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FEED RSSFreeconomics
PUBLISHED: Wednesday, 6 May, 2009 - 10:31
Basic economic theories assert that, in a competitive market, prices level off to marginal cost. Web is probably the most competitive market ever existed, and as a consequence its marginal cost to offer services to end users is constantly decreasing, and tending to 0.
Today, on the web there are six different economic models:
Freemium (free basic version): using the basic service for free, while there are premium services (e.g. Flickr PRO). Actually, this is nothing else than a free sample, with the difference that on the web the free sample has an infinitely low marginal cost. There is the 1% rule, which means that 1% of clients supports the service for the remaining 99%.
Advertising: it is the classic model that possesses three components, where a third party pays in order to participate in an aggregate market (a specific audience). The web site offers free services and content.
Some examples of traditional advertisement models are pay-per-page banners, Google’s pay-per-click text ads, Amazon’s pay-per transaction “affiliate ads”, sponsorship of other websites, sponsored search results, database sales of clients interested to specific topics. Beside these traditional models, new solutions are coming into place, like product placement. In particular, these approaches are based on the principle that free offerings build audiences with distinct interests and expressed needs that advertisers will pay to reach.
Cross-subsides: it is the model deployed by Gilette (to give away the razor for free but to charge the razorblades), that now it is applied to the Web. The main example on the web is Google, that offers free services (es. Google Analytics) in order to sustain advertising business.
Zero marginal cost: this model takes places because of the distribution costs / easy access to contents is so low that it is now possible to give away the service for free. This is what it is happening in the music business: songs have a decreasing cost or even inexistent (not only for illegal downloading but also because it is now a marketing tool for advertising concerts or selling other physical products).
Labor Exchange: the service is free because individuals increases its value by using the service. This is the case of Youtube: users create and vote on videos. Yahoo Answer is another example: users voting on answers increases the quality of the website’s service, therefore increasing its popularity and its advertising sales.
Gift economy: it is the internet model of non-profit organization (freecycle, wikipedia, couchsurfing, …) that provide users with a platform for increasing humanitarian activities and they support themselves through donations.
From “Free! Why $0.00 Is the Future of Business” of “Chris Anderson”, published on WIRED MAGAZINE
Category:
Marketing
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