The Rise of Freeconomics

That wasn’t a typo. The title is actually a phrase used in this Wired Magazine article discussing the emergence of free as a full-fledged economy.

The focus of the article is, of course, the internet—the great land of the free, in the other sense of the word. It explains that the rapid development in technologies underlying the web and the intense competition between suppliers drive this “free” market for information.

Well, most of us already know that. The more interesting question is, how does it persist?

The internet, the article explains, is not like the traditional market with two players (buyer and seller). Rather, it is a three-party system wherein one party pays to get involved in a market formed by a free exchange between the other two. For example, it’s you and Yahoo, plus the advertisers. You can use Yahoo for free. The advertisers pay Yahoo to give the free service. Yahoo shows you advertisements while you’re in its pages.

Come to think of it, the set-up is not much different from bundling, the traditional marketing trick used to give away “free” stuff. What actually happens in bundling is that the cost of the paid-for product includes some or all of the costs of the free one. In the case of the internet, instead of shifting costs to another product, costs are shifted to another market participant. The result: profits for website owners, maximum exposure to advertisers, and free information for consumers. Everybody happy!