(Leading discussion/1)Leveraging free (other than ads) – reflection on Free
Before I opened the book, “free”, I think free is a meaningless word because I was assuming that nothing in this world is really free. In other words, Free in most circumstance is a marketing gimmick and method, at best. So, I was wondering what creative perspectives on free the author can give us? Is it going to be another boring marketing book repeating facts most people already know?
I was wrong, mostly. The author, Chris Andersen, clearly has a unique understanding on the issue of free. To explain free thoroughly, Andersen gave multiple meanings to free that free was mainly a marketing gimmick, which was based on the economics of atoms, shifting money from one to another rather than the other business model before the 21st century; and free has a whole new definition in the 21st century that it represents a entirely new economic model based on the economics of bits.
In the first session, Andersen introduces origins of free, and what does free imply in both atoms and bits economics. Also, Andersen gives us four models of free which are common in our daily life.
In the second session, Andersen further explains why free is no longer a marketing gimmick in 21st century. One fundamental reason I found in this book is because of the Moore’s law that a unit of computer processing power halves in price every two years, the price of bandwidth and storage is dropping even faster. Also, Andersen explains how does free represent a new business model which gives corporations chanllenges as well as opportunities. Examples used in this book are Microsoft’s reactions on new entrant Corporation based on free business model and Google’s sucessful free strategies.
As I see, Andersen’s perspectives on free are overall, persuasive and credible. However, he should be more clear in terms of leveraging and quantifying free, other than selling ads which is at the cost of user experience. Leveraging and quantifying free are not easy at all, especially for small to medium scale corporation. I’ve seen many corporations or individuals sucessfully taking advantage of free but still failing to make direct money from it. Companies in the dot-com business, such as facebook and Myspace, they have been sucessfully developing a great cyber community with lots of features, applications and users. However, these great things do not turned out in revenues or cashes. So, they are giving away all the resources they have for reputation which will not directly transfer into cash. So, what should they do?
As I see, there is no business model served as panacea in this case. The best way to do this is to learn from peers. For instance, Tencent is a very sucessful media company in China, not only in terms of their great reputation but also their capability to turn reputation into cash.
The secret lies in micro-transactions. Tencent operates the largest instant-messaging network in China and is one of the largest overall community. Tencent, which includes the QQ IM service, QQ Show (an avatar social network modeled after Korea’s Cyworld), and QQ Pet (virtual pet)—is the No. 21 Web property in the world and the second largest in China after Baidu (the two keep switching the No. 1 and No . 2 spots).
A big reason for the difference in this profitability is that advertising makes up only 13 percent of its revenues. The rest are in micro-transactions for digital goods, online games, and other services that Web surfers gladly pay for, as well as mobile services. Here is how Tencent’s revenues break down:
Internet services (digital goods, games, micro-transactions): $344 million (66%)
Mobile services: $110 million (21%)
Online ads: $67 million (13%)
Total Revenues: $523 million
All in all, free is definitely a new business model, other than solely marketing method, in the 21st century. However, with all these free tools, we still need to figure out sucessful ways to turn all these free “stuff” into real cash because free doesn’t automatically do that for you.