Once a product or service becomes digital, its cost inevitably marches toward zero.  This is the premise of the latest book from Chris Anderson called ‘Free: The Future of A Radical Price’.  In this book Anderson argues that once the creation costs of any digital asset are covered, the incremental cost of delivering anything digital is so low it’s not worth measuring.

The new internet generation are hard wired not to pay for bits

Anderson examines the human behavior behind why we feel there is value in paying for things made from atoms, for example a newspaper, a music CD, a DVD, training materials, encyclopedia, boxed software etc but yet, the moment it turns from physical atoms to bits and becomes available online, our desire to pay evaporates.  Ask yourself would you pay £0.60 for an online newspaper each day?

The book challenges you to reconsider how you market and price your digital products and services and examines the very successful companies that have embraced giving their digital intellectual property away for free and make their money in other, less conventional ways.  For example the gaming companies that gives away the game, but people can buy tools using real world money to assist them in the game.  Some 10% of people pay and the recurring revenue from this 10% it turns is more profitable than the 3 weeks at the top of the games charts.  The book is packed with similar examples.

To prove his point, Anderson gives away the audio book but asks you to pay if you want the print edition.  The summation is that if you operate in the digital world, you almost inevitably need to find a model that gives the use of your intellectual property away and look at other revenue streams that opens up from having advocates.

Understanding how we perceive value and how we ultimately market and price our products/services is a science.  This Ted Talk video from 2005 is well worth the watch to help understand how to deal with the changing world and how your customers understand value.