Making money out of giving stuff away
Part of my job is to be aware of all the stories the hundreds of other technology news gathering operations are writing every day. Over the past month or so I have read a number of headlines that seemed to involve a common theme. Here’s a selection:
- Sony joins We7 to make music free
- Adobe releases AIR
- Microsoft promises to share its toys
Even these, to me, contributed to the theme:
- EU approves Google takeover of Double Click
- AOL to buy social network Bebo for $850 mil
- BBC iPlayer fans face hidden costs
The trend that links all of these stories is, of course, is that they all concern things being given away for free online. In the above examples we have music, design software, source code, internet searching, a social networking tool and TV programmes. And lest we forget, you’re reading this opinion piece without having to trouble your bank manager, unless my colleagues are hiding something from me.
It’s the advertising, stupidSo why do many of the world’s biggest companies, as well as thousands of smaller ones, devote so much of their time to giving stuff away for free? To paraphrase Bill Clinton: it’s the advertising, stupid.
While the concept of using free, or at least heavily subsidised, stuff to attract an audience that you could then offer to advertisers in exchange for a fee is hardly new, it was probably Google that illustrated how fundamental a technique this was for online success. When you’ve got a zillion people a day visiting your website, you can charge a lot of people a lot of money for access to those people.
Of course Google isn’t about to restrict itself to just search. Its forays into free productivity software are probably even more pivotal than the EU’s whopping fines in forcing Microsoft to make freely available bits of its software that it had previously guarded with Rottweiler-like tenacity.
Microsoft also recently invested $240 million for a mere 1.6 percent stake in a company that is only four years old, employs 500 people, is run by a 23 year-old and turns over an estimated $150 million a year. A simple extrapolation of that investment implies Facebook is worth $15 billion, not bad for a company that gives stuff away for free.
And here we have the unique thing about the internet: anyone in the world (in principle) can see anything posted on the web. So that’s a potential audience of billions. Facebook apparently has a mere 66 million, but that’s a number most advertisers would have undignified dreams about accessing, hence the lofty valuation.