7 The Law of Generosity

Follow the free

If services become more valuable the more plentiful they are (Law #2), and if they cost less the better and the more valuable they become (Law #6), then the extension of this logic says that the most valuable things of all should be those that are given away.

Microsoft gives away its Web browser, Internet Explorer. Qualcomm, which produces Eudora, the standard email program, is given away as freeware in order to sell upgraded versions. Some 1 million copies of McAfee’s antivirus software are distributed free each month. And, of course, Sun passed Java out gratis, sending its stock up and launching a mini-industry of Java app developers.

Can you imagine a young executive in the 1940s telling the board that his latest idea is to give away the first 40 million copies of his only product? (It’s what Netscape did 50 years later.) He would not have lasted a New York minute.

But now, giving away the store for free is an applauded, level-headed strategy that banks on the network’s new rules. Because compounding network knowledge inverts prices, the marginal cost of an additional copy (intangible or tangible) is near zero. Because value appreciates in proportion to abundance, a flood of copies increases the value of all the copies. Because the more value the copies accrue, the more desirable they become, the spread of the product becomes self-fulfilling. Once the product’s worth and indispensability is established, the company sells auxiliary services or upgrades, enabling it to continue its generosity and maintaining this marvelous circle.

One could argue that this frightening dynamic works only with software, since the marginal cost of an additional copy is already near zero. That would misread the universality of the inverted price. Made-with-atoms hardware is also following this force when networked. Cellular phones are given away to sell their services. We can expect to see direct-TV dishes – or any object with which the advantages of being plugged in exceed the diminishing cost of replicating the object – given away for the same reasons.

The natural question is how companies are to survive in a world of generosity. Three points will help.

First, think of “free” as a design goal for pricing. There is a drive toward the free – the asymptotic free – that, even if not reached, makes the system behave as if it does. A very small flat rate may have the same effects as flat-out free.

Second, while one product is free, this usually positions other services to be valuable. Thus, Sun gives Java away to help sell servers and Netscape hands out consumer browsers to help sell commercial server software.

Third, and most important, following the free is a way to rehearse a service’s or a good’s eventual fall to free. You structure your business as if the thing that you are creating is free in anticipation of where its price is going. Thus, while Sega game consoles are not free to consumers, they are sold as loss leaders to accelerate their eventual destiny as something that will be given away in a Network Economy.

Another way to view this effect is in terms of attention. The only factor becoming scarce in a world of abundance is human attention. Each human has an absolute limit of only 24 hours per day to provide attention to the millions of innovations and opportunities thrown up by the economy. Giving stuff away garners human attention, or mind share, which then leads to market share.

Following the free also works in the other direction. If one way to increase product value is to make products free, then many things now without cost hide great value. We can anticipate wealth by following the free.

In the Web’s early days, the first indexes to this uncharted territory were written by students and given away. The indexes helped humans focus their attention on a few sites out of thousands and helped draw attention to the sites, so webmasters aided the indexers’ efforts. By being available free, indexes became ubiquitous. Their ubiquity quickly led to explosive stock values for the indexers and enabled other Web services to flourish.

So what is free now that may later lead to extreme value? Where today is generosity preceding wealth? A short list of online candidates would be digesters, guides, cataloguers, FAQs, remote live cameras, Web splashes, and numerous bots. Free for now, each of these will someday have profitable companies built around them. These marginal functions now are not fringe; remember, for instance, that in the industrial age Readers Digest is the world’s most widely read magazine, that TV Guide is more profitable than the three major networks it guides viewers to, and that the Encyclopaedia Britannica began as a compendium of articles by amateurs – not too dissimilar from FAQs.

But the migration from ad hoc use to commercialization cannot be rushed. One of the law of generosity’s corollaries is that value in the Network Economy requires a protocommercial stage. Again, wealth feeds off ubiquity, and ubiquity usually mandates some level of sharing. The early Internet and the early Web sported amazingly robust gift economies; goods and services were swapped, shared generously, or donated outright – actually, this was the sole way to acquire things online. Idealistic as this attitude was, it was the only sane way to launch a commercial economy in the emerging space. The flaw that science fiction ace William Gibson found in the Web – its capacity to waste tremendous amounts of time – was in fact, as Gibson further noted, its saving grace. In a Network Economy, innovations must first be seeded into the inefficiencies of the gift economy to later sprout in the commercial economy’s efficiencies.

It’s a rare (and foolish) software outfit these days that does not introduce its wares into the free economy as a beta version in some fashion. Fifty years ago, the notion of releasing a product unfinished – with the intention that the public would help complete it – would have been considered either cowardly, cheap, or inept. But in the new regime, this precommercial stage is brave, prudent, and vital.

In the Network Economy, follow the free.

Рубрики: | Дата публикации: 12.07.2010

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