Free is the way of the internet.
Google, Pandora, Digg, and Facebook to offer their products to hundreds of millions of people without charging anything. The marginal costs of adding your millionth user and your twenty millionth user are roughly zero. That is because bandwidth, storage, and processing power are cheap, and they get cheaper every year.
Free is no longer a marketing gimmick, but a necessity for most online businesses.
When you get into the mindset of a consumer, cheap and free are completely different from one another. If Google had decided long ago to charge a single dollar for their services, consumers would have found somewhere else to search the web, manage their email, or read the news.
The old way to look at a market was to examine how supply of a product and demand for a product would change as the price shifted. Today, free has become an economy of its own as the marginal cost of doing business online has nearly reached zero.
When you charge the online consumer anything at all you move into an entirely different market with far fewer customers.
In the free economy, attention and reputation are what matters.
The goal is to build your reputation in hopes of earning more attention. Consumers have millions of choices to make when they decide where to spend their attention online. A company’s reputation dictates how consumers choose whether to spend time on Site A or Site B.
“There is, presumably, a limited supply of reputation and attention in the world at any point in time. These are the new scarcities — and the world of free exists mostly to acquire these valuable assets… Free shifts the economy from a focus on only that which can be quantified in dollars and cents to a more realistic accounting of all the things we truly value today.” - Chris Anderson – Wired.com
The good news: your reputation is not beyond your control.
A huge part of your business should be focused on social media campaigns and word of mouth strategies that maintain and build upon your reputation. The idea is to first create the buzz then sell the crazy fans your $100 vinyl album or your exclusive product features. Let 10% of your fanatical fans support your business and use the other 90% to spread your message.
You may have a great product, but it doesn’t mean anything until you build the kind of reputation that will make consumers want to try it.
“Make your record cheaply (but great) and GIVE IT AWAY. As an artist you want as many people as possible to hear your work. Word of mouth is the only true marketing that matters.” - Trent Reznor in a post on a NIN forum
For more information, read Chris Anderson’s article: “Free! Why $0.00 Is the Future of Business,” on Wired.com.