4: FOLLOW THE FREE
The natural question is how companies...
... are to survive in a world of such generosity? Three points will help.
First, think of "free" as a design goal for pricing. There is a drive toward the free--the asymptotic free--that, even if not reached, makes the system behave as if it has been reached. A very cheap rate can have an effect equivalent to being outright free.
Second, pricing a core product as free positions other services to be expensive. Thus, Sun gives Java away to help sell servers, and Netscape hands out consumer browsers to help sell commercial server software.
Third, and most important, following the free is a way to rehearse a service's or a good's eventual fall to free. You structure your business as if the thing that you are creating is free in anticipation of where its price is going. Thus, while Sega game consoles are not free to consumers, they are sold as loss leaders to accelerate their journey toward their eventual destiny--to be given away in a network economy.
Selling widgets on a transactional basis, when the price is approaching zero, is bad for your health.
We need to think in terms of value of the "life of the customer" and/or the value of the "life of the contract."
It seems as though the contract values tend to anchor around networks or large infrastructure, and the products are lures into the network. The iPhone for example, while not free, is subsidized in order to gain the contract value of network services for AT&T. And "free consulting," is sometimes used as a lure to gain a multi-year outsourcing contract.
Still with the "free" theory.
Using Sun and Netscape as examples? Nice. Sun stock peaked around $200 when it was selling lots of servers and started giving Java away. Today, stock is $9 and server revenue is moribund. Lots of Sun employees that used to make servers are now unemployed and "free".
Netscape? One word for that - AOL.
How did "free" work out for them?
By the way, the electric bill for keeping the servers for this blog running - how "free" is that?
This idea of "free" is part of an inherent anti-union, anti-working man mind set that originated with Reagan cabal. It is part of what drives wages, benefits and pensions down to third world sweatshop levels.
After all, if the cost of labor can be driven down so low it is effectively "free" that allows the output to be expensive. Great for management and investors. Rah rah.