THERE IS NOTHING WRONG HERE

If you have not read Chris Anderson’s article in Wired titled “Why $0.00 is the Future of Business” you should. His article helped me understand why so many Web 2.0 applications seem to be free. I understand how Google makes money, but how is WordPress and Edublogs, which I am using right now, making any money? Chris has broken this economic model down to six categories. Anderson’s thesis is that because the actual cost of transistors (0.000001 cents for each in Intel’s quad-core), storage (off the self terabite for $300, or 0.0000000003 cents/bite), and an over stock of fiber optics makes these cheap enough not to figure into the cost of producing applications or content. I rewateched Anderson’s TED talk in 2004 where he introduced the idea of the long tail, which I did not really understand untill now.

1. Freemium - the subscription model for web software and services. A “basic” version of a service or software is offered and the 99% who get this version is supported by the 1% who purchase the “pro” version. I am using a free older version of Camtais, the company is betting that some of use will want to upgrade and purchase the newest version.
2. Advertising - one of the oldest means of generating revenue. The most famous is Googles pay-per-click ads, and there are all the banner ads and pop-ups. With digital technology, companies can gather data that allows them to more directly target an audience and thereby spend money more wisely.
3. Cross-Subsidies - this is the loss leader mode. Buy one get one free. Make up in volume what you loose on the cost of promotion. Some musicians are now allowing fans to down load free music as publicity for a concert tour, or grow a fan base who will purchase future CD’s.
4. Zero Marginal Cost - when information distribution cost is so low that the economics of scale make it virtually free. People have been have been downloading music for free dispite the best efforts of the music industry. Some musicians have accepted the fact and are now giving away music to tap into the model above, Cross-Subsidies. E-books, articles, magazines publishing costs are approaching zero and digital makes it even easier to share.
5. Labor Exchange - you help me I help you. Google is giving away $144 million in 411 services to build a data base that they figure will be worth $2.5 billion by 2012. By using their service now you are helping them build that database. Digg and Amazon have rating services create value by either improving services or creating information they can sell.
6. Gift Economy - making money is not the motivation for all web content generators. The open source movement is interested in building well designed applications and seeing other use them. Wikipedia uses labor exchange, you add content and get to see your work used by other. Freecycle is like a giant yard sale, except no money is exchanged. The value is in trading ideas and goods.