As mentioned in the previous section, Attention Economy, there are two important terms that govern the fundamentals of internet business today. This section focuses on the free economy.
The term 'free economy' has many different meanings, so it is important to clarify here what we mean by the term. In much of the literature, free economy applies to software (such as the Open Source movement) (see for example Lessig, 2006). However, for the purposes of this discussion, free economy is a method of providing a product or service for no charge, but with the expectation (or hope) that it will return a profit at a later date.
Chris Anderson is considered the forefather of the free economic model and has coined the term 'freeconomics' in order to describe it (Ross, 2008; Anderson, 2008a).
The 4 Kinds of "Free" by Chris Anderson
image source: http://mikevanhook.blogspot.com/2009/11/free-economy.html
Some popular sites and services that employ a free economy model (to one degree or another) include eBay (free for buyers, but sellers attract a number of fees), Amazon (free to browse and read reviews, but products are bought and sold like a retail economy), Facebook (free to use, but members are subjected to targetted advertising), and of course, Google, which is the primary focus of this discussion.
image source: http://www.jmorganmarketing.com/is-free-really-the-new-economy-chris-anderson-thinks-it-is-3/
So how does giving it away for free end up returning a profit? We users "pay" for the services with our attention (Morgan, 2008) and that attention, in time, converts to money. We use something for free, we like it, we tell our friends, who use it and tell their friends. This model of word of mouth is essential to the attention economy model, and if your product or service is a free one, you can use other marketing strategies to turn that use into cash, for example, by having premium services, or offering merchandise (this relates back to Anderson's four kinds of free).
Even though Google's products cost nothing financially to most users, it is a different matter if you consider that you may be paying for them with a different currency: your data. And it really depends on how you feel about your information being mined, as to whether Google is free after all.
On a side note:
One of Google's recent forays into the free economy was through giving away wireless internet services at selected USA airports through the December/January holiday period (Fight Identity Theft, 2009; Whitwam, 2009). It was suggested that this was Google's way of competiting with Microsoft, which offered the same deal late last year (Whitwam, 2009). Google is not afraid to give away products and services, if it means that users maintain their loyalty, and keep using their services. This phenomenon is further discussed in the Attention Economy section.
image source: http://www.fightidentitytheft.com/blog/airport-wi-fi-isnt-secure-even-if-google-makes-it-free
Next: Network Economy
Anderson, C. (2008a, February 25. Free! Why $0.00 Is the Future of Business. Wired, 16(03). Retrieved July 21, 2010, from http://www.wired.com/techbiz/it/magazine/16-03/ff_free?currentPage=all
Anderson, C. (2008b, September 23). Revised: the *four* kinds of FREE. The Long Tail. Retrieved July 21, 2010, from http://www.longtail.com/the_long_tail/2008/09/revised-the-fou.html
Fight Identity Theft. (2009, November 12). Google Gives You Free Airport Wi-Fi for the Holidays. Fight Identity Theft. Retrieved July 18, 2010, from http://www.fightidentitytheft.com/blog/airport-wi-fi-isnt-secure-even-if-google-makes-it-free
Lessig, L. (2006, September). Free, as in Beer. Wired, 14(09). Retrieved July 21, 2010, from http://www.wired.com/wired/archive/14.09/posts.html?pg=6
Morgan, J. (2008, February 28). Is Free Really the New Economy? (Chris Anderson thinks it is). Jacob Morgan blog. Retrieved July 18, 2010, from http://www.jmorganmarketing.com/is-free-really-the-new-economy-chris-anderson-thinks-it-is-3/
Ross, E. (2008, June 24). Make it free, and make money. Smart Company. Retrieved July 18, 2010, from http://www.smartcompany.com.au/Premium-Articles/Top-Story/20080623-Make-it-free-and-make-money.html
Whitwam, R. (2009, November 10). Not to Be Outdone, Google Offers Free Airport WiFi. MaximumPC. Retrieved July 18, 2010, from http://www.maximumpc.com/article/news/not_be_outdone_google_offers_free_airport_wifi