Chris Anderson’s at Wired discusses where, why and how free products make sense today and will make make even more sense (and cents) in the future. Starting with the story of Gillette and bringing us to the plummeting cost of computing and networking, Anderson argues that the traditional cross-subsidy model is not required when incremental costs approach zero. This opens the way for numerous value creation models when a product is given away and allows companies to avoid the “penny gap” or the difference between cheap and free as coined by Josh Kopelman.
“People think demand is elastic and that volume falls in a straight line as price rises, but the truth is that zero is one market and any other price is another. In many cases, that’s the difference between a great market and none at all.
“The huge psychological gap between “almost zero” and “zero” is why micropayments failed. It’s why Google doesn’t show up on your credit card. It’s why modern Web companies don’t charge their users anything. And it’s why Yahoo gives away disk drive space. The question of infinite storage was not if but when. The winners made their stuff free first.”