It Will Pay You To Learn The Economics Of Free

The last several days, I’ve been following an interesting thread at Chris Anderson’s blog, The Long Tail. Anderson is writing a new book titled Free. In the world’s hypercompetitive economic environment, the most outrageous price of all is zero, and the economics of zero is fascinating. The story that captured my attention was his post early this month—Next: Free Cars. Anderson tells a story about Shai Agassi who is starting a new venture to become the largest electric car company in the world. The catch: the car is free, but you’ll pay for the electricity. And what really hooked me was one of Agassi’s comments:

The cost of the average used car in Europe is now cheaper than the cost of gasoline to drive it for a year.

The economics of free (or approaching free) shouldn’t be a surprise to us. Cellphone companies give away cellphones, but you pay for the minutes. Water companies give away water coolers, but you pay for the water. Printer companies all but give away their printers, but you pay dearly for the inks. The economics of free demands you re-frame your business model. In Shai Agassi’s case its about defining your new venture as a transportation company rather than as a car company. Verizon isn’t a cellphone company; they are a digital communications company.

Chris does a better job of explaining this than I can, and I am sure his upcoming book will provide further illumination. Why I think this deserves the attention of everybody in business is because the economics of free could become a major premise for many more businesses in the future. What do you do to compete with free? Hopefully, you will never have to, but it is worth thinking about before you might be confronted with the brutal reality of a competitor selling for $0.

In addition to the link above to the story about Shai Agassi’s new venture, check out these posts to get a closer look at Anderson’s reasoning:
Free Is More Complicated Than You Think
A Flight Across Europe for Five Pounds Is Indistinguishable From Magic

After all, a visit to Anderson’s blog is free, but his best-selling book, The Long Tail will cost you $16.47, and I am sure his new book “Free,” while probably worthwhile, will be anything but free.

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