Monday, February 04, 2008

Everything is free - profit from it

I have been involved with Interactive Consumer Marketing and Customer Relationship Management since long before those terms existed, at least in common usage. I could write books about this subject, if you add up my writing around this area over the years then I already have.

Of course I am still looking for ways to enhance, refine and develop these concepts, to push it to its boundaries. And I was pointed towards an article that does just that.

Kevin Kelly is the author of New Rules for the New Economy. He started by looking at the proliferation of websites that were virtually (or literally) giving away their products. You know there are thousands of examples today, from Sun to Google, but as a business model it almost turned traditional micro-economic models upside down.

The proposition relies on the older concept of economies of scale and also on the newer concept of network growth effects, where pushing your product into the market has a substantial positive value on the value of your products that are already in the market. That is evident not just in the obvious world of compatible software solutions, but even in physical products such as mobile phones - again the value of the individual item to the consumer increases with the number of compatible products also out there.

Now he has pushed the envelope. He has suggested that basic price of everything is moving towards zero, everything is becoming free. If a product or service is to be worth paying for, then it must have "generative value".

A generative value is a quality or attribute that must be generated, grown, cultivated, nurtured. A generative thing can not be copied, cloned, faked, replicated, counterfeited, or reproduced. It is generated uniquely, in place, over time.

The analysis is sound and the insight is excellent. Broadly speaking it is the same message that proponents of CRM have been pushing for years, but as I stated at the start, he has pushed the envelope. In fact, the article appeared to have a focus on suppliers of software and services, but to me exactly the same principles apply to any commodity product. Wait long enough, other people will be able to build it cheaper than you. You need to make your product unique.

However there was one point that was glossed over. The article clearly refers only to products that can be copied, although Kelly's optimistic tone seemed to generalise that to everything. He talks of a world where not just manufactured products but even food and other essentials are free and unlimited. That is not true. For those basic commodities, for unpolluted water, for personal space, for that genuine experience of nature and history that ties us to our past, there is only a limited supply. The marginal cost for these items does not tend to zero. But it should.

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