Home  › Marketing › Strategies

The Price of a Free Economy

  |  March 16, 2001   |  Comments

Giving stuff away as a business model seemed completely counterintuitive. Yet we believed that community could coexist with the instinct to accumulate capital. Then things got ugly. Will we pay the price for our profligate ways?

Almost two and a half years ago, we wrote an article on the economics of free. Aside from being a stunning reminder that we've been ClickZ columnists for that long, that article -- at least its topic -- deserves another look.

In case you don't want to read the archived article, here's a refresher. We discussed how the Internet seemed like a huge giveaway. From free email accounts to free online content that you typically have to pay for in other media (particularly newspapers and magazines).

Giving stuff away as a business model seemed completely counterintuitive to our capitalist tendencies. At the time the academic and research roots of the Internet were meeting up with the commercial interests and possibilities. The result was a culture clash of sorts: in this corner, the free sharing of information and resources; in the opposite corner, the 300-pound gorilla of free-market enterprise and people's drive to make a buck (or a million).

At the time we heralded the economic models of the Internet: Openness and decentralization were prospering over private systems. The sense of community could live with the sense of prosperity.

That is, until things got ugly.

Too Much Freedom?

Companies that were at their peak just over a year ago have taken a beating in the stock market. The dot-coms that were pioneering new ways of communicating, creating new relationships with consumers, and essentially giving it away are suffering.

Financial analysts and others among the talkaloti are looking for people and behaviors to blame for the sudden downturn. Shaky business models. Young CEOs whose first priority was to create "a fun place to work" instead of a "profitable company." There were a lot of big promises and little delivery. Or so they say.

Most everyone agrees that business models based purely on advertising revenue are taking the biggest hit of all. Even those consistently among the top-rated sites in terms of traffic are suffering under the pressure.

One analyst suggested that customers of free sites such as Yahoo are actually liabilities instead of assets. The more popular a site -- that is, the more traffic it gets and the more services it delivers for free -- the more infrastructure you need, the more people you need to keep it going, and the more you sink backward. It's time those freeloading consumers stepped up and started paying for their stuff! Or so they say.

What Revolution?

Perhaps underlying all this is the staggering lack of imagination. For all the hoopla about a communications revolution, we haven't moved very far. As soon as the Web went from a free online community of academics to a potential cash cow, it went through a mental degouser (the electric magnet used by broadcasters to bulk-erase videotapes).

The Web became little more than TV on steroids. Instead of really changing how businesses interact with their consumers, the Web has become a testing ground for marketers. Remember that TV isn't about programming; it's about keeping your attention (or keeping you in a semi-comatose state) long enough to get you from one commercial break to another.

In a recent interview on public radio's Market Watch, Bob Foster, an associate professor at the Anderson School at UCLA, said companies such as eBay and AOL, which have fee-based services rather than free services with advertising, are more stable and will likely better weather the difficult times.

What's New Is Old

The new economy is looking a lot like the old economy: Success is based on diversification.

All the theory that we've talked about in the last couple of years -- how the Internet is about content, commerce, and communities -- has an opportunity to be tested now. It's in the tough times that we learn what really works.

As the saying goes, "A learning experience is a euphemism for saying you didn't get what you wanted."

ClickZ Live Toronto On the heels of a fantastic event in New York City, ClickZ Live is taking the fun and learning to Toronto, June 23-25. With over 15 years' experience delivering industry-leading events, ClickZ Live offers an action-packed, educationally-focused agenda covering all aspects of digital marketing. Early Bird Rates expire May 29. Register today and save!

ABOUT THE AUTHOR

Greg Sherwin and Emily Avila

Emily Avila and

COMMENTSCommenting policy

comments powered by Disqus

Get the ClickZ Marketing newsletter delivered to you. Subscribe today!

COMMENTS

UPCOMING EVENTS

Featured White Papers

Gartner Magic Quadrant for Digital Commerce

Gartner Magic Quadrant for Digital Commerce
This Magic Quadrant examines leading digital commerce platforms that enable organizations to build digital commerce sites. These commerce platforms facilitate purchasing transactions over the Web, and support the creation and continuing development of an online relationship with a consumer.

Paid Search in the Mobile Era

Paid Search in the Mobile Era
Google reports that paid search ads are currently driving 40+ million calls per month. Cost per click is increasing, paid search budgets are growing, and mobile continues to dominate. It's time to revamp old search strategies, reimagine stale best practices, and add new layers data to your analytics.

WEBINARS

Resources

Jobs

    • SEO Specialist
      SEO Specialist (HeBS Digital) - NEW YORK                             ...
    • GREAT Campaign Project Coordinator
      GREAT Campaign Project Coordinator (British Consulate-General, New York) - New YorkThe GREAT Britain Campaign is seeking an energetic and creative...
    • Paid Search Senior Account Manager
      Paid Search Senior Account Manager (Hanapin Marketing) - BloomingtonHanapin Marketing is hiring a strategic Paid Search Senior Account Manager...