Freeconomics: the race to the bottom



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King Gillette apparently started it all in 1895 when he gave away his new disposable-blade razors. These razors were useless in themselves, but the disposable blades sold in their billions – and a trend towards ‘freeconomics’ was born.

A recent article in the Guardian newspaper looked at where this trend seems to be taking us: Ryanair flights for $20, free phone calls, free downloads, free advertisements, free newspapers.

Of course, none of these are really free. It’s cross-subsidising where you get something for free if you buy something else. The advert is free if you subscribe to a related service. The flight is nearly free but you pay for check-in, sandwiches or an in-flight glass of Chardonnay.

This business model thrives because of the economy of scale: the more little stuff you sell, the better able you are to induce more sales of them with the headline freebie. The more you shift of the one, the better your ability to pay for the other. The web, of course, supports this trend by enabling potentially massive reach and ramping up the scale.

But is this just ‘a race to the bottom’, to hammer prices down, to strip service and product of quality, to be competitive at all costs? For example, in various corners of the web you can sign up to have a website hosted for free, using on-line site-building tools. But you get what you pay for which, in these cases, may well be obligatory advertising, a frustrating site-building experience and a website that resembles so many hundreds of other sites out there that you may as well not have bothered. I enlarge upon this theme in a separate blog article on website development with a closer look at the true benefits of resisting this race to the bottom.