“The Hidden Cost of Free”

The title of this article is in quotations, because it is based on an article, of the same name, in the Summer 2013 issue of Barnard magazine. No, this (male) author did not attend Barnard College for Women (but he would have happily attended!), but his wife did, and showed him the “President’s Page” article by Barnard President Debora Spar.

Spar’s article, which unfortunately will not be available online for some time, refers not to the direct financial cost of free, but the social cost that leads to a financial cost. An entire generation of students, now becoming adults, has been acculturated to just about everything being available for free: email, wifi, music, articles, films. At the same time, companies with no real revenue like Instagram and Tumblr become acquired for very large sums of money. The net result, according to Spar, is an entire generation that not only consumes for free but creates for free. It does not expect to pay for content, nor does it know how to get paid. “…the very folks who are scrambling to find a creative outlet that might pay the bills are the same ones who… have no experience actually paying for content.”

Ironically, these same students paid over $50,000 in the last academic year to attend Barnard, an issue Spar herself addresses. Apparently, for one kind of content, they know quite well how to pay!

Free is expensive not just for the provider, who needs to find a way to make a profit on the free service – or the young man YouTube sensation who needs to find a way to pay his bills – but also for consumers who become accustomed to not paying.

This has an immediate impact on a business’s strategy and pricing model. As a provider intent on not only covering costs but making a profit – and thus paying your own bills, hiring staff (i.e. creating jobs) and bringing on investors – each business needs to understand the “cultural milieu” of its target market and whether or not it is prepared to pay for value.

There are many businesses that target the apparently lucrative late teen to mid-20s demographic. While that generation, not having known real need, is accustomed to spending money freely on luxuries and extraneous goods, and much more subject to the impulse buy, it is also the generation of free. A business that intends to target that generation needs to fully understand where the “Mason-Dixon line” (or probably more likely the Berlin Wall) is in the mind of that demographic as to what must be free and what will be paid for without thinking twice.

 

About Avi Deitcher

Avi Deitcher is a technology business consultant who lives to dramatically improve fast-moving and fast-growing companies. He writes regularly on this blog, and can be reached via Facebook, Twitter and avi@atomicinc.com.
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