In his recent Wired article, ‘Free,’ Chris Anderson talks about the economics of free. Anderson’s new book, due out in early 2009, will also be called Free, so we will hear all about this in due time. His core idea is important. How do businesses, so used to proprietary products and services, information control, and the romance of scarcity, compete in an environment where the network delivers such scale (and scalability) that the marginal costs of delivering most things approaches zero?
Think Google apps vs. Microsoft products. As Google’s everyday software applications (word processing, spread sheets, email, collab tools, etc) challenge Microsoft’s old school approach of literally bottling up and packaging and selling things that are free elsewhere, the real rubber for Microsoft has yet to hit the road. Simply ‘revealing’ various source codes here or there does not address the new realities of the free economy.
Free Flights
This is but one example. Consider the travel business in the UK. You can now fly on Ryan Air or Easy Jet from Liverpool or Manchester to Paris (round trip) more cheaply than you can take the train (round trip) from Manchester or Liverpool to London. A round trip fare from the north of England to the South on one of the carriers within the British Rail network (which is now privatized) will cost about 60 GBPounds (which is roughly $120 US). (If you are a business traveler and buy a ticket the same day you travel on, say, Virgin Trains, it could cost you 300 GBPounds-i.e. $600 US, to travel round trip from Liverpool to London. This is about the cost of flying round trip from Atlanta to London). A round trip flight on Ryan Air or Easy Jet from Liverpool to Paris, Nice or Amsterdam will cost you about 40GBPounds, or about $80 US). I know, I’ve done both many times!
The carriers in the British Rail system operate on the Microsoft model, while Easy Jet operates on the Google model. In fact, in Anderson’s Wired article he talks about Ryan Air’s ambition to make air travel completely free. Imagine having this conversation with the CEO of United Airlines or American Airlines! I’ve flown Ryan Air many times, and this is how they do it. Ryan Air radio plays ads over speakers on Ryan Air radio throughout the plane from the moment you board to the moment the safety instructions are announced. They make a ton of money right there, selling ads over the thousands of minutes across their whole European fleet every day. Then, rather than giving away food and snacks, etc., they sell them. They also have a gift cart with toys and stuff for kids, magazines and perfumes for adults, and just about anything else that people will buy.
While this may seem crazy to American flyers, the results are curious, and point toward the Free Economy. Like Southwest Air in the US, Easy Jet and Ryan Air are the most financially successful airlines in Europe (as Southwest is in the US), they have almost impeccable safety records, they run on time more consistently than any other European carriers, and they’ve made air travel almost free.
Now how can Microsoft compete with that?
The Butcher
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