Keystrokes of the ‘faint-hearted’ closet economist: Why Kindle will soon be available for ‘free’?

The economics of free. Extolling the virtues of Chris Anderson, free is the future of business. And of course, this is not news. Google giving off Nexus Ones for free at TED, Radiohead offering ‘as you wish, you may pay’ music download off the internet and Kindle bringing the price down consistently so much so that it is predicted that by November it may be available for FREE.

It must cost something to make?

The trick is in figuring out how Amazon can bundle the free Kindle and still make money.

The wonderful feature of a non-scarce, or infinite, good that it is effectively a free resource. Once created, it costs nothing to give to someone else, and you still retain the original. In fact, economists have finally realized that this is the very key to economic growth and progress. The infinite resource known as an “idea” that improves what was already there is what increases the size of a market. Or, putting it another way, that infinite resource of a new idea makes an existing scarce resource more valuable.

The way it works is actually quite easy and fits in with the same basic economics that’s always been in place. Knocking down the barriers of artificial scarcity opens up tremendous new opportunities — just as knocking down the artificial scarcity known as “protectionism” helps to grow markets by creating new opportunities. In this case, those new opportunities have only increased in number as we’ve gone digital, making more content infinite in nature.

So, the very simple way to go about this is to:

1. Redefine the market based on the benefits based on the benefits of what you’re providing, rather than the specific product you’re selling. If you’re focused on selling the benefits, then discovering a better way to sell those benefits is seen as a good thing, rather than a threat.

2. Break the benefits down into scarce and infinite components. In fact, if you look closely enough, you realize that any scarce product you buy actually has infinite components while any infinite good you see also tends to have scarce components.

3. Set the infinite components free, syndicate them, make them easy to get – all to increase the value of the scarce components.

4. Charge for the scarce components that are tied to infinite components. And, yet, all the while, you know exactly what scarce resources those non-scarce goods are tied to, and you’re ready to sell those scarce resources, recognizing that the more people who are consuming the infinite goods, the more valuable your scarce resource is.

So while, ebooks may be the scare resource, Kindle is the infinite one and giving it for free may just get more people to hop onto ebooks.

Courtesy Wikipedia: The Grateful Dead have constantly toured throughout their career, playing more than 2300 concerts. They promoted a sense of community among their fans, who became known as Deadheads, many of whom followed their tours for months or years on end. In their early career, the band also dedicated their time and talents to their community, the Haight-Ashbury area of San Francisco, making available free food, lodging, music and health care to all comers; they were the “first among equals in giving unselfishly of themselves to hippie culture, performing ‘more free concerts than any band in the history of music’.


2 thoughts on “Keystrokes of the ‘faint-hearted’ closet economist: Why Kindle will soon be available for ‘free’?

  1. ¡ Hola AK !

    The thing that bothers me with the whole freemium idea is that it´s really difficult for a small startup to sustain itself.

    It´s certainly not an issue for the LinkedIns and DropBoxes of the world, who´ve got enough VC funding to see through a looong burn period. But trickier for the rest.

    • Hey!

      The way I would see it panning out offering a basic service for free and then charging a fee for some additional premium services. For freemium companies, growth comes not only from new customers, but more often from existing ones. If clients are happy with the free portion of a service, they’re substantially more likely to pay a small fee to get additional services.

      Converting free users is definitely, but the best way to do it is to make premium customers feel especially important.

      Flickr has done this very well. Closer home, Vizisense(from Komli) has followed a similar model.

      PS: Good to see you blogging again 🙂

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