Free! Is that the only model for online services?

Chris Anderson of Wired is publishing a book in 2009 entitled FREE!, where the central argument developed is that the increasingly lower costs of providing digital services means that companies will afford to give away a lot of these services (and many of them already are). The purpose of this generosity spree is to attract users to the site to then sell them something else (predominantly through advertising on the site). His recent Wired article - "Free! Why $0.00 Is the Future of Business" outlines the argument very convincingly. Of course, we all know that this has been Google's model since almost the start, and the model that all the fashionable sites such as Digg, Facebook, MySpace, and countless startups are using.

Now, at the same time bloggers have started complaining about how all their free labour is being used to drive websites such as Digg, TechMeme (which is almost acceptable) but worst still it is driving hundreds of content aggregators that add no extra value to how content is viewed. The ReadWrite Web blog posted a great article entitled "Content Is Becoming a Commodity", its central argument being that bloggers are loosing control of their content and other websites are finding lots of ways to monetize it. The fact is that things are worse than content becoming just a commodity - content is being exploited for free by many people while commodities provide some revenue to the original producer.

At the same time, all this giving away means that end users are getting used to it. So actually convincing someone to pay for a service or access to content is going to be increasingly harder.

However, the tension between users expecting things for free and the growing discontent of content writers and application developers seeing their work being used for free or having to offer it for free for uncertain future gains will have to resolve itself in some way.

Currently, the balance is clearly on the "free" model but many of the smaller players who are not so happy to play the VC game of "just get the eyeballs and the rest will sort itself" (through an acquisition or selling ads or an IPO) are starting to question the logic of everything having to be given for free on the web.

As ever, the outcome is hard to predict although I hope that some equilibrium between completely free and services being paid for their real worth will be found.

There are two weakness to the "everything free" model that mean that a solution is desirable.

1. It only works on large scales - because you need the large numbers to be able to find enough people willing to perform some of the revenue producing actions, such as clicking on ads.

2. The "free" part is usually paid in the form of sharing some private information with the company providing the service and allowing them to reuse that information to sell you other stuff. Facebook is looking at who your friends are (and wanted to tell them what you buy), Google is looking at what sorts of things you search for, etc.

However, a lot of people would rather offer quality services at a smaller scale or to a niche (and are happy to settle with a good income and not become millionaires in two years) and hopefully some users would prefer not to have all their personal information, social graph or browsing habits scrutinized but actually just be offered a nice, clean, quality service.

To deal with these two weaknesses alternative businesses proposition will have to be developed to allow quality content that does not cater to large communities and does not depend on harvesting private information.

The main challenge for such businesses is to convince people that the quality of their content is worth the (typically) small upfront cost to access them in the face of a world where everything is just being given away.