Future Case

Crossmedia, Social, Mobile, Business Modeling, Marketing, Research and insights

GRATIS. A taxonomy of the ‘FREECONOMY’.

with 3 comments

Scanning my way through the march issue of Wired magazine, I came across an article called ‘Free. Why $0,00 is the future of business’ by Chris Anderson, editor in chief and esteemed author of ‘The Long Tail’. Somewhere in 2009, Chris will publish his next book ‘Free’ and already I can’t wait for it to read it. Chris has a remarkable talent for unveiling and connotating latent and lingering economical issues. I recommend reading the article for those who study cross media as I believe that earning logics and cross media walk side by side.

So, what’s the crux of Chris’ new observations? Well, roughly Anderson distinguishes a taxonomy of the ‘freeconomy’ with six entities; freemium, advertising, cross-subsidies, zero marginal costs, labor exchange and gift economy. This line up is easily explained.

Freemium is one of the most common earning logics online. Anderson refers to the 1% rule in which one percent of the users of a site or service, pay for the other 99%. Just think of all the premium offers like FlickR or, in the Netherlands, Hyves. You may want to pay for extra services but basically, the service is free of charge. Anderson states that this logics look pretty much like the tool of sampling but at the same time there is a difference. This is that the freemium is about a digital full service and sampling (perfume, candy bars) are miniature products. We can use FlickR forever.

Advertising is nothing new. However, today we distinguish different logics in advertising. Not anymore does the advertiser need to pay for a space in a medium. Now advertisers pay per action (pay per page view, pay per click, pay per transaction; affiliate marketing). And further on in time, paid inclusion in search results, paid listing, pay per lead, pay per post (product placement) and pay per connection. These tools try to infiltrate in social media and social networks.

Cross-subsidies is an old marketing trick. You give away something for free but only if you buy something else. Think of getting a free ticket to a movie if you buy a big bag of popcorn. Ryanair, another example Anderson mentions, offers flights from London to Barcelona for $20. The costs are $70. How do they do it? The answer is simple; Ryanair charges for everything else (catering, credit card handling fee, priority boarding, advertising exposure per flight hour and subsidies from more expensive flights. Smart thinking. People obviously believe that they only pay those $20 and spoof of the other $50.

Zero marginal costs is the earning logics that deals with stuff like P2P. The music industry will never have control of its output anymore, no matter what legal regulations it pushes on consumers. Music, like any other type of digital content can be distributed for neglectable costs. This type of industry will just have to find new earning logics. A couple of years ago, I met John Perry Barlow, one of the then internet gurus and former songwriter of The Grateful Dead. He told a story about illegal recordings of the cult band. Kids would record the concerts. Of course, the quality was awful. The record label wanted nothing of the sort and intensified security at the gates of the concert halls. The outcome was that the concerts were running empty. Then the band decided that recording was allowed. The results were spectacular. More people came to the concerts and more records were sold. I guess Grateful Dead were one of the first bands to recognize that their earning logics were based on something else than the dictatorship of the labels.

Labor exchange is about value creation of services. You, as a user, create value to the owners of a certain site (Anderson talks about bots and porn but also about Google’s free directory service 411. The value created is either (or) improving the service itself or creating information that can be useful somewhere else. So, if you are into free porn, be sure to know that your data are used (maybe to spam you with doubtful Viagra offers).

Gift economy is Anderson’s sixth entity in his taxonomy. Anderson talks about altruism and that is correct. There has always been altruism, regardless of what level of capitalism we have currently. Sharing was the magic word that we believed in when WWW (and even before) was first unveiled. And still we cannot comprehend the value creation of this tool, let alone measure it. Perhaps our research group should dig into this (taking Erik Hekman’s efforts to determine parameters for value creation into consideration, I guess we are already doing it).

Professor Michael Rappa at MIT has listed business models on the web. His comprehensive list shows similarity with Anderson’s taxonomy. His list consists of

·         Brokerage

·         Advertising

·         Infomediary

·         Merchant

·         Manufacturer (direct)

·         Affiliate

·         Community

·         Subscription

·         Utility

I strongly recommend the reader to have a look and start converging the ideas of Anderson and Rappa. Of course Anderson talks about free – gratis – services and products a consumer can obtain through digital media. Some of Anderson’s earning logics are consumer driven (empowerment, permissive marketing; pull) and Rappa’s conclusions are more producer driven. Let’s see if we can observe even more earning logics currently not unveiled yet.

 

 

 

 

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3 Responses

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  1. Good read, thanks.

    Thomas Groenhart

    May 20, 2008 at 10:06

  2. Thanks for the article. I also hope to hear more about the book “Free” soon…

    Ruud Vrijhoef

    May 21, 2008 at 21:37

  3. Good article,can u link exchange with my blog?Thanks be4.

    Komang

    July 28, 2008 at 02:20


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