'Free' is(n't) a four-letter word...

The zeroed-out price tag is dismantling many businesses, but it's because they have yet to learn to harness it to their advantage.

Just as Amazon and Google are obliterating profit margins for old-school publishers, so, too, is open source putting the squeeze on them, whether in cloud computing or in search or...you name it. As the world digitizes, there's a mad rush to commoditize everyone else's business. This is good for consumers (low prices!) but not so good for vendors (low margins!).

The problem (and promise) of digitization is, of course, "free." Everyone loves to pay "free," but few really enjoy selling it. Or competing with it.

As Bill Gurley suggests: "The key question for anyone in business is, 'Can someone do what you do for free?' If the answer is 'yes' you have a problem." In a digital world, that "problem" is wreaking havoc on an increasing array of industries.

The problem, however, isn't "free.'" It's that old businesses persist in trying to charge for goods that others give away.

Twitter, for example, may not be making much money from its service, but a host of companies are starting to derive considerable cash from the sale of ancillary software or services, as TechCrunch points out.

Or take the media industry. As Andrew Savikas persuasively argues, media continues to think it's a content business, while the world believes it's a services business.

JP Rangaswami illustrates why:

What if the troglodytes finally began to realise that customers were scarce and digital music was abundant? What if they finally began to realise that downloads were an excellent way to advertise scarce things like concerts and physical memorabilia, as Prince figured out?

And what if the customers have given up and moved on, from the download to the stream?

It was never about owning content. It was always about listening to music.

It was never about product. It was always about service.

The customer is the scarcity.

That scarcity only appears to grow as digital goods proliferate. So much content seeking audience with comparatively few consumers. Something has to give.

That something is, first of all, old business models premised on selling an abundantly available good as if it were scarce. The real model is to foster abundance while selling the scarcity that naturally accompanies it . Google gives away search so that it can help you narrow that search with ads; Red Hat encourages open-source development so that it can boil down that teeming mass of uncertainty to a certified, stable build of Linux; and so on.

Some in the software world don't get this. Microsoft CEO Steve Ballmer can repeat ad infinitum that "We just keep coming and coming and coming" with the same strategy, the same software, the same everything.

But eventually it won't, because even Microsoft's bank balance and "Tenacious. Tenacious. Tenacious" approach can't withstand a perennial battle with 'free' ( or enterprise customers' apparent indifference to more of the same ). Not unless it can re-learn how to make 'free' work for it, as it has with SharePoint.

The same is true for the media industries as well as new-school software companies like Google. Today's profit center is almost certainly going to be given away by one's competitor.

That's why creative destruction must be creative to pay off. It's what drives innovation. No one is entitled to its business model forever, for which consumers should be very, very grateful.


Follow me on Twitter @mjasay.

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About the author

    Matt Asay is chief operating officer at Canonical, the company behind the Ubuntu Linux operating system. Prior to Canonical, Matt was general manager of the Americas division and vice president of business development at Alfresco, an open-source applications company. Matt brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. He is a member of the CNET Blog Network and is not an employee of CNET. You can follow Matt on Twitter @mjasay.

     

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