
Beware of Freeconomics - cawel
http://www.readwriteweb.com/archives/beware_of_freeconomics.php
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nraynaud
I have another problem with the wired article, It assumes economy scale, but
here in Europe, we have at once one bigger market than the US, but way more
fragmented for web stuff : social websites market border are language border
(27 languages here).

This means that when I launch my service in French, I'm stuck with France and
Belgium (70millions people, too bad Switzerland is not in EU). If I add, say
German (80millions people more), I won't leverage on 150million people because
of the linguistic border. Moreover, adding a language costs me almost the same
price each time, it doesn't really drops with the time, since I start with an
audience of zero in the new territory.

This means that here in Europe, economies of scale are not as easy as in the
US, where there is a continuous market for 300 million people.

Moreover, with the worthless dollar, Adsense revenue tends to drop, but this
not a structural issue, I have to seek an euro-based ad system.

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mattmaroon
That article, the article that inspired it, and numerous comments here are all
wrong about one thing. Gmail didn't win. Yahoo Mail has almost 15x the
customers, and over half of the web mail market.

    
    
      http://weblogs.hitwise.com/leeann-prescott/051007.png
    

My favorite quote, in reference to email services, "when Google made its move,
Yahoo! could not compete." If being unable to compete means having a 15x
userbase (some of whom are paying you, unlike your competitor, who has only
free customers) then I sure hope every business I ever run cannot compete.

~~~
paul
I wouldn't trust that graph :)

Also, Gmail makes money multiple ways, including ads (direct and indirect) and
paid customers of Google Apps.

~~~
mattmaroon
Gmail is clearly a success. I just find it disingenuous to act like it did to
Yahoo what Windows did to Mac.

~~~
paul
Yeah, the fact that he chose Gmail as his first example of how free is somehow
hurting consumers is rather telling.

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mechanical_fish
Am I seeing things, or does this guy specifically argue that it is
theoretically impossible for Ryanair to satisfy its customers?

That reminds me of the urban legend about the aeronautical engineers who
calculated that the bumblebee cannot possibly fly.

And anyone who complains about the impossibility of competing against a free
product needs to explain the bottled water industry.

~~~
rms
bottled water is really convenient

~~~
Prrometheus
and it has pictures of springs on the label

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cawel
I also have the feeling Iskold is wrong in several places.

The one thing he got right is the GMail case, where big companies are "ready
to take a loss to kill the competition" (as said by dkokelly).

His tale about the DVR implies that if it's free, it's going to work. But
consumers still have the ability to figure out which of 2 free products is
best. Free does not preclude quality. Same rules as before apply.

His tale about startups worried about not being funded is far from convincing.
VC's will always fund bright, innovative, potentially profitable startups
(with the freeconomics model or others).

His tale about advertisement is not clear. If your ad-sponsored business is
going well (during an economic downturn), there is an argument for advertisers
to focus on you, and not others that fare less well.

His tale about complex transactions is wrong. Paying only for what you use is
far from a bad concept: it creates several types of demand among your
consumer-base. And it seems to work, as several European low-cost airlines
showed during the last years.

~~~
cdr
He got GMail wrong, too. Yahoo Mail is/was not "perfectly good". Yahoo Mail
was pretty poor. Slow, packed with blinking ads, lacking important features,
poor spam filtering, etc.

GMail won because it was a superior product. The storage was a marketing
tactic - the limits Yahoo had were low, but not that low. GMail wasn't even
free at first - I paid $6 for my account to some guy on eBay, and would've
happily paid Google for it.

How much were Yahoo/Hotmail making from premium webmail? Not that much, I
would guess, and it seems inevitable that charging for something so paltry was
going to last anyway.

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boredguy8
I've really enjoyed this series of posts and the comments that follow. But
there's something I don't understand:

How does all of this work when I don't see advertisements?

I haven't seen an overt ad (in the standard 'clickthrough' sense) on my
browser in a LONG time. I didn't even know, until I went and tested, that
YouTube had ads! And this service is ITSELF a -free- service. I don't have to
pay for my AdBlockPlus subscription (they should monetize that!), and only
rarely do I either have to add an add to block OR disable blocking because it
breaks a feature.

So a world in which the user doesn't even see the ads being presented...how
does that influence the system?

It seems like there are a few options:

1) Sue people who block ads.

This idea seems silly at first, but it's not entirely unfounded. The concept
is explored in Sagan's _Cosmos_. And Kelo v. New London could conceivably
provide justification, though probably not. How would an EULA that REQUIRED
viewing the ads play out?

2) Require strong enforcement

There are any number of ways to require viewing an advertisement -- almost all
of them at the risk of inconveniencing your 'honest' users. Is this the price
to pay if you want it free? How does that compare to television advertising?
With dozens of channels when I was younger, I rarely saw ads. Now it's harder,
as most stations seem to take breaks at nearly the exact time, so you have to
watch -someone-. And some shows are so good people daren't change the channel.
How can this be ported to the internet? Should it?

3) Consider it the 'cost of doing business'.

Some people will block ads just like some people will change the channel. Do
advertisers care?

4) Integrate ads with content.

TV shows started integrating product placement in order to make more money
from advertisers. Can bloggers be bought? How much is a "content-full"
endorsement worth? Radio personalities already do this: the most expensive ads
are the ones integrated into "host banter". Would a blogger be torn to shreds
if readers discovered he or she was being paid to place content as a POST
rather than as a clearly demarcated ad?

5) Adusers

Using 'trusted users' to push a product has already been done. Sell your
posting history for profit! Do these 'guerilla tactics' work? Probably. But
it's hard to see how a service provider can utilize this power: it's the users
that get the 'insider status' that makes their endorsement worthwhile.

It seems to me that failing to address how the Freeconomic process can be
subverted is problematic to the overall argument.

~~~
cawel
_How does all of this work when I don't see advertisements?_

Would be interesting to see what's the proportion of users using ad blockers.
I'm guessing it's a small minority.

It seems to me that people are taking ads for granted on internet, just like
they take them for granted on TV.

~~~
jcl
_Would be interesting to see what's the proportion of users using ad
blockers._

I agree. I'd further guess that there is a strong correlation between the
likelihood of a person running an ad blocker and the likelihood of a person
ignoring ads in a non-blocked environment.

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konsl
This guy keeps getting stuff wrong.

Instead of fearing free, take some time to understand it.

~~~
dkokelley
I don't know. He has a point about the monopolistic policies of taking a loss
on something to kill the competition, but that doesn't exactly work the same
way with information products. If you can make money from free, then by all
means it's not monopolistic. If you use free to clear the market so that you
can charge later, then it is monopolistic.

~~~
Prrometheus
>He has a point about making a loss on something to kill the competition, but
that doesn't exactly work the same way with information products.

Actually, I have never seen a good example of this phenomena in the real
world. People say it is true about Wal-Mart, but they don't raise their prices
after they kill the competition, which defeats the thesis.

~~~
dkokelley
They may not raise their prices right after major competition leaves, but by
removing the competition, they do increase traffic.

So, even though they may not raise prices, they make it up on volume.

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jgamman
i think the issue with 'free' revolves around marginal cost as well as
competition. gmail is something that has substantial value to google as a
company internally (hence you sink money into it) and it is trivial given
their resources to give it away. use email as a beachhead to a suite of
products and presto - you get people aware of and already used to google's
business apps which i definitely pay for. a 'free' service is equivalent to
advertising - the only difference is that it is borrowing your eyeballs by
providing a benefit rather than a bikini-clad model.

------
Prrometheus
Unfortunately, there is nothing you can do about it. It a market with low
barriers to entry, incentives tend to get played out to the extreme. In the
web industry, marginal costs are low enough that zero is a possible price
point, with advertising, so most of the industry has adopted it.

This is not a new phenomena. Most local daily newspapers charge $0.25 or $0.50
even though the price doesn't cover their production cost. However, it ensures
a wide distribution so they can make it up on advertising.

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mdemare
What interests me is the cause of freeconomics. People easily pay lots of
money on all kinds of stuff, but are extremely hesitant to buy anything on the
web.

My gmail account is worth at least hundreds of dollars to me, but I pay
nothing for it. $25 per year seems entirely reasonable considering the value
it offers, but if Google charged money, nearly all users would flee.

Why are people so reluctant to spend money on the web?

~~~
DaniFong
Because it's so hard to pay for stuff, and so easy to go elsewhere.

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ivankirigin
Iskold is CEO of a startup that is boostrapping a semantic web framework
through top-down crowdsourced information from free plugins and widgets
<http://www.adaptiveblue.com/overview.html>

It seems like even if a few points are off in this article, his company is
using free in an intelligent fashion.

~~~
icky
> a startup that is boostrapping a semantic web framework through top-down
> crowdsourced information from free plugins and widgets

Web2-speak is leveraging the new synergistic paradigm! ;-)

~~~
ivankirigin
There might have been a heavy overlap with market speak, but each word was
deliberately chosen.

boostrapping: opposite of Cyc. Starting with a unintelligent system, and
making it more intelligent.

semantic web framework: machine understandable content

top-down: creating a taxonomy of areas of understanding like songs, books,
movies, etc.

crowdsourced: built into existing pages, with user input

free: zero cost

plugins and widgets: blocks of code that go into sites like blogs

edit: I think I took your comment too seriously. Thank god for emoticons ;-D

------
iskold
I am glad you guys are finding my article discussion worthy, but why aren't
you commenting on Read/WriteWeb? This way it is much easier for me and other
readers to respond. the whole point of blogs is to discuss things around
content not in remote seclude chats like this one.

And regarding me being wrong about Free - not all as simple as a lot of you
think here.

~~~
cstejerean
You might want to tell your visitors about your post having been picked up by
HN and that they can find additional comments here. To comment on the article
on readwriteweb I need to

a) scroll all they way to the bottom,

b) need to create an account or type other boring details like my name and
email address

c) potentially wait for approval (it's not exactly clear if I need to wait for
approval, which fields are required, etc)

d) have another site to check to see replies to my comments,

e) discuss an article in a boring, non-hierarchical comment structure (how do
I see who is replying to me, how do I reply to someone else?)

f) miss out on the interesting/insightful replies and comments of my peers on
HN (specifically in reply to one of my comments)

You certainly might not like having to come here to check for comments to your
post, but understand there are no incentives for HN users to post their
comments somewhere else. Hopefully you find the discussion thread here
interesting and worthy of your time and attention.

~~~
davidw
Yeah, it's 'free' to comment here, but there is a 'cost' associated with using
that site, as cstejerean nicely explains:-)

~~~
agentbleu
hehe

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pjf
What's the point of debating if $0 is good or not? There's the demand, there's
the supply.

Zero cost for customer means he will choose the better provider, and here the
world evolves again.

