right
how is goggle formed
how goggle get advertisemnet
how goggle get advertisemnet
In a fuzzy little nutshell, they attempted to sell their product (PageRank algorithm) to the search companies of the day but got no takers.
After "failing" to cash out, they took their confidence in what they had and built it into a public service. Initially, I think they were dead set on not subsidizing their site with advertisements and were definitely not thinking of doing subscriptions or anything of that sort.
In the end, I guess they simply weighed the alternatives (i.e. closing the doors and finishing their PHD studies) and figured that instituting any sort of sustainable business model is not so evil after all.
Good for them (and us). :)
After "failing" to cash out, they took their confidence in what they had and built it into a public service. Initially, I think they were dead set on not subsidizing their site with advertisements and were definitely not thinking of doing subscriptions or anything of that sort.
In the end, I guess they simply weighed the alternatives (i.e. closing the doors and finishing their PHD studies) and figured that instituting any sort of sustainable business model is not so evil after all.
Good for them (and us). :)
Anyone want to buy some old dot-com business models?
I'm working on a micropayments engine you could use to sell em.
I think the joy would be in selling failed freebie business models =) ~still misses Kozmo.com~
Highly recommended read.