Tuesday, August 01, 2006

If it's free...

It's for me. Or those were the words of my old football coach. But they pretty much describe the common man's attitude to, for lack of a better word, stuff.

Over a dinner conversation with my Dad and his college buddy, my Dad pointed out a counterintuitive phenomena in the telecom industry - for all the advancement of cell phones technology, a hallmark of today's hand held era is consumers' tolerance of the system's imperfections - dropped calls, fuzzy voice, etc. Landlines never had those problems.

So anyway, that got me thinking of something I decided (but subsequently forgot) to blog about - free(dom). Not the Constitutional kind, but the "wow I'm getting so much free stuff" kind.

Confused? Think about it. How much do we get for free in today's world that we paid for just a decade (or less) ago. Contacting relatives on the east coast (or across the pond) took a phone call or, at the least, a letter. A few bucks or a stamp. But we were willing to pay for that contact. Now? Are you kidding me? An email, IM, or VoIP call is free, and even a cell or land line call is dirt cheap. The web has drastically altered the value we assign to a vast majority of services.

There's free wifi in Mountain View and London and coffee shops. Free music and movies on the internet. Free text messages, emails, and calls. Hell, even free APIs for mashup developers. Free, free, free.

The question really is what are people still willing to pay for? And it's a tough one. Hell, most start ups can't come up with a coherent answer. Seriously, my most popular question for entrepreneurs at Mashup Camp, "What's your business model?", was usually greeted with dropped eyes, stutters, and shuffling feet.

Sure, music and movies still have markets, but the revolutions that will transform those industries have already begun. I mean, iTunes does quite a bit of business, but free file sharing sites are thriving. People got a taste of free(dom) with Napster, and most never went back. And why should they?

We're getting used to free stuff. Paying for information, media, telecommunications, and much more is so 20th century. We just aren't willing to shell out for the same services we used to. And it's affected the way companies make money.

The key, then, is to find other ways to do so. Two answers the market has spat out other than simply selling stuff are advertising (Google) and taking cuts off transactions (eBay, Amazon, etc.). But other than those two models, online businesses aren't really making money. The Salesforce model has gained some popularity, and perhaps leveraging real life services in the virtual world is the answer to this dilemma. Whether it is or isn't, the future will belong to those who come up with unique applications of the two tried and true revenue streams and invent others.

10 comments:

  1. True. Smart entrepreneurs who offer free services such as craigslist.org and google.com will revolutionize the business world.

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  2. I understand your point that companies today are having to make money in ways (namely advertising and transaction costs as you mentioned) in which they didn't before.

    The dot coms you mentioned (Google, Amazon, eBay) are offering relatively new types of services: online information and marketplaces respectively and for them, only marketing and transaction fees could really work. In other areas, I don't think we are getting as much for free as you stated. True, we have free email, instant messaging and voice over IP, but we still pay hefty monthly fees for mobile minutes, text-messaging and international calling plans. Sure there is voice over IP, but consumers measure "utility" not only in price, but also quality, and so long as there is a gradient in quality, there will be a gradient in price.

    There may be free wifi in Mountain View and London and Philadelphia will have free wifi as well, but I'm not sure how fast, safe or secure the connection will be and I'm sure there will be many people willing to pay a monthly fee for the lost speed, safetey security.

    Before iTunes, there was no good, legal form of consuming the amount of music today's teenagers and young adults do, but with the introduction of the iPod and iTunes, many more people have once again begun paying for music.

    I think startups may have a tougher time identifying revenue streams because of today's daunting frugal consumer, but I also think established companies are more able to adapt their pricing schemes to catch the consumer's penny.

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