The Economy of Free changes our roles in the free market

Despite its many flaws, of all the simplifying models we have available, the free market has gained the most support and apparently seems to be working the best, if used with caution. Most economies in the world are being run with the assumption that the free market theory is generally true.

Generalising, from a consumer perspective the theory works like this: there are two parties, consumers with money, and vendors with products. Both parties want to have much of what the other party has. The vendor tries to tempt the consumer to buy the product, by making the product more attractive to the consumer. This could mean that the product becomes technologically better, or that it becomes superficially better, which still makes the consumer happier. Because of competition for the attention of the consumer between the vendors, they have an extra motivation to keep improving.

The vendors are trying to please the consumers as much as possible, because the consumers are the people who decide where the money will go. With every purchase, you vote for a specific product. You reward or punish decisions made by the vendors. If a certain decision is bad for the consumer, the vendor will sell less of the product. This is a motivation to do the consumer no harm.

The rise of the internet has made it possible to transmit information for a price that approximates zero, in case of high volumes. It is very easy to reach a very large audience for a very low price. This has made it alluring for vendors to start off giving their product away for free, out of idealism, or because the vendor just likes making the product. The positive reaction of consumers to this has led to the rise of the economy of free. More and more services are available for free.

However, even hosting a very small website is not free. You have to pay for it to stay up. It becomes more expensive when your audience grows. Further costs are added when you want to deliver high quality content, or content that is in popular demand. YouTube is free for us to use, but Google does pay license fees for the music hosted on the video site.

This money has to come from somewhere. In the economy of free it is not the user who pays for the product. Usually the advertisers fund the vendor, but often also investors. YouTube and Google earn a lot of money with advertisements, and so does Facebook. Another example is Ubuntu, also given away for free to regular users. Canonical earns money from delivering various services to companies, and gets it from its investor and founder.

In our little free market model the properties and the quality of the product where determined by the consumer. The consumer pays, so the consumer chooses which products stay, and which go. However, in the economy of free we have a different payer: the companies and persons buying ad space and investing money.

We are just as much the customers of Facebook, as cows are the customers of milk farmers. A farmer has interest in the happiness of his cows, but in the end they are not who they have to please. The people who buy the produce of the cows, the milk, are the real customers. At Facebook we are the milk cows. Facebook’s product is its user population, and the information put online. You might say that we pay with our personal information, but personal information alone is not enough to pay rent and wages, you need cash for that.

Ubuntu’s product is the happiness it provides its founder, and the services provided by Canonical to companies. Its regular users are by no means comparable to milk cows, but they are more a tool than the actual consumers. I don’t mean tool in a negative way, I mean to say that the regular, non-paying Ubuntu users are needed for the cultural, emotional aspects of Ubuntu, for its important community. But in the end, this also does not pay the bills.

So the people we think of as the consumer are in the economy of free no longer the consumer. This changes their influence on the products they use. No longer are they voting directly for a certain product. You can go to another Facebook, but if all advertisers have a certain basic requirement of their product, and all social networks need advertisements to run break-even, then you will never be in control like you are in the super market.

Our role is different, in the economy of free. We are the product. Especially when social pressure is high, we lose part of the say this simplifying model to attributes to us, and ultimately we lose it to the vendors.

Disclaimer: this is not an attack on either Facebook or Canonical, it is just an observation I would like to share with you.

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8 Comments

    1. I don't think that being in a different role is bad, but we need to adapt our expectations and behaviour to reality. It can go wrong, but it can also go well.

  1. Good article and will be a revelation for many! Thanks.

    Now I wonder if any of our Ubuntu artists can illustrate this as a comic… that would even make it more obvious 😉

  2. I've contributed enough money to Canonical to say that if any significant portion of their clientelle was like me, they would certainly be profitable. The fact that end users don't pay the bills is only a result of the infrastucture for their doing so not being in place. New changes to the software center will change this. I've paid a good deal of money for Ubuntu software (mostly games). If Canonical were to get even just a cut of that through the software center, that's a perfectly sustainable business model.

    I don't care how Facebook works, in so much as it does what I want. I don't value my privacy as much as I value my convenience, and Facebook makes my life very, very convenient.

    1. When more paid applications will be available from Software Centre, the position will change indeed. Canonical is of course a very different case than Facebook. However, I'm not sure whether it will, in the near future, be a large part of the revenue.

  3. Canonical's situation is interesting because so many of the people who build their product don't work for them. They are paid by Canonical not in money, but in the product they are building. In that regard we (contributors) have a dual role of both product and investor.

    Canonical vies for the attention of contributors in competition with other distros*, so in that regard they need to make sure their product satisfies the contributors who are also the consumers. And what satisfies contributors? As consumers, we want a product that works well. As investors, we want a product that has wide appeal and a large user base.

    This brings the end-user back to being the ones that Canonical needs to make happy. Happy end-users are the capital that Canonical uses to pay contributors, contributors make the products that keep end-users happy, and Canonical leverages both to sell their other products and services to pay the rent.

    * In a very odd sense of "competition", since with open source any advances made by Canonical are usually available for any other distro to include, without having to win over the contributors to the other distro's community.

    1. This hold somes truth, but not all end-users are contributors. Especially when Ubuntu wants to attract a broader audience more and more users will not be contributors, but passive consumers.

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