Innovator’s dilemmas: revenue vs. value (3)
“The new model is based not on cross-subsidies- the shifting of costs from one product to another- but on the fact that the cost of products themselves is falling fast (…) You know this freaky land of free as the Web. “
“The Web is all about scale, finding ways to attract the most users for centralized resources, spreading those costs over larger and larger audiences as technology gets more and more capable (…) bringing the marginal costs of technology in the units that we individuals consume closer to zero.”
“Why $0.00 is the future of business” by Chris Anderson on Wired’s March 2008 issue
Related posts:
- Innovator’s dilemmas: revenue vs. value (1), November 29, 2007
- Innovator’s dilemmas: revenue vs. value (2), November 28, 2007
Generally speaking, giving away products and services for free without getting anything in exchange would be the goal of a non-for-profit organization, being able to receive donations and to apply for tax exemptions. Some open source teams have adopted this model.
Commercial (for profit) enterprises have traditionally leveraged freebies and special offers to displace competitors, to introduce their products, to spread usage and induce new purchasing habits (e.g. upgrades), to cross-sell and up-sell related revenue generating products (and services) as well as managing a product’s end of shelf life and the cost of carrying inventory. Funding services by means of advertising revenue is also a well known model, specially among entertainment and news organizations.
So, if this “$0.00 model” is not really a new business practice, why is it being perceived as new and revolutionary? My take is that in the late 90s most investors and entrepreneurs struggled with figuring out the business cases for start-ups in so-called new economy. I highly recommend watching Startup.com as a clear example.
With the turn of the century, we have seen the web’s innovation engine doing both: creating new wealth and tapping into the migration of value from hardware to software, and from software to online services. Some online search and social networking services have managed to capture large audiences by providing a differentiated service without charging users any fees, while conducting data mining and analytics.
This means better tools for advertisers to get their message across with higher success rates. Additionally, when dealing with an end to end digital value chain, data can be made available to better understand cause and effect relationships and chain reactions, as well as spotting early trends to update the online storefront on the spot.
Now, what’s probably revolutionary about all of these is that companies which have traditionally relied and make a good living based on other business models are now seriously considering shifting gears.
| J. de Francisco |  |
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| Chicago, 4 March 08 |  |
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