Whitespace: Freeconomics - unleashing the power of 'free'

Issue 36: April 2008

No matter who you are, no matter how much money you make, there's something about the word 'free' that's guaranteed to get your attention. So it should come as no surprise the term 'freeconomics' has attracted a lot of interest since being coined by Chris Anderson in the recent Wired article 'Free! Why $0.00 is the Future of Business'.

Anderson argues falling production costs and the internet are reshaping economics as we currently understand it; that in an all out war for the attention of consumers more and more products are being given away for free or close to it.
Welcome to the world of free… coming soon to a product category near you.

Turning business into a free for all

Music, hire cars, food and beverages, airline tickets, software and, of course, media content are all examples of products many companies are choosing to give away for free. However, freeconomics is not about charity, it's about getting noticed and earning revenue elsewhere as a result.

According to marketing blogger Garrick Jones the abundance of one product has the potential to create a new scarcity for another. Jones advises: “If there is an abundance of the product you're selling, give it away and tap into the scarce commodities of attention and reputation it creates. Then sell this to advertisers.'
Giveaways and cross subsidies are far from new ideas. But what is new is the internet's ability to make distribution costs for many products cheaper than ever before. The internet can also reduce promotion expenses: online word of mouth has the power to bring tens of thousands of consumers knocking when they hear the magic word… free.

Free = attention = revenue

Examples of freeconomics are everywhere. Last year British rock group Radiohead allowed internet users to download its new album for how ever much they wanted to pay including $0 (62 percent chose to download the album for free). The benefit to the band? A ton of worldwide publicity, intensified fan loyalty and sold out concerts where ever it went.

Irish low-cost airline RyanAir has also embraced the free (or almost free) trend. The company sells flights at extremely low rates, while earning income in other areas such as additional baggage costs. CEO Michael O'Leary hopes to one day offer all flights for free with other services like onboard gambling and third party advertising creating revenue for the company.

Offering a 'freemium' product is yet another approach. This occurs when a basic version of a product is given away to one group of consumers in order to attract another group willing to pay for a premium version. Case in point: Software giant Adobe recently unveiled a free version of its Photoshop photo editing software; a move that will ensure the product remains top of mind for all consumers.

Is free for everyone?

Giving away products for free might seem like a plausible concept for international rock bands, airline companies and major software developers but does it make sense for SMEs? In terms of online content the answer is yes. Any company that communicates directly with a consumer is a content provider in some way, shape or form. Accordingly, putting the effort into developing useful consumer-focused content and giving it away for free in order to build your reputation makes perfect sense.

Freeconomics guru Chris Anderson argues that companies with a desire to stir the pot are most likely to give away what their competitors charge for. For some this might sound like a strange idea… but as the digital age continues to break all the rules, the notion that there really is such a thing as a free lunch might just come to pass.

The world of free

Trendwatching has been keeping an eye on what it calls the 'free love' trend. Here are a four examples of products that are being given away in a bid to earn money elsewhere.

• Talk that's cheaper than cheap – forget a free phone with a 24 month contract, pan-European telco Blyk offers free mobile phone texting and calls to 16 to 24 year olds; its earns money by showing ads to this cashed-up target audience
• Would you like advertising with that? – a Japanese vending machine firm gives away food and drink in packaging featuring ads for other companies; in addition, a TV screen plays ads while consumers wait for food or drink to be dispensed
• A free one stop finance shop – US company Mint provides free money management software that consolidates a user's different online banking information and provides secure transactions between a user's various accounts
• Play for free – gaming industry giant EA Games is set to release a free version of its popular Battlefield series that will be sustained financially by ad revenue and pay-for-use extras

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