Mike Masnick: The Grand Unified Theory On The Economics Of Free

Once you’ve broken out the components, however, recognizing that the infinite components are what make the scarce components more valuable at no extra cost, you set those free. Not only do you set those free, you have every incentive to create more of them, and encourage more people to get them. You break them into easily accessible bites. You syndicate them. You hand them out. You make them easy to share and embed and distribute and promote. And, yet, all the while, you know exactly what scarce resources those non-scarce goods are tied to, and you’re ready to sell those scarce resources, recognizing that the more people who are consuming the infinite goods, the more valuable your scarce resource is.

So, the simple bulletpoint version:

  • Redefine the market based on the benefits
  • Break the benefits down into scarce and infinite components.
  • Set the infinite components free, syndicate them, make them easy to get — all to increase the value of the scarce components
  • Charge for the scarce components that are tied to infinite components

You can apply this to almost any market (though, in some it’s more complex than others). Since this post is already way too long, we’ll just take an easy example of the recording industry:

  • Redefine the market: The benefit is musical enjoyment
  • Break the benefits down (not a complete list…): Infinite components: the music itself. Scarce components: access to the musicians, concert tickets, merchandise, creation of new songs, CDs, private concerts, backstage passes, time, anyone’s attention, etc. etc. etc.
  • Set the infinite components free: Put them on websites, file sharing networks, BitTorrent, social network sites wherever you can, while promoting the free songs and getting more publicity for the band itself — all of which increases the value for the final step
  • Charge for the scarce components: Concert tickets are more valuable. Access to the band is more valuable. Getting the band to write a special song (sponsorship?) is more valuable. Merchandise is more valuable.

What the band has done in this case is use the infinite good to increase the value of everything else they have to offer. They’ve increased their marketsize by recognizing how they can use the infinite goods as a free promotional resource and made the value of the overall ecosystem around them more valuable.

  • Mike Masnick

http://www.techdirt.com/articles/20070503/012939.shtml

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