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Tuesday, February 03, 2009

The Free & The Paid

Chris Anderson has an excellent post on the ‘Economics of giving it away‘ in the Wall Street Journal. Very insightful article indeed.

He is bang on when he writes, “The last decade has seen the extension of this “two-sided market” [one side pays while the other gets for free] model far beyond media, and today it is the revenue engine for all of the biggest Web companies, from Facebook and MySpace to Google itself” In other cases, the same digital economics have spurred entirely new business models, such as "Freemium," a free version supported by a paid premium version. From a consumer perspective, it should only help. After all, when you have no money, $0.00 is a very good price. Expect the shift toward open source software (which is free) and Web-based productivity tools such as Google Docs (also free) to accelerate. These same consumers are saving their money and playing free online games, listening to free music on Pandora, canceling basic cable and watching free video on Hulu, and killing their landlines in favor of Skype. It's a consumer's paradise: The Web has become the biggest store in history and everything is 100% off. 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.

What chris says in indeed true in the digital world but the service world is almost following suit – therein lies the secret of an emerging all encompassing business model.

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