Making money with free stuff (internet economics in a nutshell)

Credit: kalandrakas

Credit: kalandrakas

If you spend enough time online, you’ve probably noticed the pervasiveness of “free.” Free downloads, free e-books, free videos. Not to mention free blogs (like this one), news articles, radio stations—if it’s digital, you can probably find it, legally or otherwise, at no cost.

It’s a particularly important phenomenon if you do any online marketing. Free is an irresistable price. So if you find a need and satisfy it with free, it’s like tearing a hole in a bag of gold coins; with a bit of awareness, the traffic flows.

But traffic, as you know, isn’t revenue. Worse, it can cost you money (your time is expensive, or should be). So what role does free play in the online economy, and what role should it play in your internet marketing?

A few weeks ago, I read the excellent (and highly recommended) Free by Wired editor and long-tail explicator Chris Anderson. A thorough and detailed review of the emerging “freeconomy,” and how to make money within it, the book provides a simple conceptual economic model that can help you understand free offers and use them to build paid business.

It goes something like this: for every abundance, there is a corresponding scarcity. Online, an abundance of information has produced a corresponding scarcity of time and attention. That time and attention gets apportioned according to reputation. The greater your reputation, the more attention you can command, because web browsers use reputation as a way to determine where to direct attention.

So a key goal in internet marketing is to enhance your reputation to attract attention that you can monetize. Google facilitates the process by acting, as Anderson says, as the internet’s “central bank,” apportioning scarce attention (search results) according to reputation (page rank).

So where does “free” come in? Providing free, high-value digital bits (organized as audio, video, text or any other format) is a way to create reputation and attract attention. The further you “move the free line” (footnote to Eben Pagan for that phrase) by providing more value for nothing, the greater the reputation and attention you can receive.

In summary: free can help you get a reputation, your reputation can help you get attention, and the attention is what, depending on your business, you monetize. I’ll leave the business models for another day, but as Anderson points out, you might not need one to start out. After all, server space is also virtually free these days, so it doesn’t hurt to experiment.

Note: I originally posted this from my iPhone while riding a bus. Links and more to come, and please forgive any typos.

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