From The Long Tail blog

I love this guy....

Last week and most of the week before I was in Spain, Portugal and Italy giving speeches and visiting companies. Whenever I could I talked to people about "free". Here's what I've learned: people are confused by, and often suspicious of, that word and the trend towards the price of zero, I got the same questions again and again:

So nobody's going to make any money?
Does any of this go beyond simply paying for things with advertising?
You don't mean actually free, do you?
This is just online, right?
Is this some sort of trick?
The answers, in short form, are these:

What Free Is--And Is Not.

1) You can make loads of money by giving things away. The key is who you're making money from. Google's products are almost all free to the consumer, but Google makes billions from the advertisers who pay to reach those consumers.This is just the application of the century-old media model--"free-to-air" TV and radio, and newspapers subsidized by advertising to a fraction of their real cost--to any industry that can be turned into a digital product or service.

Think of these markets not as a two-way relationship between buyers and sellers, but a three-way relationship where the third party can be drawn in by something free that creates the product to be sold (in the case of advertising, this "product" is the fabled "eyeballs" that advertisers buy).

2) Okay, so you get that--advertising can make things free. But that's just part of the much bigger opportunity in redefining markets so that you can give away one thing to sell another. Take flying. As Kevin Kelly notes, not long ago airlines scoffed at the notion that you could give away airlines seats. Then RyanAir, EasyJet and, at latest count, nearly 30 other European low-cost carriers lowered the cost of a seat to as little as five pounds (7 Euros). Yes, five pounds.

How? By redefining what business they're in. They're not selling seats, they're selling transportation. They sell hotel and rental car reservations to passengers. They sell tourists to the smaller cities the carriers serve (the payment is in the form of the huge discounts they get on landing fees). They sell cargo shipment to the companies that put packages in the hold (which is why the low-cost carriers tend to charge extra for baggage). They even make money off the food and drink they sell on board.

3) Is there really such a thing as a free lunch? Actually, there sometimes is. Craigslist really is free. Wikipedia really is free. Nobody is "monetizing your attention". It's all thanks to a combination of the falling technology costs of Moore's Law with the Gift Economy. There really are no strings attached.