New Business Models

Chris Anderson, senior editor at Wired, has written a number of interesting articles about business models and marketing.

His book “The Long Tail: Why the future of business is selling less of more” is a classic that explains how the Pareto principle (80-20 rule) can be applied to selling products. Conventional wisdom is to focus on the 20% of products that sell in high volume but his book explained that under the right circumstances there is money to be made in the 80% of products that sell in low volume. This is something Amazon has taken full advantage of. For a quick overview of the Long Tail concept check out the wikipedia article.

Chris was releasing his newest book “Free” in June 2009 but now it is delayed until July 7. Note that the book will cost $23.09 at Chapters. It is based on this fascinating online Wired article on how items are being provided for free to promote other items in innovative business models. Everyone has heard about Gillette giving away razors to sell razor blades. Google is a primary example of offering many free services that directly or indirectly promote their ad revenues.

Important note is that not everything can be provided for free since even as different types of costs for some items are radically reduced with new technologies they are still non-zero and can be substantial when they occur in large enough volumes. This leads to the joke highlighting how this phenomena can be misunderstood. A company has a business model that isn’t profitable but they plan to make it up in volume.

Chris Anderson has provided a diagram on his blog showing four types of “Free” models. You might prefer David Armano’s version of the four types of “Free” models.

In February 2009 Chris did an interview on free business models on ZDnet. He also did a related article for the Wall Street Journal entitled The Economics of Giving It Away.