Why Free is the New Pink

NOTICE: This post probably contains mathematical concepts. If math isn’t your cup of tea, you may wish to skip this and head over here instead.

Long ago in a galaxy far far away, there lived a teenage daughter. Her name was Mary and she was a cheerful, bubbly girl. She had a boyfriend, Jake. Mary loved to send text messages to Jake. One day, Mary’s phone was stolen on her way home from school. She rushed downtown to one of those shops where you can send text messages… she was attracted to a nice little shop. The place was elegant and very stylish but was completely empty. At the center, stood a sad, grey old man next to a sign that read, ‘we Charge you to send sms.’ As she prepared to send the sms, Mary’s attention was grabbed by the sound of a large crowd outside. “What could it be?” She asked herself. She took a look out the window and saw a large group of people streaming into another much less elegant, shop. A sign above its door read: ‘Send sms free and easy.’ Immediately, Mary swung her handbag into position and headed out towards the queue that was forming outside…

What Governs Competing on the Internet?

1. Metcalfe’s law – The value of a network increases as the square of the number of computers connected to it. Once you set up your website, the primary goal is to get as many people(users) to visit and use your website. The more users you have, the more valuable your site is. Hence you can make more money from it and more efficiently.

2. Moore’s Law – Simply put, computer processing power doubles every 18 months. 18 months is too long to wait for you to improve your site, service, or product so as to take advantage of the improving hardware. If you don’t do this, someone else will and suddenly you will become obsolete!

3. The amount of data (internet traffic) flying around the internet is increasing at an incredible speed. It used to double every year(pdf). Internet Statistics.

4. The cost of bandwidth is dropping almost as fast as the number of packets being sent across the internet is increasing. What is the real cost of bandwidth?
#3 and #4 imply that you should be able to expand your site to accommodate more users at minimal cost.

What Does all this Really Mean?

If you look closer at the above, you will notice a trend: Your primary goal is more users for your site; hardware improves therefore you strive to make your product better so that you can keep your site’s users; you can and should expand your site’s bandwidth to accommodate more users. It’s all about the user. The user is also your customer.

This is hardly surprising. We all know that the golden rule of any business is that your customer is your overlord; he pays your bills and your job is to make him happy.

As Paul graham says, In How to Start a Startup I advised startups never to let anyone fly under them, meaning never to let any other company offer a cheaper, easier solution…The ultimate way to be nice to users is to give them something for free that competitors charge for…The most successful sites are the ones that figure out new ways to give stuff away for free. Craigslist has largely destroyed the classified ad sites of the 90s, and OkCupid looks likely to do the same to the previous generation of dating sites.”

The nature of the internet is such that there will always be a competitor to your business. The challenge to you is to take advantage of the internet’s structure and use it to leverage against your competitor. Personally, I think many business owners are ignorant to the power of freebies.

This post is simply the product of an overactive mind. I’m no ‘suit’, of any type. Also, I wrote it as a response to criticism to one of my other posts: In Search of Free SMS. (Read the comments there to get the full story.)

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