The traditional business has to fund "overhead" in the form of accounting, legal, administration, management, human resources, technology, rent etc.with each vying for more money to fund their initiatives and their silos of "perceived power".
This model has been the accepted model of business for decades with each new management theory creating new sets of accounting definitions including cost, process and activity accounting with each attempting to find better ways to measure productivity, efficiency and cost. Much of the theories behind these "systems" stem from inherited thinking that followed the industrial era where the emphasis was on mass production, distribution, and selling goods to hungry consumers.
Throughout and at the end of each cycle of measurement the all consuming focus was on "hitting the budget" so the collective organization could meet the expected and defined end results. The end results were aimed at financial gains for shareholders, public markets and the organization as a whole. Whether "fudging or factual" business has been consumed with the game of numbers and how leveraging numbers creates perceived wealth, both private and public.
How Do You Account for "Free"?
Chris Anderson recently wrote an excellent article in Wired Magazine titled "Free! Why $0.00 Is the Future of Business". Chris states "The result is that we now have not one but two trends driving the spread of free business models across the economy. The first is the extension of King Gillette's cross-subsidy to more and more industries. Technology is giving companies greater flexibility in how broadly they can define their markets, allowing them more freedom to give away products or services to one set of customers while selling to another set. Ryanair, for instance, has disrupted its industry by defining itself more as a full-service travel agency than a seller of airline seats (see "How Can Air Travel Be Free?")."
"The second trend is simply that anything that touches digital networks quickly feels the effect of falling costs. There's nothing new about technology's deflationary force, but what is new is the speed at which industries of all sorts are becoming digital businesses and thus able to exploit those economics. When Google turned advertising into a software application, a classic services business formerly based on human economics (things get more expensive each year) switched to software economics (things get cheaper). So, too, for everything from banking to gambling. The moment a company's primary expenses become things based in silicon, free becomes not just an option but the inevitable destination."
"The most common of the economies built around free is the three-party system. Here a third party pays to participate in a market created by a free exchange between the first two parties. Sound complicated? You're probably experiencing it right now. It's the basis of virtually all media."
Chris's article got several responses and some claiming that free isn't good for business. We would agree that it isn't good for the "old" business models and only fits and flourishes for those who get the emergence of the "new" business models. Some comments said "you get what you pay for" which has been an old cliché with the new cliché being "you get what you create from free".
Will Money Follow Free?
Kevin Kelly writes "Success in the free-copy world is not derived from the skills of distribution since the Great Copy Machine in the Sky takes care of that. Nor are legal skills surrounding Intellectual Property and Copyright very useful anymore. Nor are the skills of hoarding and scarcity. Rather, there are eight generatives that demand an understanding of how abundance breeds a sharing mindset, how generosity is a business model, how vital it has become to cultivate and nurture qualities that can't be replicated with a click of the mouse."
In the old business models markets were chased and developed based on "relationships". The old business models served the markets with a mindset of "capture and contain" rather than "attract and give". In the old business models the predominant influence was from sales and marketing divisions because they had or created the relationships. If the top sales and marketing people left one firm for another the relationships typically followed. The old system tried to contain relationships by putting "non-compete" agreements on people and heavy handed legal agreements with customers and suppliers, people. You can institutionalize processes but the choice about relations has always been and will continue to be free.
The new business models are created and facilitated by the impact of new dynamics created by the virtual world. Technology has fueled connectivity and creativity feely. What an individual or organization creates from all this "free" that enhances value for the relationships is the foundation of transactions that always have and always will follow relationships, with people and markets, existing and those to be created from "free". Free is the new input into a developing "system" of relationship connectivity, capital and exchange. The related process that lead to the results, output, are part of the new business models where the focus is no longer on budgets rather the focus is on how to maximize the use of "free" to create unique value to relations that fuel new transactions.
All of this starts with a new mindset and ends with new economic gains. The new business model and the subsequent thinking is what is and will continue to fuel new markets and significant economic gains for those that get it and losses for those that don't. That is why we call it "The Relationship Economy". More on this later.
What say you?