The very first thing we need to do is distinguish between infinite and free. A lot of times in these kinds of discussions people use the 2 interchangeably. That’s not quite correct to do so and often leads to confusion.

Let’s define an infinite good. An infinite good is something that can be reproduced endlessly. Once it is created, it does not need any new inputs, resources, etc. The second property of an infinite good is that as many people that want it can have it. Both of us possessing the same infinite good allows up both to benefit from owning it and doesn’t detract from the others use of it.

Here’s an example of an infinite good. Before there was any electricity or computers or digital anything, there were infinite goods. Music is such a good. Once a song is created it can be reproduced endlessly with no new effort on the part of the creator. It can also be enjoyed by as many people as want it. When you learn a song you can sing it yourself. You singing it or sharing it does not prevent anyone else from singing or sharing it. Music is a good that does not take any more inputs to copy and allows as many people as want it to have it.

Before we tangent into incentives to create music or other infinite goods, lets save that for later in the discussion.

We need to take a slight tangent here to address the subject of zero. When it was first implemented throughout the world, it created a lot of confusion. It took societies ages to even recognize the number zero, it was considered heretical in some areas for a while. Zero caused all sorts of problems in that it didn’t work like other numbers. It isn’t a number. It’s the absence of a number, and that screws up a lot of things. For thousands of years, it held back progress. You can’t have advanced math or physics without an understanding of zero — and the difficulty in accepting it was a real problem. Of course, for all of us who learned about zero in elementary school, this seems laughable. How could zero be such a difficult concept to understand? Except, as I read the book, it occurred to me that it’s the exact same problem that was causing this breakdown in the discussion. It’s incredibly easy to misunderstand zero in economics. That’s because economics, we’re often taught, is the “science of scarcity” or understanding resource allocation in the presence of scarcity. All too often, economics itself is defined by scarcity. The “zero” changes all of that. Plugging a zero into an equation that expects a non-zero sends it haywire (think of what happens when you divide by zero) — and that leads people to think that the equation must be broken. So, for example, basic economics tells you that a free market will push prices towards their marginal costs. If their marginal costs are zero (as is the case with digital goods and intellectual property), then it says that price will get pushed towards zero. However, this makes people upset, and makes them suggest the model is broken when a zero is applied. They see a result where there is no scarcity, and it doesn’t make sense to them since they’ve always understood economics in the context of scarcity.

Because the cost of infinite goods is being driven toward zero it is disrupting several economic models. It is also creating several new and ultimately more profitable models. Economic models are configured in several different ways. Some economic models are designed to output a tangible good such as furniture, cars, etc. Other economic models are designed to output intangible goods such as music, software, etc. These intangible goods are also infinite goods. When you plug a zero into these economic models, things change radically. If you are producing a good that had an infinite good as an output such as music, software, etc. you are finding that all the money, time and resources you are spending is now returning zero. That is a broken economic model. That model has been disrupted.

So what should someone with such an economic model do? If they realize that an infinite good is driving toward zero it makes a great input for other products and services. Several economic models are being built with infinite goods as an input. Specifically for businesses built with music as an input like Harmonix, they are not in the ‘music business’. They are not trying to use music as an output and sell it. Rather they are using it as in input that adds value to other things they can sell. Specifically for Harmonix, they are selling a customized experience. They are using an infinite good music and another infinite good, their software, to create a scare good – the experience. They are also using the same infinite goods to add value to the peripherals they are selling. The peripherals are near worthless on their own, but when they are coupled with the infinite goods of music & software as well as the scare good of the experience, they too become valuable and people are willing to pay for them.

Harmonix is also selling music as tracks for their software. They are able to sell music at a premium because they have bundled it with their other infinite good, the software. Record labels are having trouble commanding the same premium because they are selling music as a stand-alone output. Harmonix is giving people additional value for the music they purchase.

So now lets get down to the issue of t-shirts and what Harmonix is doing with them. At no time has it been said that creating, printing or delivering the t-shirts is free. What has been said is that these particular t-shirts have an additional input in them beyond the cloth, sewing, printing & delivery. They have a connection to the custom experience that Harmonix has built. T-shirts on their own have a specific value determined by the market. Usually you can pick up several t-shirts for a few bucks. You could even find a way to print your own logo on them. There is however a cost to doing so. Time and resources. You must find all the resources necessary, printing tools, imaging software, in order to produce the t-shirt. You must also spend the time to create the output – a tshirt with your Rock Band logo on it. Harmonix is able to sell their t-shirts at a premium because of 2 things. They have already gathered the resources necessary to produce the scarce tangible good, in this case a t-shirt. That is the same for any business model. The 2nd they have is the connection to their custom experience. Those willing to pay $24.99 for a t-shirt with their custom logo on it feel that Harmonix has provided sufficient value to justify the price they will pay.

And now to reply to some of your quotes specifically:

“I could understand the blog IF Rock Band was free or the keychains, tshirts, etc. were free, but clearly this is a case of opening a brand new business market.”
You are entirely correct in your understanding of what is happening. Harmonix IS opening a brand new business market by selling key chains, t-shirts, etc. What is being pointed out is that this new business market is available to Harmonix because of their use of infinite goods. An economic model that uses infinite goods follows the same rules that other economic models follow. One of the major points in understand infinite goods is that they tend to open up multiple new markets and that incumbents should move to capture those new markets before they are disrupted by new entrants.

“In regard to Rock Band, they’re making profits on these TShirts, etc., so why doesn’t the cost of the game come down for new releases? (Not the price drop often seen later)”
Economic models vary. Introducing infinite goods does not change this. In Harmonix’s case, they are using infinite goods, the free part, as an input. Their business model currently doesn’t contemplate offering any outputs for free. Right now they are offering sufficient value to justify both the price of their software & peripherals as well as t-shirts. Lets look at some tangible goods for hypothetical examples. If there is a 2 star hotel offered and a 4 star hotel offered at the same price, most people would choose the 4 star hotel because it offers the better value at that particular price. Harmonix, and other companies that use infinite goods as an input have the ability to add more and more of the infinite good to their offerings of scare goods and increase the value of those scare goods. This will allow them to either command a premium price, like the t-shirts or better justify their current price.

“Mike specifically stated this was a jab at those who “mocked” him during his discussions of freeconomics, which is totally outside the scope of this particular blog regarding tshirts.”
Mike was pointing out the irony of the situation. Mike had early on used t-shirts as an example of a scare good that could be made more valuable by being bundled with an infinite good such as music. He was mocked by people claiming that all businesses that were being disrupted by infinite goods couldn’t rely only on t-shirts. They said that these companies would have to sell ‘lots of t-shirts’. Mike and others have gone on to show numerous examples of how infinite goods work inside the economic models people already accept. When this article was posted, showing that Harmonix was in fact selling t-shirts much the way others had mocked earlier, Mike found it ironic that Harmonix was doing what others had said couldn’t be done. Specifically make money selling t-shirts. Mike pointed out that it was also ironic because Harmonix’s business is not dependant on selling t-shirts. Rather, the t-shirts are an additional revenue stream. Mike made a joke saying that Harmonix better sell ‘lots of t-shirts’ in order to stay in business. That was his jab.

“In regard to the career fair offerings (or any other public outing), “swag” is advertising and its sole purpose is to get you to look. That’s a given. But the swag isn’t free (my original debate). Sure, you could take the swag, walk away, and never look back and you can claim it’s free, but ask the consumers if they enjoy paying for your free swag with overpriced goods.”
I like the way you put it: “get you to look”. Attention is a very, very valuable scare good in our day and age. Giving away swag to get attention is exactly what they’re doing. In this particular model, there is a cost involved in giving away tangible goods for free. What happens when you introduce a zero into that model by replacing the tangible goods with infinite goods? Now you can give away as much as you want and little to no cost. Your input is infinite goods which can be free and your output is attention which is very valuable. There are several companies that are now figuring this out.

“The consumers of the company has paid for that swag, so enjoy it for “free”. You’ll be paying for someone’s free swag in the future.”
You are entirely correct. You will be paying for someone’s free swag in the future. The point is to realize that this is not a problem. It is something to be embraced and capitalized on. Mike has gone over numerous examples of this on previous posts. I will give you won more. I recently attend the Texas Renaissance Festival. One of the acts that perform there is 2 singers called Iris & Rose. Before we were married, my wife had been a fan of them for years. She purchased all 6 of their CDs. While we were dating and through our marriage, I’ve been introduced to their music by my wife and become a huge fan. In this case because my wife already paid for all of their music and “shared” it with me, I will never purchase any of their products simply because I acquired them all when my wife shared with me. They will probably never make a dime off me directly. However, during this trip the to the Texas Renaissance Fair we go and attend all their shows. We’re big fans. These shows are free. They make their money selling CDs and are paid a fee by the fair for their performances. So there I was watching the performance with several other people who had obviously never seen or heard them before. I was really into the show. I was singing along to all the music and since it was a live show, responding to what was happening onstage at the appropriate times for an audience response. I noticed that because I was so into it that it rubbed off on several of the people around me and they got into it as well. They were really enjoying themselves. When Iris & Rose announced that they had CDs for sale, these same people that I had just influenced immediately whipped out their wallets to purchase the CDs. Several of them purchased multiple CDs. I was not the only cause for their CD purchase, but my being a fan and having fun increased the value of the CDs to those that purchased them. Specifically they were able to experience Iris & Roses music and see it’s effect. I have never paid a cent for any of Iris & Roses music, but they will profit from my continued attendance at all their shows. Now imagine that since it cost them nothing to promote themselves to me and if there were millions of people like me, how much more valuable would the music be to those who wanted to acquire it?

“Think about this: Take the number of McDonald’s commercials you see every day and multiply by $250,000 (the average cost of a 30 second commercial). Now, assume this commercial runs 7 days a week, 365 days a year. Sum it up. Now price a filet-o-fish sandwich. The ad to you was free, but to those buying a fish sandwich, that’s a pricey “free” product. Imagine, now, what the price of that sandwich would be if McDonald’s quit running ads altogether, especially given they’re one of the most recognized business on the globe.”
You make your point correctly. Given the parameters you pointed out they would have the effect that you observed. The massive expense in this case is the advertising. McDonald’s is paying for ad agencies time & expertise as well as paying for air time all over world. What would happen if because of infinite goods, McDonald’s could have all of their advertising without having to pay for it. There are numerous examples on TechDirt of advertising and content being the same thing and engaging your customers to help create that advertising as well as help distribute. You correctly identified that right now advertising is a huge cost center for McDonald’s. Their future use of infinite goods could change that.

“Same concept. The cost is just different.”
Correct. correct. correct. None of the concepts change. Just the way business have to approach them does. Things like supply and demand are still in effect. The question is what happens when the supply becomes infinite?

If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.