"Commentary"-The Price of Free
Tuesday, August 25, 2009SUSIE GHARIB: Tonight's commentator says when it comes to the web economy, free always costs something. She's Barbara Kahn, dean of the University of Miami school of business administration.
BARBARA KAHN, DEAN, SCHOOL OF BUSINESS ADMIN., UNIV. OF MIAMI: Chris Anderson, author of the new book "Free: The Future of a Radical Price" and others argue that in today's digital age, firms must learn how to be profitable while offering products and services for free. Skype, facebook and many iPhone applications are certainly examples of how consumers are demanding services for which they pay nothing, hence free. But classifying these models as free misses a critical point and understanding this will illuminate where the profit potential is. Our economic system is based on exchange theory, where there are buyers and sellers willing to make an exchange. Anderson's notion of free suggests that only one party is putting something into the exchange and that's not a market. But a closer look at these digital examples reveals that they are not free, they just don't cost money -- yet. Consumers are putting something into the exchange, their time, loyalty or trust. Free television isn't free; it costs your time and attention and that's valuable to advertisers. Facebook users invest their network of friends, which ties them to a system and that is valuable. These so-called free services are proliferating. If consumers don't initially pay money for such services, they must put something valuable into the exchange if profits are to be realized. Creative businesses will design premium products and services that consumers pay for with non- monetary resources, resources that can ultimately be used to garner profits. Bottom line: in business there is no such thing as a free lunch; it just sometimes doesn't cost any money. I'm Barbara Kahn.
