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Saturday, July 10, 2010

The Free Lunch Economy

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This is a must read book if you are dabbling the black arts of online or offline marketing-in other words if you are engaged in business in a rapidly changing economic landscape. In a world where the cost of a transistor has dropped from $10 in 1961 to today when you can purchase 20000 for a dollar, how can a business survive and even thrive?

The following is my brief review of a fascinating book. All comments appreciated

Actually the title of the book is simply FREE-The Future of a Radical Price.

Frustrated by the piracy of their comedic satirical works, the Monty Python team conducted a real life skit. They created their own Youtube channel and proceeded to under cut the pirates by offering full television quality sketches for FREE! The result? An increase in sales of CD’s books etc to the tune of over 20000%.

In a similar vein. The band Radiohead offered their album ‘In Rainbow’ as a free download. They subsequently sold 3 million copies, surpassing their previous best album sales and perhaps the greater financial pay off was the 1 million plus concert tickets sold.

Chris Anderson, best known within the Internet Community as the editor of Wired magazine and the author of the best selling book ‘The Long Tail’ has written an easy to read and quite fascinating book that falls loosely between the categories of Economics, Social Commentary and on the fringes of prophetic philosophy.

Anderson makes some interesting observations that seem paradoxical in the extreme and seem to defy the rules of traditional economics. We live in an age dominated by all things digital. Information has never been more abundant and accessible. Yet, none of us have any additional time to process this tidal wave of sensory bits and bytes. Hence, like a child that’s had too much sugar or an adult drowning in caffeine the attention span and craving for instant gratification borders on the manic.

To compete for the attention of this audience, the purveyors of this content are increasingly embracing Freeconomics. Anderson notes that in 1961 the cost of a transistor was $10, by 1968 the cost had dropped to $1 dollar and today you can purchase 20 000 for that same 1 dollar. As marginal costs of a copy become so low, the price approaches zero. How can this apparent nonsense work?

Storage, processing and bandwidth, the essence of the digital world are increasing in capacity exponentially, so it would appear that the key to monetization is all in the ancillary add-on. The secret to the Freemium business model is simply to attract attention, build relationships, desire, trust and then by default the ever time poor freeloader will upgrade to the Premium service. If that service is Google then the upgrade can be significant. The initial free search and free email account is parlayed into paid Google Adwords clicks, purchases, and any number of monetary transactions.

In summary Anderson states that ‘people are making a lot of money charging nothing’

Each chapter is written in an engaging and entertaining manner. At times you feel that you’re being teased by the outrageous premise. Yet most of the arguments presented seem to validate his contention that perhaps despite the sage lectures from our elders that there’s no such thing as a free lunch, perhaps there really is! 

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