Free

The short answer is that you don’t. That’s right kids — the Internet has killed the economy, digital property is worthless, you might as well pack up your ball and go home.

Think about it, unless you are planning on paying your customers for their custom (quite a Web 2.0 business model if you ask me), if there is a perfectly identical substitute product on the market, they are going to take it.

Sad story, isn’t it?

Luckily, it is — for the most part — a complete fiction.


Free Bird

First, lets take a trip back to High School Economics. What you have to recognize when thinking about prices is that basic economic theory states that most every company that has spent any significant amount of time in an industry should be giving its wares away for “free.”

What do I mean? Price competition wants nothing more than to force prices down to marginal costs. If your industry doesn’t have significant barriers of entry, competition will flood the market until everyone is selling at around their costs to produce.

That means that in a perfectly competitive world, a Honda Civic and a Jaguar should be around the same price. They are both motor vehicles with comparable manufacturing costs, after all.

Why then does one car cost so much more than the other? Simply put, we don’t live in a perfect world.

How do you compete with free? Learn to add value.

Car manufacturers don’t sell their cars above cost because there is anything spectacularly different amount their manufacturing process. They can sell them above cost because they spend huge amounts of their budgets making people believe that their vehicle is worth more than others. Every feature, every commercial, every silly widget that finds its way into a car is there for just one reason — to convince you and I that there is something new and unique about the car that makes it worth the exorbitant price the dealer wants to push at us.

What’s the point?

What your product is worth is completely meaningless. What your product cost to make, just as inconsequential to pricing. People don’t make purchases based on manufacturing or distribution costs. People make purchases and pay premiums for value (perceived or otherwise).


Web 2.0 Roundup

So next time you find yourself lamenting the death of your industry to piracy or any of the other chimera’s that we spend obscene amounts of time blaming for our lack of creativity, take a step back and try to figure out what you are actually selling.

Any good car salesman will tell you it’s not the seats, windshield or side airbags that brings people into the lot — it’s the experience, and experience cannot be pirated.

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