The Psychology of Free

November 9, 2010

The freemium business model has gotten exponentially higher media attention as of late; with many online-based businesses being highly successful with this model, other companies are taking note and trying to discover ways it could apply to other types of businesses.  The freemium model, used by businesses such as Dropbox, Remember the Milk, Pandora, Vimeo, and Evernote follow the 1 percent rule: that 1 percent of paying customers pay for the 99 percent of non-paying customers.

While I admire this concept as a business model, the psychology of what Chris Anderson dubs “freeconomics” in an article for Wired make me nervous when they are no longer applied to computing systems, as it once was. In previous discussions on gaming, the tendency for people to purchase items on a viral basis because it is “free” or virtually free is remarkable. Marketing or humor ploys such as the Case- Mate’s Recession Case, an iPhone case made entirely of cardboard sold for 99 cents last year – and sold out within days. Why? Because people thought it was humorous, and because it was almost free. This applies to viral games and applications on smart phones, such as the popular Angry Birds or Cut the Rope, along with many other salient examples.

Stewart Brand at the Hacker Conference of 1984 made a poignant argument about the concept of free. What has now been tailored to suit discussion about open-source and creative commons by simply being quoted as “Information wants to be free”, the full quote was far more developed:

On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.

From a business standpoint, it would appear that the free and expensive are not fighting against each other, but working together. However, the digital age has created a disparity in definition between cost and value. When asked, a majority of people will say that they are comfortable giving their information to a company in order to receive a monetary gain, such as a free item or a coupon or special discount. With most email inboxes allowing unlimited storage, the fear of junk mail is far less than what it used to be.

However, there are still valid concerns that need to be addressed before a freemium model of economics could actually successfully apply to other aspects of life. As long as we value physical product, or “stuff” over personal information, time, and investment, marketing is still getting the best of us. Besides even the possibility of identity fraud (which is still incredibly prevalent in internet transactions), consumers are not properly valuing the long-lasting impact of their information. We’ve yet to realize that we’re actually giving far more than we’re receiving. Chris Anderson argued in his article:

…a psychological switch should flip as things head toward zero. Even though they may never become entirely free, as the price drops there is great advantage to be had in treating them as if they were free. Not too cheap to meter, as Atomic Energy Commission chief Lewis Strauss said in a different context, but too cheap to matter. Indeed, the history of technological innovation has been marked by people spotting such price and performance trends and getting ahead of them.

If we attempt to implement a true freemium economy while still under the American ideals of materialism, we can’t learn not to waste. On a digital scale, waste is not an issue, as Malcom Gladwell of The New Yorker argues:

Giving something away means that a lot of it will be wasted. But because it costs almost nothing to make things, digitally, we can afford to be wasteful. The elaborate mechanisms we set up to monitor and judge the quality of content are…artifacts of an era of scarcity…

Outside of the digital realm, we are still in a unbalanced world of materials, that can be wasted at a remarkable rate, if given the chance. The fact that the first place outside of the internet we see the most prominent marketing strategies of free product is in food shows you how easily we are willing to waste resources.

Finally, the debate of the professional versus the amateur will continue to stifle much open creativity on a freemium market. Until we can learn to navigate and redefine the nature of authorship and credibility in a changing digital landscape we cannot properly establish guidelines on who to trust, and who not to trust.

The freemium model has worked well, and continues to work well on an online setting, but applying it to other businesses requires serious lifestyle changes to be both effective and not have long-term consequences. Until we can adapt enough to see either the value, or implication of the information age, the results could be devastating at worst, or sub-par at best.

Photos by Flickr users Jeslee Carizon and tantek (respectively) under Creative Commons license.

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