“Facebook gave me the opportunity to do
things literally for free” – Nook Flowers
We use Google,
LinkedIn and perhaps NationBuilder. They
are all information-based businesses and depend on user-generated content
through crowdsourcing, an internet technique.
If Henry Ford’s moving assembly lines created the modern factory and
increasing productivity 10 times, crowdsourcing is the equivalent, creating an
information age factory, using data as raw material, culled from us consumers
as factory hands and manufacturing informational, quasi-informational and
information-linked products increasing productivity more. Since most crowdsourced content is free,
‘free’ now has value. The largest new
companies, Facebook, Baidu are based on this business model. In time, crowdsourcing will be recognised as
equal with Ford’s invention, as impactful.
It will be one of the most significant tools of the information age.
Online, most
content and consumer services are free. Yes
even HBO’s Game of Thrones, the most pirated
show in television and
no matter what
lawmakers say! Anything that
can be datarised over the internet will be similarly affected. The next post will explain datarisation,
briefly it is how content is made into data packets before being transported
around the internet. When datarised,
content becomes either free or drops in value.
Photo albums online are free as are road maps. One day, all paid software will go the way of
the dodo. Material goods cannot be free
but costs are reduced. You can buy
cheaper books and hotel rooms online.
These have to do with how things work in an internet economy.
As an aside, will movies ever be free? No says conventional wisdom. Plausible says the internet. If you ask anyone walking on the street 20
years ago if telephone calls will ever be free, conventional wisdom then will
say no. Then it was unthinkable. A lot of free calls are being made now and
this trend is increasing (the next post on the impact of the internet on the
telco industry makes a case that it is only a matter of time before all calls
become free and within 10 to 20 years). The
internet economy changes values. Of
course teenagers have been feasting on ‘free’ movies through the internet for
yonks. But this is not conventional, not
yet! This is not the place to discuss
this topic but I intend to ponder this question in a future blog by applying ‘internet
rules’. Off the top of my head now, I’ll
say no but it’ll be very much cheaper.
How did ‘free’
become a business model?
‘Free’, hardly unique in its use for
business (until the web, used only sparingly) is today a key business driver
for the iconic online companies. Free
search (Google), free news (Yahoo), free email, free sms have made billions for
these innovative companies. There must
be something with ‘free’.
A short history
on ‘free’. Commercially, the first to
catch the eye was Netscape, offering their browser free before their IPO. This IPO also set off the dot.com boom. But of course, the internet service providers
(ISP) were already using free software for their operations. There were already free content (newsgroups),
free services before the Netscape IPO. The
culture of free was already firming below the iceberg. ‘Free’ started almost as soon as the internet
became. Newsgroups appeared
quickly. They are discussion groups
displacing the electronic bulletin boards popular in the 1980’s. From these newsgroups, you can get advice by
posting questions and more. This was how
the technical team at Technet, the first ISP in Singapore built new services
when expertise on the internet was almost non-existent in the region then. I was pleased with the free consultancy and was
amazed at the quality. Then in IT, as is
now, you pay for services or consultancy which is often disappointing. ‘Free’ continued with the early search
‘gopher’ to ‘wais’ to email. Later many
did not want to pay for music and thus the invention of peer-to-peer music
sites, much maligned but may proof to be inspirational in future. Free video came along with YouTube and the
list goes on. The business of ‘free’ was
forming.
How does ‘free’
create value? Nothing is really
free. The services are provided gratis
in return for data.
Crowdsourcing
induces consumers to do things, out of their free will mostly with no
expectation of remuneration (but gives them social value). A service is rendered in the process and
through this, value is created.
LinkedIn’s data is crowdsourced as we supply its plant merely by posting
our details and making pronouncements.
The data is ‘mined’ and refined into nuggets of informational products
or services. Most web 2.0 companies
utilise crowdsourcing in one form or another.
It works because we get something in return. Will you stop using social media or email? This is an age where society (and websites)
compels people to do things that are useful without being paid for it. Society does derive value from it, just that
they are not necessarily monetary.
Open Platform as
the term implies is a mode of an organisation to openly allow outside access to
its content. It deliberately taps into
crowds of consumers, partners and customers.
The Guardian newspaper in Britain allows access to their articles and
applications. They organise their data,
build engagement platform, make tools available to access the data and provide
training. By providing basic data, they
get enhanced data back; processed information, different interpretation of
data, enhancing the newspaper without spending much. Like money generating more money, the Open Platform
begets more data from data, from which you monetise. The model that works in the old world, of
closely guarding its property, is changing as power shifts to the consumers.
Other value
creating models include open source, co-creation and web services.
All these
methods are generated mostly from human behaviour, of us being social creatures
sharing, conversing, showing off, being busybodies, being community spirited
and transferring these activities online.
They are all greased in part by the open culture of the internet which provokes
a sense of freedom to do things. Or
simply to be entertained, anytime (unless you are working), in anonymity or
authenticated that is so liberating, fuelling creativity, a high value
activity. Clever websites then induces
you to do more. Volunteerism was the
bedrock during the formative years of the internet, now this culture pervades
the online consumers. The internet (and the
clever websites) makes it very simple to do so.
This convenience factor made taking part a cinch even for couch
potatoes. It is also enabled by what I
call the 0.001% effect. You only need a very
small percentage of the like minded from the massive number of internet users
to kick it off. Even crazy ideas can
have an interest group!. Natural
selection does its part. Then the
networking effect takes over, accelerating content build. From this, value is extracted via data mining
and orchestrating the data to attract viewers (portals), users (social games),
subscribers (media), consumers (eBay), find things (search).
Another way to
look at the value-of-free is the monetisation of unwanted or excess things like
personal belongings (eBay), spare rooms (AirBrb), unused resources (yet2.com
find buyers for underutilised patents).
Yet another example is un-information, that is, information that has
value if it can be found. InnoCentive
and Eureka Medical locates expertise.
MMC identifies music talents.
Finally, the
‘free’ model has variations. Wikipedia
is an example of unconditional free while others do so with monetisation
plans. Both provide value. In between, open source software is free but
with a commercial model around it.
Physical
products cannot be free but prices of many goods have been reduced. How did this happen? The traditional trading
system relies on layers of middlemen to make goods or services available for
the populace. Each layer adds a cost.
The direct model of the internet reduces the layers, lowering the final
consumer price. Ultimately it is the
easy availability of information (farmers in rural India for example now know market
prices when previously the layers of middlemen hid it from them), ease of
connectivity (and low cost) enabled by the internet say for product producers
to talk to buyers, and the speed of relaying information.
It is interesting to compare the differing B2C (online retailers) model
between Amazon.com and Alibaba.com (Taobao division) to lower prices. The business model of both reduces the number
of layers of middlemen and decreases the number of them. Amazon owns warehouses
(thus higher costs) and forces suppliers to sell at lower margins and thus
works more like a traditional trader, buying, stocking, resell. Most of the suppliers are the original
product producers though some products are from middlemen. Alibaba.com uses a direct seller-buyer model
ie. Alibaba.com does not take a cut from the products sold unlike Amazon.com. Instead Alibaba.com uses a subscription model,
having the suppliers pay an annual fixed fee.
The buyer buys directly from the sellers and although some of them may
be middlemen, this model reduces them, continuously over time. Alibaba.com in fact adheres to the direct
model of the internet. Amazon.com’s is a
variation acting as one giant online middleman.
Both are direct (or to be more exact - more direct than the past) in
that the number of layers are reduced. Both
forces prices down. For central bankers,
this direct model as it takes hold will reduce inflation.
In the
industrial age, factories produced the most value for the global economy. Crowdsourcing will be a contender in the
information age but unlike factories, crowdsourcing does not create value
directly. One cannot sell crowdsourced
data. The internet business models
create value from this raw data indirectly.
Because we are in the early stage of the new age, industries must be
transformed. Businesses with goods that
can be data-rised will be most affected.
This includes telco (subject of the next post), media and software
industries. The value-of-free will be
used by the others to remain competitive in an internet-enabled economy.
Ultimately, the
internet economy brings out new values.
‘Free’, one of them is now significant.
Now, would any
business not too long ago give us anything for free as Nook Flowers at present enjoy?
See who else is using 'free...http://internetbusinessmodelasia.blogspot.com/2014/03/the-value-of-free-companies-using-free.html
LinkedIn – dr tommi
chen (goggle + profile incompleted)
©Chen Thet Ngian, InternetBusinessModelAsia.blogspot.com
(2012, 2013). Unauthorized use and/or
duplication of this material without express and written permission from this
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