Cross-subsidization

Why do people give things away for free these days? It's part of free economics. It's giving away something in expectation of getting paid later.

For example, say I am someone who want's to generate speaking fees. In order to build a reputation that will pay off down the road, I waive speakers fees at my first two speaking gigs.

Not for profit organizations get funded through cross-subsidization. A not-for-profit community center offers free tutoring for kids which is paid for by a grant from the city or from the school district.

There are lots of variations out there. Each involves moving money from one thing to another.

In this economy people expect most things to be free or nearly so. So how does the entrepreneur make money? Offer basic services for free. For extra value you can charge.

I counsel pro-bono at SCORE. I don't charge and am in the office every other week for 3 hours in the afternoon. A client wants to come see me, it's free. If the clients wants to see me in an off hour the client pays. That extra value of being able to seem me at the client's convenience gives me the right to charge them.

Look at how Linkedin works. 80% of everybody on Linkedin (including me) don't pay anything. If you want an enhancement, you pay. When I was a Realtor I wanted to send more inmails. I couldn't send any for free so it made sense for me to pay $50 a month to be able to send more. When I stopped being a Realtor the need for the enhanced service went away and I went back to free.

I'm writing novels. The first one sold very few. In fact I lost money big time. The second one I'm working on I hope will do better. I think if I get 3 or 4 out there my reputation as a writer will be enhanced and the later ones will sell and actually cause added interest in the earlier ones.

Chris Anderson unpacks the idea of "free" in his in his terrific book Free (Hyperion, 2009). Read it and then read his earlier one, The Long Tail. I'm going to reread them both pretty soon.

Entrepreneurship is the life's blood of all my professional activities. It makes them go. And go read my mystery for free at wwww.kearneymusicschoolmurders.blogspot.com or buy it from Amazon.com more cheaply than you can print it out.