Is Our Future Really $0?
Chris Anderson, a well-known business guru in the world of online commerce, imagines a world in which all internet services are free. But he has made an error, argues Fernando Herrera-Gonzalez. It is the competition for these resources that seems to explain this trend to "free" services in some Internet business models, and not the existence of marginal costs reducing to zero. The reason why some goods are given away for free in some markets has no relation to any hypothetical notion of "marginal costs tending to zero." In fact, those supposed free goods are "given" to us in exchange for our time and attention. As time is an increasingly scarce resource, its value is steadily rising, in terms of storage, processing, and bandwidth.
With time rightly identified as a scarce resource, economic theory is needed to understand the interchange process. And there is no place for the "freeconomics" of Chris Anderson. FULL ARTICLE
Comments (6)
Concise analysis. Somehow I don't think you'll be invited to speak at TED now.
Published: May 13, 2008 10:47 AM
Good analysis. And as I recall from Econ 101, price tends to the point where marginal cost equals minimum average TOTAL cost ... not zero! You point out the difference quite clearly. (WHAT is this guy thinking?!) ;-)
Published: May 13, 2008 11:54 AM
"Regarding "marginal cost zero," Anderson refers only to distribution costs and completely forgets about production costs."
Isn't this statement sort of parallel to the person who says "I put this much into rebuilding my car so I must get that much for it?" Once money is spent it is gone, water over the dam.
Published: May 13, 2008 1:38 PM
Thank you sir for sharing your knowledge, wisdom, and thought on the matter. Your article was well received and appreciated by this layman.
Published: May 13, 2008 2:20 PM
Excellent review, but I don't see that Anderson has contributed anything new. A lot of businesses have close to zero marginal costs, the phone companies, electric utilities, for example. I think Anderson's real mistake is taking the "pure competition" model so seriously.
Published: May 13, 2008 2:31 PM
Very good article; nice points.
With all do respect, Chris Anderson's article is a half-truth at best, a marketing dream with aspirations full of hopes and wishes that will never come true.
One commenter in the article actually referred to Chris’s ideas as “reputation -> attention -> money with Google as the bank, Love it A "new" sereal economy”.
The idea that on the internet marginal costs will tend to zero, is in fact as others have said, only looking at a very specific portion of the underlining economics. There will always be costs for anything of any value to someone; costs in conception, research, materials, development, production and distribution. Somewhere along that chain “monetary” costs will always exist and it will need to be recouped.
Billions are being made on the internet, but billions are being lost. Although I have not performed the calculations; and perhaps the numbers would be impossible to nail down, I cautiously suggest that if all of the money that was lost on the internet since day one (including the dot com bust and every single mom and pop that pours wasted revenue into the ill experienced pockets of shabby developers, designers and marketers), was subtracted from all the money that has been made on the internet since day one, we would see that the internet has provided humanity with a low profit margin in terms of real bankable cash.
The internet is not and will not be a catalyst for a whole new bread of successful fuzzy economics. Fuzzy is fuzzy. The same basic principles that guide economics in the brick and mortar world do and will always apply to the ecommerce.
Published: May 13, 2008 3:54 PM