Thesis project

While competing on price, reconfiguring your cost structure is the most obvious road to success.

However, while competing with Free, lowering your costs might give you money to engage in other activities but it won’t give you an advantage in the marketplace.

The result of this is that many companies have stopped focusing on minimising costs and turned to maximising end user value creation. This doesn’t just apply to free, but to all industries where price no longer is as important as it used to be.

Right now I’m trying to figure out how this affects our perception of value, what happens when there is neither price nor cost?

While reading through Chris Anderson’s widely hyped book “Free: the future of a radical price“, I can’t help myself to think that the focus of the book is somewhat misleading.

As Chris notes, free is nothing new, it’s just a way of disconnecting the cost of the product and the customer’s direct expenses. What is new is that where the customer someway or the other always had to pay in the end, when the cost of digital goods approaches zero, there is nothing to pay. The cost of the product is zero and therefore the price can approach zero too.

This is an extremely interesting shift, but it is not driven by price but by cost. Its the cost structures that are changing and that is what has the power to affect an entire industry. Price is something entirely different and even though the end customer pays zero, the costs have to be covered.

New ways of re-configuring the value chain (such as analysing the users behaviour and presenting information accordingly instead of hiring an editor) and lowering costs (such as replacing humans with algorithms) are the real game changers here.

Still, Free is a really interesting book and I’m sure to get lots of inspiration from reading it!