Week 7: Response

Chris Anderson divides the economics of cross-subsidies into four types of “free” categories: direct cross-subsidies, the three-party market, Freemium, and nonmonetary markets. While I don’t question the correct classification of these cross-subsidies, I do think Anderson should have addressed that the nonmonetary market is a dependent cross-subsidy while all of the others are independent. By ‘dependent’ versus ‘independent’ I’m referring to the fact a business cannot rely on a nonmonetary cross-subsidy alone. In order to thrive (or even survive) as a business, money must be made at some point. So while a nonmonetary cross-subsidy is a great way to transition into a another type of cross-subsidy (the reputation earned through the nonmonetary market facilitates more profit in another market), it cannot work only by itself.

This is one aspect of Anderson’s argument that didn’t sit well with me, and we discussed this a bit in class. Free is all about driving the margin price down to zero, and how some markets are being completely destroyed (i.e. encyclopedias) and others are soaring (GOOGLE), and Anderson seems to think this is all a good thing. But the more markets become Free, the more people lose their jobs. In all of his economic analysis, like in the description of the cross-subsidies, Anderson tends to skip mentioning how people will make money in this new system, for until our economy is no longer capitalistic (which may not ever happen), people will need money to survive.

21st Century “free” is just like 20th century “free.” Google, for example, gives away a lot of things for free because it makes money on advertising and a few small things that it charges for. This is very similar to the Gillette example:Gillette gave razors away for free but made his money on charging for the razor blades. But the ads that Google sells are possible in part by all of the personal information that Google collects when users surf the web.

If stricter internet privacy laws were enacted, this could change the way Google does “free.” I know I don’t like it when I log into Facebook and there are ads directly targeted at my demographic/what I have written in my profile- it’s creepy. And in some cases it violates privacy. If rules were put into place so that Google could not sell that personal information to advertisers, their version of “free” might change. They might have to start charging for gmail or google docs or other amenities that they offer. Free is all about how the economy is changing, but reader must keep in mind that it very well might change again.