Tuesday, May 29, 2007

Do bits want to be free?

There is a lot of focus on the question of whether IP protection fosters or inhibits growth and whether bits should be free or proprietary. In reality, the response to this question can already be seen in present economics.

There are more types of offers available in a broader marketplace with more sophisticated value propositions than ever before. One example of this the wide availability of hybrid offerings - different flavors of free and pay versions of the same product or service.

For example, Linux is free but companies pay millions each year for a related service, support contracts. Individuals are paying for offsite data backups of their personal information (read: trusting offsite data backups of their personal information). Products as services, e.g.; SOA, salesforce.com, etc. are expanding, with the infinite feedback loop of the Internet available for instantaneous rating, ranking and review.

The same cable television show can be watched live, TIVO'd, downloaded onto an iPod, viewed for free on YouTube, rented via Netflix or the local video rental store or purchased on DVD just to name seven distribution mechanisms, each with its own price point. Consumers are paying for the attributes - the quality, timeliness, convenience and control of the content. Paying for attributes is not new (e.g.; higher priced convenience store milk) but the number of attributes has increased as well as the purchaser's ability to control the experience he/she has acquiring and interacting with the product.

Attribute pricing models will likely continue to proliferate, imagine customers paying for their point of maximum utility on an attribute gradient, a security/privacy gradient for example, where different levels of the service provider not tracking and selling user profiles and activities is more expensive. When will life Flashblock be available?

Annoyance-based models are another example of attribute pricing already in existence. For example, directory assistance 411 costs $0.50 - $1.50 per call where as 1-800-FREE-411 is free but requires the caller to listen to an advertisement before obtaining the requested information. Similarly some European wireless carriers are contemplating free devices and service if the customer accepts advertising-based service.

The primary principle of economics is value exchange, not price or protection. If it is not competitive to be free, or not competitive to be protected, the market will align to optimum value exchanges as can been seen on a daily basis.