Tuesday, November 15, 2005

Fix on Free

What does AOL Instant Messenger, Google, and The New York Times (pre-TimesSelect) have in common? In order to generate significant early traffic and attention, the people behind these properties decided to offer their products for free to consumers. Even as they found success, the products remained free to use, both to keep their growth rates high as well as to stymie competitors who wanted to charge for their alternative offerings. As a result, they have become among the most prominent and well-trafficked properties online which most hip, technologically savvy consumers cannot do without.

What they have done is to addict consumers to the notion in order to gain their attention, information better be free. Now, for providers of information goods this is a conundrum. The production of the information certainly isn't costless, yet consumers expect it to be free. While the exact prescription may remain elusive, I predict the winners will be firms who keep consumers fixed on free.