The Promotional Value Of Free

Ramblings

from the understanding-economics dept

People sometimes get confused when I start talking about “free” – which suggests I haven’t done a very good job explaining my position. I do not post stories about the importance of free things (music, WiFi, etc.) because I simply want to be able to consume these things for free. I’m also not saying that anyone should be required to give away these things for free. The point is to understand the basic economics of competition, and to realize that, if the product you’re offering is easily copyable, the pricing pressure is going to make it very difficult for you to keep charging for it. That doesn’t mean that you can’t make money with “free” things. It’s often a very smart business proposition to offer something up for free – most people call it advertising. You just need to understand that anything that is free has extra value in that it’s a promotional item for something else – and the value of that promotion increases when what you’re offering is something people want. A great demonstration of this is this story from WiFi Networking News about an IT services firm that has decided to setup free WiFi systems at a number of local retailers near their offices. They’re doing all the work, and requiring the retailers to make sure that the hotspots remain free. In exchange, they get a ton of free promotional value out of these hotspots. When people log on, they find out that the free hotspot is provided by 3rd Wave and get a quick description of what they do. This certainly makes it difficult for the coffee shop around the corner that wants to charge to make any money off of WiFi. That’s the competitive environment. If your competitive position means you’re going to be competing with free – and can’t offer additional value that makes it worth paying for your offering, you’re in the wrong business – but it doesn’t mean you’re automatically out of business.