There's a lot of excitement around the mainstream-ification of the various "free" business models. In many cases, there's a conversion back and forth from social to real capital and various toll keepers take a cut when those currencies are exchanged. It's tempting to believe that this is somehow new, but it's not. If we just consider that "interest" or "engagement" is another abstract representation of our time and effort, it's not that distinguishable from other forms of currency. When civilizations converted from raw material trade to official "coinage" and then eventually representative coinage (I.e. coins made from non-precious materials but stil guaranteed by official entities), similar social transformations took place.
These transformations also allow for an increase in leverage. If you need to trade raw materials, you have essentially 0 leverage. If you have coins that represent raw materials, you have convenience but are still limited to the material you are carrying around. As soon as you have coins or paper money that represent a guarantee; you can now engage in leveraged borrowing which allows for economies to do things like speculate, sell future interests, charge interest for risk and most of the normal things that all of us are now used to when we buy stuff we can't or don't want to afford.
In any case, for the sake of this post, the pizza just represents the total volume of a "free" serviced market. In most cases the pizza is expanding as more people become interested in whatever the market represents: games, search, apps, etc. Slicing the pizza occurs when a new service provider enters the market and competes against the existing providers.
We've all seen how this goes... A company has a "great new idea" which will hopefully disrupt an incumbent via a new feature, a superior offering or some other perceived increase in value. Most of these ventures fail for lots of different reasons but it generally is a result of overconfidence in one form or another. Of course, these failures usually take SOME amount of the pizza on their way. As a market heats up, more of these providers enter the market, backed by various sources of leveraged risk.
The pizza is, of course, sliced in an incredibly uneven manner. Generally the top 2-5 providers take a huge share (50-90+%). For example, android and iPhone or google and Microsoft or zynga and... Well... Zynga. The remainder of the pizza is left for all the other providers to fight over. Early or dominant players may survive in the 5-10 rank, but as hundreds more flood in, even those providers find it more and more expensive to maintain their share of the pie. Their relative success feeds the investment to the ever crowding field. Eventually, most of the providers are unable to get enough pizza and they starve. As they do so, they also thin out the pieces of the other providers who then also starve. Thus, aside from the dominant providers, everyone else is starving even though they have some small piece of the pie.
None of this is new or revolutionary of course.
The thing that is interesting to me, is that it's challenging to see what comes after free? Once most of the major services stop charging, compete with each other for eyeballs at an ever increasing acquisition cost, and drive each other to near starvation, what will happen next? What is the value proposition for the customer in a world of competing free services?
Airlines have faced this to some degree in the past decades. As consumers became more price conscious, travel became more mainstream, energy costs more volatile, and so on; airlines became far less stable. So much so that aside from a few stars (like southwest) airlines are not really considered a "smart" investment... Yet they are services nearly all of us use.
From what I can tell the airline industry has yet to solve this problem and so they just kind of lumber along and have occasional disruptions (like JetBlue).
Im wondering if it would be feasible to have a "free" airline. Imagine, for example, that your ticket is free, but you have to stand. For $50 you can sit, for another 30$ you can check a bag, for $15 you can board before other people (thus having a better standing position). I have not done any investigation on the regulations or cost logistics, but a free to fly airline would obviously be very compelling... And I wonder if people would pay close to normal ticket prices by customizing their level of convenience...
These transformations also allow for an increase in leverage. If you need to trade raw materials, you have essentially 0 leverage. If you have coins that represent raw materials, you have convenience but are still limited to the material you are carrying around. As soon as you have coins or paper money that represent a guarantee; you can now engage in leveraged borrowing which allows for economies to do things like speculate, sell future interests, charge interest for risk and most of the normal things that all of us are now used to when we buy stuff we can't or don't want to afford.
In any case, for the sake of this post, the pizza just represents the total volume of a "free" serviced market. In most cases the pizza is expanding as more people become interested in whatever the market represents: games, search, apps, etc. Slicing the pizza occurs when a new service provider enters the market and competes against the existing providers.
We've all seen how this goes... A company has a "great new idea" which will hopefully disrupt an incumbent via a new feature, a superior offering or some other perceived increase in value. Most of these ventures fail for lots of different reasons but it generally is a result of overconfidence in one form or another. Of course, these failures usually take SOME amount of the pizza on their way. As a market heats up, more of these providers enter the market, backed by various sources of leveraged risk.
The pizza is, of course, sliced in an incredibly uneven manner. Generally the top 2-5 providers take a huge share (50-90+%). For example, android and iPhone or google and Microsoft or zynga and... Well... Zynga. The remainder of the pizza is left for all the other providers to fight over. Early or dominant players may survive in the 5-10 rank, but as hundreds more flood in, even those providers find it more and more expensive to maintain their share of the pie. Their relative success feeds the investment to the ever crowding field. Eventually, most of the providers are unable to get enough pizza and they starve. As they do so, they also thin out the pieces of the other providers who then also starve. Thus, aside from the dominant providers, everyone else is starving even though they have some small piece of the pie.
None of this is new or revolutionary of course.
The thing that is interesting to me, is that it's challenging to see what comes after free? Once most of the major services stop charging, compete with each other for eyeballs at an ever increasing acquisition cost, and drive each other to near starvation, what will happen next? What is the value proposition for the customer in a world of competing free services?
Airlines have faced this to some degree in the past decades. As consumers became more price conscious, travel became more mainstream, energy costs more volatile, and so on; airlines became far less stable. So much so that aside from a few stars (like southwest) airlines are not really considered a "smart" investment... Yet they are services nearly all of us use.
From what I can tell the airline industry has yet to solve this problem and so they just kind of lumber along and have occasional disruptions (like JetBlue).
Im wondering if it would be feasible to have a "free" airline. Imagine, for example, that your ticket is free, but you have to stand. For $50 you can sit, for another 30$ you can check a bag, for $15 you can board before other people (thus having a better standing position). I have not done any investigation on the regulations or cost logistics, but a free to fly airline would obviously be very compelling... And I wonder if people would pay close to normal ticket prices by customizing their level of convenience...
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