It wasn’t too long ago that the only way you could get free stuff was to sign up for a credit card or show up at Costco on the weekends (love those samples). The sources of free back then were designed to either incentivize you use a certain product or were a sample designed to get you to buy the specific product.
But nowadays we get free stuff all the time. The back-end of my blog is free software. Many of us use email for free, or we read articles online for free (like mine). We can even take out classified ads for free.
When did people and businesses start giving their stuff away for free?
The answer is when they figured out they could sell you something else instead. For many cases of free stuff, it comes coupled with advertisements. Your email may have ads, Facebook is free and sure does, and Google is the king of this system. They collect data on how you use their products and can then sell that to potential advertisers.
But free also comes in other forms. Sometimes you get free versions of a service and you have to pay extra if you want more features. My antivirus software works this way. The NY TImes business model for articles online is kind of working in this way too.
An article in the Harvard Business Review (which is not free) covers this topic in much greater detail. What they outline is that competitors entering a market can steal market share from existing businesses by giving away their product for free. This is a stark contrast to the previously held notion that if you want to steal business you need to have a better product, or at least better marketing. Now this is no surprise really, but many companies have been reluctant to embrace it because they aren’t sure they can keep the customers once they start charging for the product. This would result in massive financial losses for anyone.
Many companies that have tried to free model have failed too. Company politics and culture can make it difficult to convince a manager to lose money, which makes him look bad. On a very high level this goes back to misaligned incentives. If the manager’s incentives are on sales and profits, he isn’t going to jump on the free bandwagon.
The future of free is interesting. Advertising dollars are subsidizing our lives to a much greater extent than they had for prior generations. And with the exception of the occasional recession, advertising spending continues to rise. Will it eventually subsidize most of our lives? Probably not because there just aren’t enough dollars to do that. But if you own a smartphone you’ve probably seen this already. Many app makers offer versions of their apps for free with ads, and without ads for a nominal fee.
Free stuff isn’t going away anytime soon that is for sure. Ad advertisers get more and more data about consumers from our driving habits, web surfing habits, and new research on consumer behavior, they are going to be willing to spend more and more to target you directly. So enjoy your free stuff, so long as you don’t mind a little lost privacy.
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
