Electronic Cash News

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.

Markus Frind of Plentyoffish.com has an unique perspective on the Web 2.0 bubble. Basically, there is no Web 2.0 bubble. Things like social networks, ebay auctions, affiliate marketing, and online advertising are here to stay. The evidence that Web 2.0 is not a bubble like the first internet bubble, but a paradigm shift are as follows:

1. Stupid ideas are being funded, but at a lot less cost. The ROI is that only 1 in 10 ideas need to be successful if the one idea’s revenues can cover the cost of the other bad ideas. New internet business ideas can be tested for 10s of thousands of dollars versus millions asked for during the first internet bubble.

2. People are not throwing millions at internet business ideas anymore that someone came up with last night.

3. People are a lot more experienced about the internet. Instant experts are not leading major internet startup initiatives.

4. Internet businesses need to show some level of revenue now-a-days before there is any talk of an IPO.

5. Internet advertising, one of the biggest source of money on the internet, is not going to dry up. Internet advertising is cheap compared to traditional advertising media such as TV and print.

6. Hundreds of thousands, if not millions, are making money on the internet through affiliate marketing, ebay, and so on. The money to be made on the internet is not going to dry up.

Read more from Plentyoffish.com posting, Bubble Bubble Bubble.

Spending on internet advertising will reach $61.98 billion, and will surpass newspapers to become the nation’s leading ad medium in 2011, projects private equity firm Veronis Suhler Stevenson (VSS) in its 21st Communications Industry Forecast released today.

VSS predicts that by 2011 internet advertising will replace print advertising as top ad medium. Also, interesting is consumers are using cable and video games, consumer-supported media, more (19.8 percent growth) versus ad-supported media declined 6.3 percent during same period 2001 to 2006.

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