Free! Why $0.00 Is the Future of Business:

There is, presumably, a limited supply of reputation and attention in the world at any point in time. These are the new scarcities — and the world of free exists mostly to acquire these valuable assets for the sake of a business model to be identified later. Free shifts the economy from a focus on only that which can be quantified in dollars and cents to a more realistic accounting of all the things we truly value today.

I highly recommend the linked article above on the economics of “free”. The article has a nice breakdown of different sorts of free economies, including:

• “Freemium”, where premium users subsidize free content for the rest (a model that has failed for most newspaper websites, for example)
• “Cross-subsidies”, which covers the classic Gillette razor-blade model (give away the razor to convince people to pay for the blades)
• “Zero marginal cost”, such as online music which is not free to generate but is (virtually) free to copy and distribute
• “Gift economy”, which the articles categorizes open source software under. 
• “Advertising”, which covers traditional television and radio content paid for by advertising sponsors

The inclusion of advertising-based models in this taxonomy makes me wonder about the novelty of the whole phenomenon – content funded by advertising goes back a long time, and certainly has been a dominant organizational in television throughout its history (with the exceptions of HBO, etc.). It seems like advertising based TV-shows are quite a different phenomena from, say, Free Software. I think Free/Open Source Software fits nicely under the zero-marginal cost rubrick, and am confused as to why they have a different location for it. FOSS is not cheap to produce (in terms of effort, anyway), but is incredibly cheap to distribute and therefore zero marginal cost. Because of this cheap reproduction cost, FOSS can function in ways that look more like a gift economy. The distinction between wikipedia or firefox and freely distributed music is pretty minimal on this count.

Lastly, I think it’s interesting how much the article plays up reputation and attention as scarce resources. I wonder how well that maps onto the thinking of advertisers and content producers. In the final analysis, the advertisers still want your money (right?) and attention and reputation are just vehicles for that, and I think it’s a bit foolish to lose track of that. We do not, after all, live in the whuffie economy of Cory Doctorow’s Down and Out in the Magic Kingdom.

All in all, an excellent introduction to thinking about the economics of abundance and “free”.