Caroline Bayley posted a thought provoking article on BBC today. In ‘Buy none, get one free,’ she talks about how the digital world is spawning a marketplace where products are being given away free and yet companies are still making profits. The underlying basis for this new form of economics is a subsidization from the few to the many. “The new form of cross-subsidy is one where a tiny minority of people who really appreciate the product, really get value from it, can subsidise everybody else, because the underlying cost of doing things online, in digital, is so low that you can give away 90% of it for free.”

The key point here is that the negligible variable costs for digital products make this viable. For instance, I am paying nothing to Wordpress to use their platform for this blog. They can afford to let me get a free ride because they are making money from others who want more from their blogging platform and are able to pay for it. At some point, I may need more and want more, enough to be willing to pay for it, and so they have me engaged as a potential future revenue source.

It may seem that this is only possible in the byte economy, but the fact is that CountSpin is doing precisely the same thing for the atom economy (ironically, using a digital infrastructure). To be sure, our variable costs are far from negligible since we are selling physical merchandise. Hence, in our case, the gap between the high payers and the low payers has to be smaller. But essentially, we are allowing everyone an opportunity to pay according to their value perception and, in that sense, we are operating on the same principle as the byte players.

The full article can be viewed here — http://news.bbc.co.uk/2/hi/business/7811481.stm