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It’s The Freeconomy, Stupid!: Free As a $300 Bil. Business Model

I finished a few books on my trip to Europe last week and one of them —  Free by Chris Anderson — was chock full of stats that I found myself dog-earing throughout my flight.

“Free” is a must-read if you’re passionate about the Internet, or just business in general.

I’m gonna keep this simple and just list out some good nuggets (which are mostly stats).

Let the “freeconomics” begin!

The “Freeconomy” Is An Estimated $300 Billion Market

The Free Economy is roughly a $300 billion per year market.

By his own admission, Anderson defines this loosely, including revenue generated from businesses driven by giving away most of their products or services (e.g. TV, Radio, online advertising Web sites, etc.).

Two sub-economies have emerged in place of money on the Web (though they can later lead to money)

1) Reputation Economy – This is best measured by Google’s PageRank which rates on a scale of 1 to 10 how important each Web site (and each page on a Web site) is, according to Google’s secret algorithm.

2) Attention Economy – This is best measured by the traffic a Web site receives (traffic being measured by number of visitors and page views)

To calculate the Economic Value of your Web site (i.e. how to help turn your Reputation & Attention into CASH), Anderson suggests this formula:

(The traffic your page rank brings from Google’s search results for any given term) X (The keyword value for that term)

note: while he doesn’t clarify how to calculate “keyword value,” I’d suggest you could use AdWords.Google’s CPC)

General Web Statistics Related to Freeconomics

  • The net deflation rate of the online world is nearly 50% (whatever it costs a business to run a Web site now will cost half as much in a year).
  • The Web has around one trillion unique URLs, according to one Google estimate
  • There are 12 million active blogs
  • It costs around $.25 to stream one hour of video to one person (a year from now it will likely be around  $.15)

User-Generated Content Statistics

  • Around 1 in 10,000 Wikipedia visitors are active contributors.
  • YouTube has around one in a thousand users uploading their own videos (meaning the rest are just downloading (viewing) videos
  • Most online volunteer communities thrive when just 1% of them contribute

Two Cool Social Media Statistics

  1. The average number of friends for MySpace members is around 180
  2. Facebook applications receive around a $1 CPM ($1 per 1,000 page views) for advertising revenue.

Interesting Free-Related Trials & Experiments Anderson Mentions

The Case of $.15 Cent Truffles Versus Cheap to Free Hershey’s Kisses

Dan Ariely (Predictably Irrational) took two kinds of treats: Lindt truffles from Switzerland and Herhey Kisses and offered them for sale to students:

When they priced the Lindt truffles at $.15 and the Kisses at $.01

  • 73% chose the truffle
  • 27% chose the Kisses

When they lowered both prices by $.01 so that the truffles were $.14 and a Kiss was free

  • 69% chose the Kiss

Conclusion: While both products’ prices were lowered by the same amount ($.01), the introduction of free as an option reversed the students’ preference.

How Does “Name Your Own Price” Work As A Business Model?

Matt Mason, author of Pirate’s Dilemma, allowed visitors to his Web site to name their own price upon checkout of downloading his ebook (with $5 via Paypal as the default option)

Results: 6% of the 8,000 people who downloaded the ebook agreed to pay an average of $4.20 each (generating a couple of thousand dollars) (interesting note: Mason estimates he received $50,000 in lecture fees as a result of the publicity of his exercise).

Hope you enjoyed some of these freeconomics!