The Increasing Market for Free

Yesterday afternoon I read an interesting article by Caroline McCarthy about how BuzzCity, the company behind the mobile social network MyGamma, has raised $10 million. According to McCarthy, “MyGamma is geared toward ‘unwired’ customers–those who have a mobile device but lack access to either a PC or a reliable broadband connection.” In other words it helps those that are unconnected get connected with other people that were also previously unconnected.

It’s an interesting model and it must have a long-term vision. If the company was a non-profit I would completely understand their strategy but I’m not quite sure how you generate money when your target market is a demographic which isn’t marketed to. I’m not suggesting that we shouldn’t develop technology which benefits the impoverished or the uneducated but I’m not sure when doing so on venture capitalists’ dimes makes sense.

The Chase Toward Acquisition is Based on Free

One company after the other that we see get acquired by Google, Yahoo or AOL appears to inspire more and more people to launch free sites. We are building tools which appear to help us “communicate more effectively” but do nothing to help generate revenue. It’s a result of the tech boom as Judy Estrin describes in today’s New York Times, “Starting in 1998, there was such a shift in Silicon Valley toward chasing money and short-term returns.”

I completely agree with Judy for the most part (at least in the Web 2.0 industry) and think that this perspective is damaging industries. If people weren’t chasing short-term returns, would there still be this massive influx of new, free products? Most definitely because not everybody is incentivized by short-term returns.

The Destruction of Traditional Media

Another side-effect of this “market for free” is that traditional media is being damaged as content creators give away their content for free and consumers become satisfied with new types of user-generated content. While the destruction of traditional media is arguably inevitable in the digital age, it’s still an important issue that needs to be explored.

When the margins on content creation continue to diminish, it becomes challenging for anybody in the media business to become highly profitable. Then again, the music industry has shifted their primary revenue generating activity to concerts and tours and it seems that an event-based model makes sense for many other forms of media.

An Interesting Dynamic, An Unknown Future

Unfortunately I can’t tell you what the long-term effects of a large market for free is but most of the implications appear to be negative. The only person supposedly “benefiting” from this free market is consumers and the few companies that can get acquired. Do you think that the market for free is sparking innovation or is it really stunting it? What do you think the best models of revenue generation in this environment will be?

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