Greg Crisp

Value is incompatible with Free. What can be the commitment to Free? If something is Free, then little or no value can be placed on it. As a customer, Free is worth every dollar you pay for it. As a vendor, the value of Free is inversely proportional to every dollar it costs you to deliver it.

The two sides of a transaction are: The Customer and the Vendor. The Customer wants VALUE in a product or service. The Vendor wants to get paid for the product or service they provide, so that they can continue to provide it, and to generate a profit as a reward for the product of their creation.

From the Wikipedia article on Value: “Value is linked to Price through the mechanism of exchange. When an economist observes an exchange, two important value functions are revealed: those of the buyer and seller. Just as the buyer reveals what he is willing to pay for a certain amount of a good, so too does the seller reveal what it costs him to give up the good.”

There is lots of talk presently about sustainability and sustainable business models. No business is sustainable when it produces nothing of value. Nothing of value can be produced without the expense of resources, either time, money, or both. This is the basic truth of thermodynamics. Those resources must come from somewhere. If you can get what you need to produce your product via altruism, more power to you. But the classic model for a sustainable business is to produce a product whose value is enough that customers will pay for it, and pay enough cover the costs of production, plus some profit for the producers, which is their motivation to produce it.

Thermodynamics is defined, in it’s simplest form, by three “laws”. I once heard them paraphrased very well:

• Law 1- You can’t win.
• Law 2- You can’t break even.
• Law 3- You can’t get out of the game.

Free products are, by necessity, the first dropped from the line when business goes south. When times get tight, the easiest cost to cut is the one that has no negative effect on the bottom line. “You can’t compete with free” has a double meaning. Free can be easier to “sell”, but selling something for free doesn’t generate any value to the seller. In fact, it generates cost. It’s hard to compete with other’s who are offering a competitive product for free, but it’s also hard to compete effectively when you’re giving away a product that is costing you to produce and support.

I recently read comments bitching about AT&T’s plan to charge $30/month for access to the upcoming tethering feature for the iPhone. Everyone was so incensed that AT&T was going to charge extra for the service, despite the facts that they charge the same, extra amount for other devices, and that typical laptop-based data usage is significantly larger per session than mobile phone data usage. How dare they want to re-coop the cost of the network build out required to support their service, and maybe make a little profit. Those Capitalist Bastards!

We’re starting to see a number of the “Web 2.0″ free services either close down, or get acquired by other companies, presumably for their technology, since it’s hard to valuate a company that has no revenue. Restating the obvious, this is basic stuff. A business that makes no money cannot survive.

My prediction for the Web 3.0 business model: Direct revenue. Charge a reasonable price for a service that provides value to the customer. Let the freeloaders go to those competitors still trying to monetize their services without charging for them, and cost them the resources you will save. It’s better to have 1000 paying customers than 100,000 users that are just costing you money.

Is it ironic that, in my treatise against free, I am referencing a free service? Ah, but is Wikipedia really free? I assure you, a site with Wikipedia’s magnitude and traffic costs considerable money and time to host and support. Perhaps you’re not paying for it, but someone is.