I’ll explain what this image is about momentarily, but first, let me begin with a prologue. Tuesday night in my Net Economics course at the UW MCDM a lively debate, to say the least, was had over Chris Anderson’s new book “Free”; whether free as a concept was good or bad. I took the free side, but it made me feel a little lonely. I almost felt like I was the only student in the room who believed that it’s a good thing that we’re moving towards a digital economy based on giving bits away, harnessing business models that find alternative sources of revenue. For instance, a fellow student mentioned that Microsoft has a 90% market share of netbook operating systems, a testament to the strength of their software, no doubt. However, I posited that if MSFT went the Anderson route and gave their OS away for free they could have a 100% market share. I’m not going to say what the reaction to that was, but considering our proximity to Redmond and the makeup of the class, which includes Microsoft employees, you can take a wild guess…
Anderson’s “Free” starts out by giving us a quick economics briefing, using that as backdrop to defend the notion of ‘free’. He explains that, for instance, traditional, or old media has used a third-party advertising model to earn revenue while still providing a “free” product. I may not pay for 30 Rock, but when I buy products advertised during commercial breaks on TV or in interstitials on Hulu, I am still giving my money to NBC. It’s pretty basic and has worked for Google, a benevolent empire that has largely amassed their wealth through selling advertising and diversifying revenue streams. Of course, the model isn’t absolutely identical – the web magnifies things by presenting opportunities to apply wisdom gleaned from specific metrics and target users with relevant advertising, as well as ways of satisfying niches with long tail services – but the principle is the same: subsidize one product (free content) with money made from another (paid ad space). Multiply and diversify.
With the notion of one product funding the other in mind, I further illustrate the point by explaining how I helped inadvertently save ABC, Monday Night Football, and the Disney company in 2004. Maybe. Or not. But keep reading! I think you’ll enjoy the reasoning anyways!
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