What’s the price of free?
The internet has given rise to a plethora of sophisticated and addictive free options. But it comes at a cost. Even Facebook.
The Spanish tapas are by now a global gastronomic phenomenon that can be enjoyed in California and Kuala Lumpur. But back home the ‘social snack’ is very often served for free every time you buy a beer — a tasty form of ‘content marketing’.
In other words: It is not really free. It’s marketing, customer retention and often an excuse to raise the price of your beer.
Those are the market forces of capitalism and not happy hour. And in every business there must be a transaction of some kind of value. Facebook, Twitter, Google, Apple, Snapchat and all free news media and so on are no different than tapas.
Free is not the actual price, but a way to catch you off guard. Rest assure payment will fall somewhere else. But when the price is zero, it is a completely different market than if the price was 25 cents.
Enter the invisible third party. Without much disturbance you will have a secret new party involved in the transaction. The middle man of the digital ménage à trois is moving the cash register out of your view. You don’t know him. But he knows everything about you. Or more to the point your data.
In effect this mean that you are not the customer. You are the product in a highly lucrative business.
The product is the information we voluntarily tamper into one service after another for the enrichment of endless databases — better known as big data.
It is complicated terrain for doing business even for Facebook and the other big corporations but it seems that most of the digital economy will depend on this model one way or another .
The main currency in data collection is trust but it can be hard to actually see through the mechanisms that decides the price thus undermining classic economic certainties.
We might as well get used to that kind of business in the digital economy. A lot of new everyday products will be possible because of free. But to run a business based on free it should be worth every penny for the users.
Someone has to pay for the development and operation of some of the advanced digital opportunities. One thing is for sure; It is not free to have 12,000 employees at Facebook or 57,000 at Google.
Facebook has estimated that the data-driven targeted ads are three times as valuable as their more common ads. So the sale of data is therefore their business. And once that is your business model the only way to improve the business is to gather even more data about users.
And this is where there is still a small difference between Facebook and tapas.
It is not enough to be consumed around the world, you must be able to collect all sorts of information about users at a scale that can be done only digitally.
The economy of the digital volume game often begins with a great free party with an amazing happy hour. But as economist and Nobel laureate Milton Friedman wrote before the Internet was born:
As with tapas, you may score a nice lovely meal for free. But the expensive beer can leave you with some serious hangovers.
If you find this helpful please share it with your network and hit ‘Recommend’. And if you have any great stories or thoughts on this subject — let us know in the comments.
Trouble is a creative laboratory for new ideas and this is our official publication. Remember to join the Trouble email list for perspectives, rants, thoughts & ideas from us and from all around the world. In your inbox every now and then. Probably once a month. We try our best to describe what is happening to business, people, technology, culture & art in the new digital age.