The Economics of Free


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I just came across a very insightful article from Chris Anderson, editor-in-chief of the Wired magazine, titled Free! Why $0.00 Is the Future of Business. If you have not read it yet, please do. Perhaps even print it out.

Basically he is arguing that as the marginal cost of supplying processing power, storage and bandwidth gets closer to zero, a whole new economic environment will emerge. Blogs, Wikipedia, Google and other things that you probably use daily are right in the middle of this revolution. Here is a quote:

“What does this mean for the notion of free? Well, just take one example. Last year, Yahoo announced that Yahoo Mail, its free webmail service, would provide unlimited storage. Just in case that wasn’t totally clear, that’s “unlimited” as in “infinite.” So the market price of online storage, at least for email, has now fallen to zero (see “Webmail Windfall”). And the stunning thing is that nobody was surprised; many had assumed infinite free storage was already the case.

For good reason: It’s now clear that practically everything Web technology touches starts down the path to gratis, at least as far as we consumers are concerned. Storage now joins bandwidth (YouTube: free) and processing power (Google: free) in the race to the bottom. Basic economics tells us that in a competitive market, price falls to the marginal cost. There’s never been a more competitive market than the Internet, and every day the marginal cost of digital information comes closer to nothing.

One of the old jokes from the late-’90s bubble was that there are only two numbers on the Internet: infinity and zero. The first, at least as it applied to stock market valuations, proved false. But the second is alive and well. The Web has become the land of the free.”

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7 Responses to “The Economics of Free”

  • Stephan Miller

    This issue of Wired in waiting for me at home. I saw that article and knew I had to read it.

  • team ray

    free is best marketing ever. it works . this is partly reason site such as plenty of fish can complete with other site that charge a price

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