Increasingly computers, data storage, and bandwidth are becoming a marginal cost in market economics. This is why businesses like Google, and Yahoo! are able to offer so many things for free on the internet. Prices use to be based on the cost and scarcity of goods, but what do you do when there is an abundance of goods that cost practically nothing? This is where businesses are more and more giving away good stuff for free.
It is getting harder to tell the different between a scam and a legitimate offer for free goods anymore. Chris Anderson’ WIRED article, Free! Why $0.00 Is the Future of Business, provides a great overview of how businesses are able to make a profit in this new economy of abundance. Some of these “free” economic models are not new, but they are greatly magnified in our current economy because of marginal costs of computing power, data storage, and bandwidth. Chris categorizes our new “free” economy as follows:
1. Freemium. This is where the basic product or service is free, but the premium version is sold at a price (Example: LinkedIn).
2. Advertising. Here content or services are provided for free, and a third part advertiser pays for ad placement (Example: Google, Yahoo!, and some print media).
3. Cross-subsidies. Here the business gives away something for free in order to entice the consumer to pay for something else. (Example: a band may give away music CDs in a city just prior to a concert to entice fans to go to the band’s concert).
4. Zero Marginal Cost. Here digital media or content is just given away because there is practically no costs to distribute the electronic goods (Example: Online musicians just giving away their music or bloggers just writing content for no monetary gain).
5. Labor Exchange. Users by using a site or service provide value (Example: Rating stories on Digg, or voting on Yahoo! Answers).
6. Gift Economy. Just give away stuff for free. (Examples: open source software, Wikipedia).
The marginal cost of computing, data storage, and bandwidth is changing our entire economy. Now if we could just get silicone to produce energy, we would then be in true abundance.
