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.

Evernote announced today that it has raised $20 million to expand features and ultimately boost the number of paying members for its product. According to Gigaom, Evernote has created 4.7 million users of the application in two and a half years, thanks to desktop applications and mobile devices, and has been adding 10,000 new customers a day over the last two months alone. As someone who only recently heard about Evernote, those numbers are overwhelming and curious. Gigaom places the success of Evernote in converting non-paying users such as myself into paying members on the freemium model, known to be successful with cloud-based services such as Dropbox.

Evernote isn’t a new application, nor is the concept of cloud-based note-taking. But Evernote has seamlessly integrated all of it’s uses with online, desktop, and mobile applications, and with the addition of the Trunk – a host of hardware and applications that easily integrate with Evernote make it much more successful than other similar software and applications. Lifehacker makes a good case for Evernote’s triumph over many other cloud-based note applications.

A universal capture application is only as good as its ability to catch information no matter where you are and what you’re doing. With support for accessing and adding notes from your cellphone, through any web browser, or through the desktop version, the most popular note-taking applicationEvernote is perhaps the closest option to a true universal capture tool available next to plain old pen and paper.

Between articles, reviews, and my own preliminary experimentation with Evernote, I’ve yet to be entirely convinced, but there are some key features that Evernote does better than most. what are the features that make Evernote

1.Evernote allows you to capture virtually anything, on any platform.

Evernote is the most fully integrated universal capture tool I’ve yet to come across. Too many are based on just one operating system, or web browser to be truly effective. For example, as effective and streamline as MobileMe is, despite claims that it does work with PC it ultimately is meant to work more efficiently with Mac, and only Apple mobile devices. Bookmarks work equally as well with Firefox as Safari, and equally for Windows and Mac (I’ve yet to see much about Linux). Similarly on the Mobile front, there is rave reviews for iPhone, Android and Windows Mobile.

2. Evernote supports both advanced tagging and advanced searching

One of the features I fell in love with immediately when I got my first Mac was Spotlight, and it is by far the most used feature on my computer to this day. Similarly, the advanced tagging feature of Del.ici.ous Bookmarks made me an easy convert. Evernote combines these two features by allowing users to effortlessly tag every note, clipping and picture they create or upload. In return, Evernote makes it incredibly simple to then search the tags you have created to find specific information.

3. Evernote optimizes your handwritten notes

Evernote’s ability to recognize text in images – i.e read my shoddy handwriting is an incredible tool for those of us who still take handwritten notes from time to time. I’ll often get crazy with an idea on a pad of paper, and dread transcribing it on the computer later. Not only will this do a good job of transcribing hand-writing, it also becomes another set of searchable tags to easily access later. This, in conjunction with tools like Livescribe make it a great multi-media note-taking tool for a variety of situations.

I’m not an easy convert, but Evernote definitely has proven to be a great introduction to universal capture for those who have yet to experience its functionality. For informationphiles like myself though, Evernote still runs the risk of becoming more of a mind-dump hub than an actual organization tool. I have high hopes for Evernote’s development and growth with this new funding.

Photo from Flickr user verbeedlingskr8 under Creative Commons license.