How Good Is Free?

March 17, 2008

After reading Chris Anderson’s blog about Oprah and free, I starting thinking about how good free really is. I feel that in Suze Orman’s case, she was able to get a head start because of Oprah. I mean, let’s face it, whatever Oprah does, most women find it inspiring. I agree that it was a great business tactic on Oprah’s part but if it wasn’t for Oprah, I don’t think Suze Orman’s book could have increased in sales the way it did. Then again, you just never know. I think we all have to agree that you get what you pay for, especially for those who own their own vehicles. Although, free can sometimes be a good thing, especially in technology these days… or at least in Suze Orman’s case. 

I decided to look into free software such as anti-virus programs. According to Wikipedia “The free software movement was launched in 1983 to make these freedoms available to every computer user. Software that does not provide these freedoms is referred to as proprietary software or non-free software.” (Wow that was before I was born and before my family even owned a computer!) I think it’s neat that individuals, especially techies, are able to use, study, and even modify these programs without restrictions. They can also be “copied and redistributed in modified or unmodified form either without restriction, or with restrictions only to ensure that further recipients can also do these things”.

There are so many things that can destroy your computer such as Trojan, worms, Spyware and so on. Can these free security programs such as AVAST and AVG anti-virus really stand up to it all? Let the poll be the judge of that at Tech Support Alert.

Nod32

10/10 100%

 

Norton 9/9 100%

 

F-Sec     9/9 100%

 

Trend 8/8 100%
F-Prot 6/9 67%
Avast 6/9 67%
Kaspersky 9/11 82%

 

McAfee 8/10 80%

 

AVG 6/8 75%

 

Norman 7/10 70%

 

 Don’t let these numbers get you down. Most companies make a big effort ensuring their product pass the VB100 test. The VB100 test is a monthly trial that tests the product to see whether or not it can detect 100 Trojans. If a product doesn’t detect 100%, then it fails. Basically, even if it detects 99 Trojans out of 100, it still fails. That’s fairly demanding. Which in turn means that because programs such as AVG and AVAST aren’t companies, the demand for them to perform at this level is non-existent. However, the poll does suggest that AVG is a “middle man” so I guess you are getting a bang for your free buck. Unfortunately, AVAST doesn’t show that kind of performance.

In my case, if I were to invest into a computer I would purchase an anti-virus program such as Norton of Nod32 as they seem to show the best performance. However, if I were a techie, I would jump aboard the Free Software Movement. I think it’s great for people to be able to use these kinds of programs, although, I think it’s equally great that we have excellent programs such as Norton to chose from.

March 16, 2008


Reading Chris Anderson’s article from wired.com, shed a lot of insight onto how different businesses are developing a 0$ business plan, by offering many services and products for practically nothing. This has a lot to say regarding how different companies and markets are evolving to capture consumers minds everywhere.

After reading the article, there was one thing that stood out in my mind. From my marketing class that I took last semester we talked about pricing strategies. Not saying that companies GLOBALLY have adopted an experience pricing strategy (Where the longer you make a product you find cheaper/efficient ways of producing that product, thus forwarding the savings onto the consumer), although I believe this plays a role in why things are being able to be sold cheaper almost to the point of being free. Competitiveness. Companies are becoming more and more competitive to grab consumers from other companies, and because several aspects of their company (in storage, and other products that can be produced in mass quantity) have become cheaper to create, maintain, and obtain.

Webmail has been around since you first got your computer. Only once you signed up you were given a limited amount of memory in which to store your emails. Of course you were always given the opportunity to PURCHASE extra space at a monthy/or annual fee. This was how the companies gained a profit. However, with the ability to create more storage for less money, companies are now offering UNLIMITED storage for emails for free. How will they survive if they no longer charge for extra storage you ask? Take Yahoo! For example. If you have an email account with yahoo, you are more likely to use their other offerings such as search, IM, etc…. With more people drawn to their free unlimited storage, this would also increase the usage of their search engine etc… where other companies would be drawn to this customer base to advertise.

Cell phones are becoming more and more popular. Everyone goes through the hassle of researching monthly plans, phones that come with a plan etc… There are two things to discuss here. The cost of cell phone plans have stayed relatively the same over years, with phone companies gaining a lot of their income from users that go over their monthly limit on minutes, text messages etc… What has changed though is the number of calls you can make monthly. Each phone call you make has relatively no cost to the phone companies, therefore to stay competitive, they continue to increase the amount of minutes and/or text messages. For my first cell phone I was charged 25$ a month for 80 minutes. That’s right 80 minutes. That seems ridiculous if they offered a plan like that now. For the same price one can get a plan that has at least 100+ minutes. Again cell phone companies like to stay competitive.
With the ability to stay within your limit of phone calls and/or text messages how to cell phone companies gain income? If you’re unable to get a “free” phone with your plan, you’re looking at 80$ plus to have a decent phone, and if you don’t have a plan, you are looking at over 200$ for the phone of your choice.

Fred Wilson created a great term “Freemium”. This ties in with webmail, but applies largely to free applications. Many free applications are funded by advertisements, or restrictions on what you are able to do unless you purchase the “Pro” version. With this, companies that offer these such applications are able to make profits from other companies advertisements, especially if the application is powered by other users (ie Limewire, Kazaa etc..), and also make a profit from selling the “non-advertised” version.

The cost of music CDs has declined over time (I remember paying 20$ for a CD, when you can get CDs now for 12$ or even less). This could be attributed to many factors: rising demand of CDs over cassettes, the lower cost of producing a CD, or competition from downloads. The music industry is finally understanding that lowering the cost for music (for downloads mostly), is a great way to effectively reach many more people, and thus increasing the amount of sales for any given song.
In the future I KNOW we will see many more services, and products be offered for basically free of charge, even those services or products that we may have not been introduced to yet.

Let Us be FREE

March 15, 2008

Reading the Wired News article ,Free! Why $0.00 is the Future of Business, gave us a detailed look of how businesses are either moving towards free or already selling (maybe selling is not the right word) their products for free and still managing to be profitable.  Therefore, I would try not to repeat the material but give you new examples and additional information.

Let us begin by identifying the core reason that is making the move towards free possible.  It is the growth in technological innovation for sure.  Lets move away from digital products (such as Web services, music) to physical commodities for a minute. I read a great article, “Technology wants to be free“, from which I have taken the following idea:

According to a 2002 paper published by IMF, “The Long-run behavior of commodity prices”, by Paul Cashin and John McDermott, “there has been a downward trend in real commodity prices of about 1 percent per year over the last 140 years.”  Lets take a look at the price of copper for instance:

Copper

Just a quick summary of the above graph.  The pink line is the real price of copper (Nominal price minus Inflation rate), and the dark blue line is the nominal price which also includes inflation.  By examining the chart in a hurry, we would be quick to conclude that the prices of commodities like copper would decline to a level and not move below that.  However, let us think inflation for a second.  Every year the general price level of goods/services increase in the economy.  Therefore it should cost more to buy each unit of good or service every year (the Dark blue line), however, by subtracting the effects of a falling purchasing power of money - the price indeed has been in the decline (the real price depicted by the pink line).  Moral of the story?  We are more comfortable analyzing increasing prices in nominal terms – to understand the impact of technological innovation on the journey towards free – we should start thinking in real terms.

How being FREE could help you?  Oprah Winfrey announced on her show that Suze Orman’s book, “Women & Money“, could be downloaded through her website for free for about 33 hours.  Let us look at how providing her book for FREE helped Ms. Orman.  Below is a chart depicting the sales rank of the amount of sales through Amazon’s website of her book 3 weeks before and one week after going FREE.

suze

Her ranking took a tremendous leap from being almost 160th to being the top seller.

Moving towards research publications.  USENIX, one of the leading computer science conferences, has announced to make all its publications available to the public for FREE.  Advances in technology has allowed the costs of storing and hosting such publications almost approach zero thereby helping the move towards free also in scientific publications. A spokesperson for USENIX stated, “In making this move USENIX is setting the standard for open access to information, an essential part of its mission.”

Another move towards FREE. According to this article, NYTIMES on September 19, 2007 stopped charging for parts of its website which used to be available only to paid subscribers.  NYTIMES used to charge $7.95 per month for access to the work of its columnists and news archives.  Why did NYTIMES decide to go free after two years of this subscription service? Even though this paid service was generating 10 million dollars a year in revenue for NYTIMES, Vivian Schiller, senior Vice President and general manager of NYTIMES.com stated, “But our projections for growth on that paid subscriber base were low, compared to the growth of online advertising.”  In simple terms NYTIMES wanted to capitalize on the traffic that would be generated to its website by going FREE – meaning more advertising dollars.

I could keep going and going about how companies are embracing this change towards FREE to their advantage but let’s end it here.  Here’s a link to a video interview of Chris Anderson by Charlie Rose.  I tried to embed it here but for some reason couldn’t.  In the interview, Chris Anderson is asked questions about materials in the wired article we read this week.

Chris Anderson wrote The Long Tail in 2006. The book is one of a handful that defines the large changes brought about by the web. It defines the forces at play that have allowed Amazon, iTunes, ebay and others to redefine large industries. We will discuss the Long Tail at length in class.

Wikipedia says the following:

The phrase The Long Tail was, according to Chris Anderson, first coined by himself. The concept drew in part from an influential February 2003 essay by Clay Shirky, “Power Laws, Weblogs and Inequality”, which noted that a relative handful of weblogs have many links going into them but “the long tail” of millions of weblogs may have only a handful of links going into them. Beginning in a series of speeches in early 2004 and culminating with the publication of a Wired magazine article in October 2004, Anderson described the effects of the long tail on current and future business models. Anderson later extended it into the book The Long Tail: Why the Future of Business is Selling Less of More (2006).

Anderson argued that products that are in low demand or have low sales volume can collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters, if the store or distribution channel is large enough. Anderson cites earlier research by Erik Brynjolfsson, Yu (Jeffrey) Hu, and Michael D. Smith, that showed that a significant portion of Amazon.com’s sales come from obscure books that are not available in brick-and-mortar stores. The Long Tail is a potential market and, as the examples illustrate, the distribution and sales channel opportunities created by the Internet often enable businesses to tap into that market successfully.
An Amazon employee described the Long Tail as follows: “We sold more books today that didn’t sell at all yesterday than we sold today of all the books that did sell yesterday.”

Anderson has explained the term as a reference to the tail of a demand curve.[5] The term has since been rederived from an XY graph that is created when charting popularity to inventory. In the graph shown above, Amazon’s book sales or Netflix’s movie rentals would be represented along the vertical axis, while the book or movie ranks are along the horizontal axis. The total volume of low popularity items exceeds the volume of high popularity items.

Please add his blog to the Required Reading list.

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