Chris Anderson on Freemium

With digital products the marginal cost of production is pretty close to zero - Google does not show up on your credit card bill and neither does Facebook. Bertrand predicted in the late 19th century that “in a competitive market, price falls close to its marginal cost”. Competiton is something we take for granted - it exists when you have two similar goods or services produced by mutliple parties. An under-cutting process can take place until the market price edges down towards the marginal cost of production. Now we have a digital economy where the MC of serving one more Tweet or web page is zero. How can you make money in this digital economy?

A recent talk by Chris Anderson at the RSA is now available to view on their web site. His explanation of freemium products is interesting as are his comments on piracy. To Anderson, piracy is an example of the animal forces of the market place because the music companies chose not to make their music free. Piracy is the market place imposing the price of free.

Another article on freemium is available here from the New York Times: Using Free to Turn a Profit

Chris Anderson - Free: The Future of a Radical Price