Why ‘Choice Under Scarcity’ is Replaced by Free as the Future of Business

The problem today is that industries still work under the old traditional economic idea of ‘choice under scarcity‘. When there is a limited amount it gets expensive. We have to choose where to spend our resources (money).

The part that has changed, compared to earlier, is that information no longer is limited in this digital age. We have an abundance of information. Now we have to choose where to spend our resources (attention). One of the ways of reaching peoples attention is using Word of Mouth (WOM), a specific message that is accessible and spread by users.

The cost of copying digital information is reaching zero and we are moving towards externalities and alternative economies. New technology’s deflationary force is nothing new but the speed at which this is happening causes a problem for companies trying to adjust to this new economy.  Unfortunately this fast shift has made a lot of companies try and keep the obsolete economy of ‘choice under scarcity’ by limiting the access to information and thereby causing a shortage. This limiting has mainly been done by lobbying and creating laws to protect their outdated business strategies. We are moving away from traditional economies and towards an attention economy despite the friction caused by some companies.

This new economy benefits from Word of Mouth spreading. Compared to spam the reaching out of information by WOM becomes personal and thereby receives attention. The value is increased by sharing the product and a big mass normally amplifies the effect and usability of the product.

Free is the future of business. A few examples of this employed as business strategies could be giving away free razors (to sell disposable blades), free cell-phones (with a monthly plan), free programs (with an upgrade option) to name a few.

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Business models of the ‘free’ economy:

  • Freemium
    Giving away basic model for free. People paying for premium normally pays for other 99% of people
  • Advertising
    Free in exchange for some of your attention
  • Cross-Subsidies
    Free product that will get you to buy other products
  • Zero Marginal Cost
    No appreciable cost to anyone
  • Labor Exchange
    Free in exchange for work. E.g. answer questions
  • Gift Economy
    Free for everyone, money not only motivator.

sources:
Free! Why $0.00 is the future of business
The importance of viral marketing

 

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Josef Ohlsson Collentine

A transparent and kind American/Swede who likes cultural patterns and Social Media. A creative early-adopter who sports, discusses and explores. More about me
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