Originally published at: https://blog.12min.com/free-summary/
The Future of a Radical Price
Nowadays “free” content is everywhere.
But how do these companies giving their digital products for free make money?
Who Should Read “Free” and Why?“Free” explains the evolution of the marketplace, and how the digital economy changed the meaning of free products.
It shows the way we need to change our mindset and reasoning in order to understand profiting in the digital marketplace.
We recommend it to all readers who want to keep up to date with the new ways of doing business.
About Chris AndersonChris Anderson is a bestselling business author, an entrepreneur and a former editor of Wired Magazine.
"Free Summary"During the twentieth-century businesses hated the word “free.”
They were worried that giving away some free product will satisfy the consumers, so they will not have the interest to pay for the product in another form.
So, they tried to protect themselves by limiting and controlling supply, and therefore they were protecting and ensuring the demand.
The most significant tool they used in their quest was copyright, which prevented other companies and individuals from producing the product, and therefore they were protecting themselves from the competition as well.
Companies believed that by artificially creating scarcity they would ensure bigger profits, since their customers’ demand will never be satisfied, and thus they will have a constant need for more.
However, today we are living in a completely another world.
The “freeness” of items is not a new marketing trick.
It has been used ever since the 19th century. One of the most famous usages is when a bar offered free lunches to customers who would pay for drinks.
You have heard the phrase “There is no such thing as a free lunch,” haven’t you?
Well, now you know where it comes from.
In any case, just think about all the free stuff you have gotten in your life.
In most cases, they were not exactly free – you were obliged to buy something, to get them or use them.
For example, let’s say you get a free razor.
Would you be able to use it if you do not buy some razor blades?
No, you would not.
So, what you are getting is not a free razor. It is a razor you pay for, just the price for it is moved to another item, in this case, the razor blades.
This seemingly free item is known in the business world as a loss leader.
As the name states, this item is sold at a loss, but it leads the consumer to pay for another product that makes it usable.
Let’s take mobile phones for example. Nowadays many operators give you a free device. But, in order to get it, you need to “subscribe” to pay a monthly fee and use their services.
Of course, you do not always have to be the one that pays for the free services.
But there is always someone that pays (even if you cannot see that). This is how all media works – advertisers pay money, and as a result, you are exposed to advertisements.
Free items work so well because they are irresistible to consumers.
I mean, why wouldn’t they be?
They are completely risk-free, and even if you do not like them, you lose nothing.
So, companies use this technique to ignite consumer interest.
However, it all comes at a price, and so does using such technique. The price, in this case, is lowered consumer appreciation.
Consumers tend to appreciate products they work for and pay for more than those that they get for free. This is because they do not put in the effort to mentally evaluate the decision (whether they should take it or not).
Until now, we talked about physical products.
But what about the most popular products nowadays – the digital ones?
Well, the internet drastically changed things.
Digital products are produced at a cost close to zero since once the first copy is made, they can be reproduced with no limit.
So, when companies offer them for free, they do not have an actual expense.
However, there is an overflow of free content on the internet.
Wait, didn’t we say that prices are driven by scarcity?
Then how can the digital economy function?
The overflow of content actually created scarcity in another area: attention.
Now everyone is competing for attention. So, you give a free product, and you are charging for attention.
So, in the new economy, you use a free product to get attention and lure the customers into redirecting their money to something else you offer.
We know that all of this information might be hard to grasp all at once, but free products are a topic that can be discussed far longer than what our space allows us to address it.
If you are interested in more in-depth information, “Free” will give you all the answers you need.
Key Lessons from “Free”1. Traditionally, There Was No Such Thing as a Free Dinner 2. Today Attention is the King 3. Give a Product for Free
Traditionally, There Was No Such Thing as a Free DinnerIn the traditional sense, free products were just a way companies lured customers into buying complementary products that would make the free product usable.
In that sense, nothing was free – the price for the free item was just shifted to another good.
Today Attention is the KingNowadays, there is so much free content on the market, so many people wonder how prices are created since it seems that there is no room for scarcity.
However, nowadays another thing is scarce: attention.
Businesses compete for attention, and they make money off it.
Give a Product for FreeGive your customers a product for free, and then create a premium version of it which you would charge them for.
Many businesses make money this way. When you are using the free approach, however, you need to make sure that the free product leaves room for improvement, so that customers would want to pay for the upgrade.
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"Free Quotes"[bctt tweet="But our tendency to give scarcity more attention than abundance has caused us to ignore the many examples of abundance that have arisen in our own lifetime, like corn, for starters. The problem is that once something becomes abundant, we tend to ignore it." username="get12min"]
[bctt tweet=“The Greeks, meanwhile, explicitly rejected zero. Since their mathematical system was based on geometry, numbers had to represent space of one sort or another—length, angles, area, etc. Zero space didn’t make sense.” username=“get12min”]
[bctt tweet=“Indeed, the very word “zero” has Indian origins: The Indian word for zero was sunya, meaning “empty,” which the Arabs turned into sifr. Western scholars Latinized this into zephirus, the root of our zero.” username=“get12min”]
[bctt tweet=“Even after most cultures established monetary economies, day-to-day transactions within close-knit social groups, from families to tribes, was still mostly without price.” username=“get12min”]
[bctt tweet=“The way to compete with free is to move past the abundance to find the adjacent scarcity.” username=“get12min”]