Free Economy

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= that part of the economy, where the goods can be obtained for free


Typology

Chris Anderson:

There are at least three classes of free:


Free as Marketing Gimmick

The first is the use of "free" as a marketing gimmick: "buy one, get one free", "free with purchase", "free phone if you commit to the two-year service plan", etc. All basically cross-subsidies or loss leaders--sooner or later you'll pay. I suspect that there isn't an industry that doesn't use this one way or another. There's no new economic model there and it's totally impossible to quantify, but arguably it touches every bit of the entire consumer economy itself, which is to say trillions of dollars a year. And thus it's a meaningless number. So I'll move on....


Attention Economy

The second form of free is the "three-party market", which is to say the world of advertising-supported free media. That's most radio and broadcast television, most web media, and the proliferation of free print publications, from newspapers to "controlled circulation" magazines. For the top 100 US media firms alone, in 2006 radio and TV (not including cable) advertising revenues were $45 billion.

Online, almost all media companies make their offerings free and ad-supported, as do many non-media companies such as Google, so I'll include the entire online ad market in the "paying for content to be free to consumers" category. That's another $21-$25 billion. Free paper newspapers and magazine are probably a billion more, and there are no doubt some other smaller categories I'm omitting and a lot of independents not included in the numbers above. Let's call the total of offline and online ad-driven content and services $80-$100 billion.


Real Free

Finally, there is what I call "real free". Products and services that don't cost most consumers anything at all, either in cash or ad clutter. (Most of this is online, where the marginal costs are near zero). This includes companies that use the "Freemium" model (where a minority of paying customers support a majority of non-paying customers, as in Flickr and Flickr Pro or the growingworld of online games), all those companies that are in the pre-revenue part of their evolution, and the entire "Gift Economy", from Wikipedia to the blogosphere.


Discussion

Quantifying the "Really Free" economy

Chris Anderson:

"I'll break out some interesting subcategories that do have some numbers attached:

Open source software (service and support around free software):

  • The "Linux ecosystem" (everything from RedHat to IBM's open source consulting business) is around $30 billion today.
  • Other companies built around open source, such as MySQL ($50m annual revenues) and Sugar CRM ($15m), probably add up to less than $1 billion.


Free-to-play videogames:

  • These are mostly online massively multiplayer games, which are free to play but make money by charging the most dedicated gamers for digital assets (upgrades, clothing, new levels, etc). They started in South Korea and China (where they're now a $1 billion business) and have now come to the US, with games like Runescape and NeoPets.
  • The "casual games market" (think everything from online card games to flash games) is now at nearly $3 billion.


Free Music:

  • How much of Apple's iPod $4 billion in annual sales should be credited to the libraries of "free" MP3 that created demand for gigabyte storage devices? How much of MySpace's $65 billion estimated value is due to the free music bands put there? How much of the $2 billion concert business is driven by P2P file sharing?

So what's the bottom line? By a strict definition of free (just the third category), it's pretty easy to get to $50 billion total revenues. Include the next most interesting free market, online ad-driven content and services, and you're around $75 billion. Expand that to the traditional ad-supported media, and you can get to $150 billion. Go worldwide, and you can easily double all those figures." (http://www.longtail.com/the_long_tail/2008/07/how-big-is-the.html)