This week’s book learning is part 2 of a 2 part series comprising of 4 of my favorite insights from ‘Free’ by Chris Anderson. (Part 1)
Atoms to Bits:
– Encyclopaedia disruption. The encyclopedia business used to be worth more than a billion dollars with Britannica in the lead. Encarta from Microsoft (CD based) first disrupted it before Wikipedia turned the market upside down.
“Free” often turns billion dollar markets into million dollar markets. Of course, while theoretically billions of dollars is lost in terms of market cap thanks to this disruption, the money moves elsewhere/results in other kinds of gain that can’t be measured e.g. productivity gains in case of Wikipedia.
– One winner. The one other distinguishing feature is that while market share may be split in a non-free market between the top 3 companies, in free markets, the top company holds the key to the money with 90%+ share of the market. (e.g. Google in search advertising)
Insight: The moment an industry moves from transmitting atoms (e.g. boxes of encyclopaedia) to bits – free becomes inevitable. So, what can we do about free? Re-think business models……
Reversible business models:
– Denmark gym example. A gym in Denmark offers a membership program where you pay nothing if you show up once every week. If you miss a week, you pay full price for the month.
The psychology is brilliant – if you go every week, you feel great. If you get busy and miss a week (very high likelihood), you’ll blame yourself instead of blaming the business for charging you, as is normal. The instinct is not to cancel membership but to double your resolve.
Such ‘reversible business models’ are being tested all over –
Example 1: Music clubs in Los Angeles began charging bands to play in the club. They realized that bands value exposure more than cash.
Example 2: In China, some doctors are paid monthly when their patients are healthy. If they are sick, it’s the doctor’s fault.
Sketch by EB
I hope you enjoyed the short series on “Free.” For the next couple of weeks, we will be diving into the world of personal finance..
A Learning a Day 