Chris Anderson has sparked quite the debate with his latest book, Free (MSRP: $26.99(!)). Malcolm Gladwell wrote Priced to Sell, expressing skepticism about the book, Seth Godin responded with Malcolm is wrong, and Marc Cuban went on to draw the distinction between Free vs. Freely Distributed.
Chris, Malcolm, Seth and Marc are all brilliant and accomplished; as Seth pointed out, it's an amazing expression of "free" that we're able to read their words for free (except the actual book:-). We must celebrate that people like C, M, S & M freely share their ideas and more than that, actively engage in debate. This is a testament to one kind of free. Evolving Business Models
Free (truly free) is rare. Unlike commoditization which is altogether common. For me, it centers on the business model. In high-tech it began with IBM - their model was superior customer service and sales. They prioritized the customer (mostly big, big organizations), were fully intimate with their priorities, industry, politics and people. There was truth in the statement "you never get fired for buying IBM." They always stood with you. They priced hardware steeply, but wrapped it in a cushion of service and support that was unequaled and highly valued.
Then came Microsoft - they prioritized the product and the channel. The built a partner community like no other, paid attention to independent application developers, who understood their end customer and built great applications that dragged Microsoft's "platform" technology along. Microsoft commoditized hardware - their platform software ran on a bunch of different gear, which meant that the customer could shop around for the best price, knowing that the "value" lay above the hardware in the software. This forced IBM to change its business model from hardware-biased to service focused.
Now we have Google - they turned the game on its ear brilliantly. Why make the customer pay at all? Let's make the end user the product, and sell access to it. Google's advertising approach turned both hardware and software into commodities (doesn't matter what kind of computer or browser or whatever is "underneath"). This is powerful, and why many hardware and traditional application or platform software companies are struggling.
It's ironic that success (to be pervasive and set the standard) leads to others copying you, the bar rising, a loss of differentiation, and a new addition to the ranks of commodity.
The big question is - what will commoditize Google?? In its heyday no-one believed IBM would be usurped. Similarly for Microsoft. It's not clear what follows Google - but you'd better believe someone will, yet again changing the game. IBM's model lasted for a couple of generations, Microsoft's for barely a generation; the pace is accelerating. Mired in Paradigms Sadly, each organization is/was so entrenched in their model that they dismissed the new entrant as spurious. Even when the new model had taken hold, the incumbents persisted in staying the course to extract every last drop of milk out of their cash cow. Despite being repeatedly kicked in the head, they still believed they were right and should not abandon what got them there. What will threaten Google? Is it possible to commoditize or replace the ad-clicking consumer? Is there a new kind of channel? Will Google buck the trend and be the author of the change that out-modes their current model? According to yesterday's Harvard's Daily Stat, the "Internet" (US numbers only) employs 1.2m people = $118 billion in wages and it drives $175 billion in direct transactions ($20b advertising + $85b retail txns + $70b to Internet service providers). 11% of the Internet business is advertising, a full 40% is for Internet access, and the balance (about half) is web-fronted purchases. While big, advertising is not #1. The massive majority (89%) is the consumer buying things.
The Next Model
Google's genius was finding a way to transfer the direct payment obligation away from the end consumer and putting it in the hands of the advertiser (consumers do pay for advertising, it's just hidden). What would happen if people stopped clicking on ads? What would happen if advertisers found the ROI of web-based ads to be lower than alternate channels? Would that be the end of "free"?? I will pay for something I value. I might take it if it's free, but it has "free value" vs. real value to me. If I had to pay, I probably wouldn't take it.
In his article, Gladwell referenced consumers choosing a 15cent chocolate vs. the 1cent alternative; when they lowered both prices by a penny, they chose the now free chocolate. Is that more about convenience than value? Since you have to open your wallet anyway, the price becomes less of an issue, and you may as well get what you really want, provided you think it's worth it. Could this be the crux of the "next" thing? Making buying easy?
Apple, Amazon and others make this somewhat possible with iTunes/AppStore/One-Click-Shopping, or Starbucks charging your credit card with no need to sign - just swipe and done. I think people increasingly expect to get knowledge and insight (news, books, articles, etc.) for free; but outside of that, I'm not sure that free is mandatory. Take music or movies, while some people will download for free via a Torrent or something else, most do pay. In fact, artists that offer "pay what you want" downloads of music on their sites, often make more than the 99cents that iTunes charges.
Will it be this simple? Frictionless transactions or a new, more effective advertising medium? Or is there something else out there that is fundamentally shape-changing? I suspect the latter...
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