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This article from Knowledge@Wharton titled: “How About Free? The Price Point That Is Turning Industries on Their Heads” deals with the new emerging phenomenon of products being provided for free. This phenomenon is off course only increasing as the internet is growing in size, speed and spread. Many products that were once sold for money, can now be found for free, either by established companies (like Google) or by private people (think about music on MySpace). In addition, things that we used to pay for, are incorporated for free into other products (think cameras in cell phones)
A few thoughts I had after reading the article:
- This is another example for changes in social and technological environment that require a complete change of the business models. The music industry reacted too slowly to the change the internet presented and is now paying the price. The next entertainment industry is the TV industry, which is trying to fight products like the TIVO instead of thinking about ways to change their business models. Just a few days ago, the struggle of The Authors Guild against Amazon’s new Kindle, because it has the ability to read E-books aloud has provided another example. Amazon caved to the pressure, but it is only a matter of time until this is changed by Amazon itself or by other competitors who will enable this option.
A few months ago I wrote about two manifestations of the same idea as articulated by two writers – Set Godin and Lawrence Lessig. The past always tries to control the future. Or as Godin puts it: “…[A]lmost without exception, organizations are run by people who want to protect the old business, not develop the new one”. Today, Freek Vermeulen described this in the HBR blog as the Icarus Paradox: companies become successful doing something but this makes them overconfident and blind to the dangers that other developments pose to them. It is time to develop new models. Free is coming.
- Too many examples in the article discuss the use of advertising as a way to fund this new trend of free products or services. Without disregard to the power of advertising (and Google’s growing profits are evidence that this model still works), I think that in the long run, it would not be smart to build a model based on advertising. I think that one of the results of the GFC will be a decrease in consumerisms (and there are demographical reasons to support that). The future lies in connecting the profit to value instead of basing it on advertising. “What do you suggest?” you must be asking yourself. Well, I suggest you start by reading Kevin Kelly‘s Manifesto: “Beyond Free“, which suggests eight ways to make money out of free products, not counting advertising.