The Limits to FreeConomics

1. The Limits to FreeConomics Alan Patrick Web 2.0 Expo Berlin

3. Today What is true – Metcalfe’s / Reed’s Law Aggregation Distribution Creation Customer Environment Archive Material Data Availability Bandwidth People

4. Today What is true – Moore’s Law / Learning Curves Aggregation Distribution Creation Customer Environment Creation Costs Archive Material Data Availability Bandwidth People Search & Aggregation Cost Hosting & Distribution Cost Equipment Costs

6. Today Free fails due to transaction costs Volume of Business Time - Every new node has transaction costs, and they also follow Metcalfe’s law - Transaction Cost losses are eventually unaffordable via capital funding - Requires income..…usually fast FAIL! P f P 0

7. Today The Hope…… Seedcamp 2008 Business Models via Wordle.net (Courtesy Guardian)

9. Today Paddle, sir ? Credit: Funnypix

10. Today The game theory of “Free” Price Demand P £ D £

11. Today The game theory of “Free” Zero Price Infinite Demand P £ P f D £ D f

12. Today But if everyone else dives to the bottom too ? Thanks to http://threeriversfishing.blogspot.com/2007/05/everybodys-doing-it.html

13. Today The liferaft game Price Demand P £ P f D £ D f Your Increased Share Everyone else’s little increased shares

14. Today Spending a fortune for users who pay nothing Zero Price Finite Demand P £ P f D £ D f Your spend to keep Your Share Everyone else’s spend to keep Their Shares

15. Today Deja View media.ebaumsworld.com/.../ShitCreek.png

16. Today The 4 FreeConomic Myths Aggregation Distribution Creation Customer Environment UnmeteredHosting & Distribution Open, Free Services SustainableFree content Others will give you stuff for free - forever

17. Aggregator Today A bit of theory – standard supply chain Buyer Goods Pay Creation Goods Pay

18. Aggregator Today A two sided market Buyer Goods Pay Supplier Goods Pay Pay

19. Aggregator Today Free Content Forever – a UGC market End User Goods Content Creator Goods Fund No Pay

20. Today “ Digital Sharecropping” ?

21. Aggregator Today A multi sided market Buyer Goods Supplier Goods Fund Advertise Pay No Pay

22. Today An example Video Video Pay Ads Create

23. Today An example - Act 2 Video Video Pay 4 % Sue Sue Goods

24. Aggregator Today “ Offset” Economics User Goods Supplier Goods Fund? ? Pay No Pay

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26. Today What is your Net Present Value? Cumulative Income Money Time NPV of Cumulative Income

27. Data may be free, but its everywhere in chains

28. Today Those who pay the pipers choose the tune

29. Today Bandwidth too cheap to meter? Volumes Payment £ >> 0 Capacity 1 D £ D free Time Demand Capacity 2

30. Today Or The End for Aggregators on a Cheap Ride? All utilities become metered at some point, typically when capital replacement costs become an issue

31. Today The User Shall Not Pay ? Cost of Media Production favours Cr*p in Free market Poor Quality drives out Good Quality from Market Quality customers - then advertisers - exit market 500 Channelz… … .an nuffinz on Cr*p Quality

32. Today Gamechange ?

33. Today Companies under risk (1) – acquisition costs Many Players, Sticky Unique, Sticky (The Sweet Spot) Many Players, Not Compelling Unique, Not Compelling Churn / Lifecycle of customers Competition for customers Marketing Cost Community Retention Cost

34. Today Companies under risk (2) – distribution costs Video Text Video Social Net Social Nets Complexity Bandwidth & Hosting Transport Costs Community Care cost

35. Today Companies under risk (3) – no added value Entertain Dead Sheep What you really, really want Enterprise Productivity Quality Quality Costs Reliability Costs

36. Today FTW?

37. Today Safe Harbour?

38. Today “ Near Freeconomic” models (1) Razr & Blade

39. Today “ Near Freeconomic” models (2) - Freemium

40. Today Pay per Poke

41. Today Make it easy to advertise…. ABC Today Don’t Worry, Be Happy TV Lessons Predictability CPM / CPC Quality Content Good Metrics

42. Today … .pay to have Ads removed ? A recent IBM study found that the TiVo generation is officially online, with 11% of respondents happy to pay ' a little' to remove all advertising from videos. Consider the numbers: Google-owned YouTube pulls in something like 50m unique users a month; let's assume it can charge 'a little', a couple of dollars a month maybe - let's round it up to $24.99 a year for a 'premium user' service. Now let's assume that 11% of users sign up. That's a revenue stream worth $137m annually... Source: eMarketer (http://www.e-consultancy.com/news-blog/364572/one-in-10-will-pay-to-remove-youtube-ads.html)

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