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.

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