Monday, February 2, 2009

I repeat: There is NO FREE lunch. Only Freemium.

Chris Anderson (the chief over at my favorite mag, WIRED) is coming out with another book, FREE, this summer. As a precursor to the big PR blitz for sure to come, he penned an article on WSJ, "The Economics of Giving It Away", published today.

Mr. Anderson is the god of generating buzz words (think "The Long Tail") and cool, attention-grabbing titles (such as this one). And this article, like his previous book The Long Tail and the mag that he edits, is an interesting read.

"Does this mean that Free will retreat in a down economy? Probably not. The psychological and economic case for it remains as good as ever -- the marginal cost of anything digital falls by 50% every year, making pricing a race to the bottom, and "Free" has as much power over the consumer psyche as ever. But it does mean that Free is not enough. It also has to be matched with Paid. Just as King Gillette's free razors only made business sense paired with expensive blades, so will today's Web entrepreneurs have to not just invent products that people love, but also those that they will pay for. Not all of the people or even most of them -- free is still great marketing and bits are still too cheap to meter -- but enough to pay the bills. Free may be the best price, but it can't be the only one."

Companies need to find a business model that most likely will be based on the "Freemium" model: Free products and services subsidized by the few that actually are willing to Pay. And the Paid price will most likely be extremely low. Companies just have to make it up on volume. Think all the online RPGs that charge gamers $5 a month so that they can get cool weapons for their characters or customize their avatars. I am not sure how well this model will succeed though since my 10 year-old boy refused to pay, out of his own pocket, for the privilege of making his avatar look super duper cool, after I approved of the expense. "Nah, who cares what I look like?" So he uses the money saved on more Pokemon cards. (Hmmm, where is the logic in this decision?)

And I love this line: "The standard business model for Web companies that don't actually have a business model is advertising." (and here is a cartoon to match).

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