Minggu, 04 Mei 2014

The Economics of Free



One of the most interesting and unique economic phenomenon to emerge over the last 10 years is the impact of technology in creating products that are free to the consumer. Chris Anderson writes about this in his book entitled “Free”. The most unique aspect of this business model is that it generates tremendous profits for those who know how to use it correctly.

Typically, the advent of a “free” product or service is a sample that is intended to give consumers a taste that entices them to pay for the products in the future. In truth, there is no such thing as free since somebody must pay for everything. However, the rapid acceleration of technology has enabled a business model centered around offering products, services, and content that is free to the end consumer.

Let’s begin by examining the impact of technology as it relates to delivering content and services. Moores Law postulates that the number of transistors on an integrated circuit doubles every 18 months. Practically speaking, this means that the cost per unit of computing power effectively drops in half every 18 months. This means that the cost of providing a product or service to an individual customer rapidly drops to very near zero. Thus, companies who have already built out a technology infrastructure can provide products and services at a very nominal cost. The thing that enables this model is the freedom from content containers such as books, DVD’s, phones, tablets, or some other device for holding or storing content.

By specializing in software based technology products, companies can capture all of the cost advantages offered by Moore’s Law without being constrained by the cost of containers for their content.
In the end, this phenomenon of ‘free’ is continuing to shape the online marketplace and is expected to produce the infrastructure for even more new business models to emerge in the future. It represents a new paradigm that will pose tremendous problems to people and companies entrenched in the status quo and great opportunities to those who understand and leverage this new business model.

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