Friday, December 12, 2008

The economics of free

i.e. "How do you make money by giving away stuff?"
Mike Masnick of Techdirt

So, the simple bulletpoint version:
  1. Redefine the market based on the benefits
  2. Break the benefits down into scarce and infinite components.
  3. Set the infinite components free, syndicate them, make them easy to get -- all to increase the value of the scarce components
  4. Charge for the scarce components that are tied to infinite components
A concrete example: Trent Reznor of Nine Inch Nails)
Infinite component: music (latest album given away for free)
Scarce component: seats at his concert tour

Another one: The String Cheese Incident (another music band)
Infinite component: music
Scarce component: concert tickets, time, flights, lodging, access to band

The music (the non-scarce good) helps them sell a lot more tickets to concerts (a scarce good). However, that band took it a step further. They set up their own travel agency to help fans attend their concerts -- and have been making money there, by saving people time (scarce good!) and helping them secure flights (scarce good) and lodging (scarce good), all in the pursuit of access to the band (scarce good) who they value so much because of the music (non-scarce good).

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