// July 2nd, 2009 // No Comments » // Tech
Over at the FT’s blogs (which have perhaps the most apathetic readership on the internet, a comment is a true event) is a soggy debate over Chris Anderson’s new book Free: The Future of a Radical Price. Basic thesis (I havent read the book yet :): that the low marginal price of content delivery on the internet means that companies can, and must give away products. Either that, or :
Many internet companies employ freemium, from Skype, which charges customers to make computer-to-phone calls, to companies that charge for more versatile versions of software. Many of them, however, are still experimenting to see what, if anything, works.
I agree, and this is actually the core of the book. When I refer to a new economic model, Im not referring to slapping advertising against stuff, which dates back centuries. Instead, Im talking about the underlying economics that allow Freemium to work. Freemium is the inversion of the traditional free sample. Rather than giving out few percent of your product away for free as marketing, hoping to sell the rest, you give away most of your product for free as marketing, hoping to sell to a minority. This is only possible in the online realm, where the marginal costs of production and distribution are close enough to zero to round down.
I know we all want to sell books – thankfully for Chris, we arent giving those away free yet- but slightly skeptical this is an unprecedented business model (despite the new web 2.0 compliant name). And its not ‘free’ if you are couching it in an economic vocabulary. Take skype: free skype to skype calls? sure, but thats because the traffic is routed over the internet directly to the other client. Free? not particularly, since you pay for the bandwidth. The illusion is perpetuated because superficially you arent paying the company that provided you the client, and THAT is because of competition, not low marginal costs as is Chris’ argument. Skype knows that software over the internet has such low barriers to entry, that if they dont do it – competition will pretty much automaticlaly bid down prices to zero.
Sky (here in the UK) provides satellite cable TV, and they are by far the largest player. The marginal cost of providing an additional home with the service IS next to zero (we ignore hardware, as above), but has that hasnt translated into them giving it away free precicely because that isnt the driver here. Its competition. And they have next to none.