originally posted on Concept Hub
My father was the type of person who always had to have the latest entertainment or tools of convenience as soon as they were released to the market. I recall having one of the first Microwave ovens, VCRS, On TV (before Cable), then we had cable, then Satellite (the really big dish), and so on and so on.
What I learned from all those years of watching my dad buying the latest inventions as soon as they came to market was the value of waiting. If you wait it out the latest new inventions will become better and cheaper.
However I never imagined that we would live in a world where such inventions would become better and FREE!
I have a G1 Phone. I bought it last Christmas. The GPS on the phone was definitely lacking in precision and although it integrated with Google Maps, it did not provide turn by turn directions like a Garmin GPS did. It also did not tell me what attractions and shops were near by.
How I longed for a Garmin. But I waited.
Last week I saw a commercial about Google’s Map Navigation; voice activated, turn by turn directions.
I immediately grabbed my phone and downloaded the Free application. Now, no matter where I am at I can get turn by turn directions to the closest coffee shop simply by saying coffee and clicking on Navigate.
My life is complete.
…and I did not have to pay a thing.
The concept of free has been up for debate for many years. More recently we have heard Rupert Murdoch whining about how quality news is worth paying for and the very successful Arianna Huffington telling him, his thinking is a bit outdated.
We are now living in a free economy.
I just finished reading Chris Anderson’s book on the topic, Free: The Future of Radical Price. (Highly Recommended)
Chris points out a number of reasons for the new free economy.
Today there are three other technologies that touch nearly as much of our economy as electricity does: computer processing power, digital storage, and bandwidth. And all three really are getting too cheap to meter. (page 77)
the cost of anything built on these three technologies will always go down. And keep going down, until it is as close to zero as possible. (page 78)
Which accounts for organizations being able to give away content and data for free. But even if an organization does not make that choice, piracy often forces free upon organizations, and the cost to fight piracy is often too high.
The Internet has disrupted pricing models across almost all industries. But at the same time free has made Google a tremendous amount of money. How can this be so?
Economics is often defined as the science of “choice under scarcity.” Bits of data, applications, content, information, are no longer scarce, in fact we have an overwhelming abundance such things. This abundance has made our attention and time more scarce than ever, and that is where we will find our new revenue models at.
If an organization begins to use free as a way to build community of interested participants, capture their attention and loyalty, and create ways to capture information about what is valuable to them, that organization will be able to deliver services that is relevant and timely to the needs of their community, something most people would be willing to pay a premium for.
In the offline world we see it as product placements on our grocery store shelves and in the goodies that are strategically placed for our impulse buying needs. To successfully capture our attention and dollars, marketers spend LOTS of money to research the needs and behaviors of their targeted consumers.
In the online world, all the organization has to do is offer free apps and information that can be provided at near zero cost and track the behavior of the customers. As Anderson explains;
The act of using the service creates something of value, either improving the services or creating information that can be useful somewhere else (page 29)
A start-up software company can launch with little overhead and offer it’s services for free. As the community grows and the company gathers feedback both directly and through observation, they can create enhancements that will be incredibly valuable which can then be offered at a premium price. This revenue model is often referred to as a freemium.
Services that enable their users to add content often generates revenue through relevant advertising, such as Google’s ad-sense.
We are also seeing revenue models that grow from affiliate marketing programs, or complementary product offerings. For example free photosharing sites that sell personalized merchandise such as mugs or calendars.
These online lessons of free can offer be transferred to the real world. One of my favorite case studies in Chris Anderson’s book was that of SampleLab (Page 60)
At SampleLab, a boutique in Tokyo’s teen-laden Harajuku district, customers get up to five free items each time they visit — everything from candles, noodles, and face cream to the occasional $50 videogame cartridge. The gratis-only “sample salon” attracts 700 visitors a day. How can SampleLab not charge for every item it stocks?
- Charge for entry – Only “members,” who pay $13 in registration and annual fees are admitted. With 47,000 members, SampleLab is so hip, teens now have to make reservations one week in advanced.
- Charge a “rental” fee for shelf space – Due to the store’s popularity, companies give SampleLab products for free and even pay $2,000 to stock one item for two weeks. SampleLab can carry 90 products at once.
- Charge for feedback – By offering extra free goods, SampleLab turns most of its members into a focus group. Teens fill out product -specific surveys online, on paper, or via cell phones. Companies pay $4,000 for that data. If 20 percent of its clients pay for the feedback, SampleLab earns a little less than half the monthly revenue it does renting shelf space.
What can you offer for free and how can you monetize free? This is an important question that all organizations in every industry should be asking themselves.
The trend of legitimate free offerings will continue to grow and will continue to disrupt revenue models of the past. However the one thing all these models have in common is the need for a large engaged audience, which is where the ROI of social media will be seen most clearly.