Why $0.00 Is the Future of Business

Hey, look at this! Only 14 years after I put it into practice, WIRED magazine’s Chris Anderson (author of The Long Tail) has fully grasped my business model: making money by giving away something of value for free.

His article, Free: Why $0.00 is the Future of Business, looks at the economics of giving things away (starting with the granddaddy of the concept, King Gillette and his razors), and how it’s fundamentally changing business — and enabled mine back in the mid-’90s.

“Between digital economics and the wholesale embrace of King’s Gillette’s experiment in price shifting, we are entering an era when free will be seen as the norm, not an anomaly. How big a deal is that? FREE CHANGES EVERYTHING.”

As We Already Knew

Yes indeed. And as far as I know, This is True was the among the first (if not the first) to practice one of the concepts discussed, “Freemium” — with my combination of for-profit email publishing by offering subscriptions for free, which was supported both by online and offline viral marketing.

There are plenty of other examples in the article, including one that could well turn the ailing music industry on its head: a band in Brazil that encourages “piracy” of their CDs (emphasis added):

Calypso distributes masters of its CDs and CD liner art to street vendor networks in towns it plans to tour, with full agreement that the vendors will copy the CDs, sell them, and keep all the money. That’s OK, because selling discs isn’t Calypso’s main source of income. The band is really in the performance business — and business is good. Traveling from town to town this way, preceded by a wave of supercheap CDs, Calypso has filled its shows and paid for a private jet.

I’ve always said that the Internet changes old business models and enables new ones. Finally the pundits are fully grasping it. (I’m obviously not the only one who realized it long ago; Google and Amazon did too, among others.)

Anderson has obviously spent some time thinking about it, realizing that online business models could change the field of economics as well. “Read your college textbook and it’s likely to define economics as ‘the social science of choice under scarcity.’ The entire field is built on studying trade-offs and how they’re made,” he says.

Though the field of economics is robust enough to be able to deal with how online business is changing things. It talks of “externalities, a concept that holds that money is not the only scarcity in the world. Chief among the others are your time and respect, two factors that we’ve always known about but have only recently been able to measure properly.”

The Long Tail

I’ve been taking advantage of Anderson’s “long tail” concept with my online archives of thousands of stories. Just one minor for-instance: if you Google the woman in the story in the previous blog entry to this one, “Stephanie Pochron”, you’ll find (at least as of this writing) my blog post about her is in the top 5 results, even though that entry was posted less than 24 hours ago.

That’s “long tail”: an esoteric topic that someone might search on brings traffic to my site. Traffic that could result in a subscription to True and perhaps, at some level, income to keep the whole thing going.

Thousands of True stories in the archive means thousands of possible long-tail topics that might bring in more readers — and more income to keep the machine in motion. The pennies add up over time.

Yep: free changes everything.

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5 Comments on “Why $0.00 Is the Future of Business

  1. I can’t wait to reveal this information to select parties! One of the reasons I frequent the blog is that my mail service counts my subscription as spam, so the blog lets me know when This is True came out, but another reason is all of these reports on what is actually happening in the world. Being mostly cut off from civilization as much of the population knows it, most of us in Japan have no idea what goes on unless we have a reliable source of information. I’m proud to say that you happen to be mine.

    Oh, and as of right now, Google places this page at 6th.

    Actually, the blog doesn’t always make it clear when True comes out, but you can always find the latest edition here. Meanwhile, I recommend Google’s Gmail if you want to actually receive mail you want. -rc

  2. I heard this story on NPR about an experiment showing how people had an irrational attraction to free things, using, of all things, trick-or-treaters.

    It went something like this:

    The children were given 2 small candy bars. They were then given the option to get an additional small candy bar for “free,” or a much larger one, by “paying” one of the small candies they already had.

    Even though the second option gave them the most chocolate, the majority of the children opted for the “free” candy.

    It would be fascinating to do the exact same study, but with adults. -rc

  3. Ah, interesting topic, Randy. I started my business, ContinuingEdCourses.Net, five years ago based on the concept of giving online courses away for free.

    We provide high quality continuing education courses for psychologists for free. After completing the course, the customer may pay for their Certificate of Completion in order to receive credit from their state licensing board. The beauty is that the fundamental business is selling certificates, so why not give the courses away for free?

    An interesting secondary benefit of making the courses freely viewable by anyone, is that the search engines can also see the online courses (unlike our competitors who hide the courses behind a registration process), so our courses often rise to the top of Google and Yahoo searches.

    People thought we were crazy to give our courses away, but this has turned out to be a great business!

    A great example! -rc

  4. This trend, specifically in the music industry, is the subject of the song Creative Commons Anthem by Rob Balder.

    It’s absolutely the future of music — with big record companies being the past, though they’re still holding tight screaming “Noooooooooo!” I think, for instance, that if it can hold on long enough for the transition, Magnatune will be a big future player. -rc

  5. Baen books gives away electronic copies of many of its titles, both at its website (www.baen.com) and in a CD included with some of the books when first published in hard cover. From comments at the website, authors report an increase in sales after these titles are posted on the site. So your model works in many areas.


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