If you read the final part of my model for the 21st century newsroom concerning new media business models, I strongly recommend ‘Free! Why $0.00 Is the Future of Business‘, an article by Chris Anderson, author of The Long Tail. Have you not clicked yet? Here are some quotes to persuade you:
“To follow the money, you have to shift from a basic view of a market as a matching of two parties — buyers and sellers — to a broader sense of an ecosystem with many parties, only some of which exchange cash.
“… There are dozens of ways that media companies make money around free content, from selling information about consumers to brand licensing, “value-added” subscriptions, and direct ecommerce (see wired.com/extras for a complete list). Now an entire ecosystem of Web companies is growing up around the same set of models.”
Anderson maps out a ‘Taxonomy of free’ including
‘Freemium’ (what I called the velvet rope model);
Cross-subsidies (buy something get something free);
Zero marginal cost (e.g. giving away music because it costs nothing to produce or distribute)
And he saves his best till last:
“Two of the main scarcity functions of traditional economics — the marginal costs of manufacturing and distribution — are rushing headlong to zip. It’s as if the restaurant suddenly didn’t have to pay any food or labor costs for that lunch.
“Surely economics has something to say about that?
“It does. The word is externalities, a concept that holds that money is not the only scarcity in the world. Chief among the others are your time and respect, two factors that we’ve always known about but have only recently been able to measure properly. The “attention economy” and “reputation economy” are too fuzzy to merit an academic department, but there’s something real at the heart of both. Thanks to Google, we now have a handy way to convert from reputation (PageRank) to attention (traffic) to money (ads). Anything you can consistently convert to cash is a form of currency itself, and Google plays the role of central banker for these new economies.”
The whole thing is a generous taster for his forthcoming book of the same name coming next year (if Long Tail is any guide, expect copious examples to illustrate the same points).
Meanwhile, there’s a wiki on ‘Make Money Around Free Content’ linked from his article which is worth keeping an eye on.