The Business of ‘Free’

A few weeks ago I got an email from Wikipedia with the subject ‘This is a little awkward’. I knew from the header that they were going to ask for money. But I was happy to oblige. Wikipedia is one of the triumphs of the internet — a vast repository of knowledge that’s free for everyone. I use Wikipedia daily. So I was happy to support their work.

The Wikipedia email got me thinking about the business model of ‘free’. It’s something that, according to neoclassical economics, shouldn’t exist. Think about it this way. According to neoclassical economics, humans are selfish utility maximizers who act for their own benefit. Individuals part with money only if they receive something in return. But in the case of Wikipedia, donors part with money to receive information that was already free. That’s something a respectable utility maximizer would never do.

And yet Wikipedia continues to exist and thrive. Why?

The answer is that there’s more to human behavior than self interest. Humans are social animals who have an instinct to help others. Wikipedia depends on this instinct. It depends on people giving money to receive something that’s already free.

True, Wikipedia’s business model operates at the fringe. Most businesses don’t give away their product for free. In fact, they can’t imagine doing so. As a representative for Ebay China put it, “Free is not a business model”.1 To earn income, most businesses rely on the act of restriction. They restrict access to their product using property rights. So if you want what they have, you have to pay for it.

The dominance of this paywall model tells us that humans are not purely altruistic — far from it. Imagine that Microsoft started giving away its software for free. Would it continue to earn billions in profit? Doubtful. The majority of people would use the software without giving Microsoft a dime. So Microsoft’s revenue would collapse. This tells us that Microsoft’s income depends on selfishness. People want to use MS Office and so pay to get it … because they must.

To many people, this self-interest model seems like the only way to run a business. But it’s not. Some businesses operate solely on good will. Instead of paywalling their product, they give it away for free. Then they earn income by appealing not to selfishness, but to altruism.

Take, as an example, the free software movement. I’m typing this post on a computer that runs Linux Mint, a free operating system. (It’s a beautiful OS — fast and stable. I highly recommend it.) Like Wikipedia, Linux Mint gives away its product for free. And yet it still earns an income (albeit nothing like Microsoft). Linux Mint earns income because some users give money for software that’s free. It’s a business model based on altruism.

Free knowledge

The email from Wikipedia got me thinking about what I’m doing on this blog. According to neoclassical economics, my behavior is exceedingly naive. I spend hundreds of hours doing research, and then I give away my results for free on the internet. What am I thinking?

I give away my research because I believe that knowledge should be free. Knowledge is our species’ greatest asset — the accumulated wisdom of countless generations. It’s a travesty, in my opinion, to restrict access to this shared inheritance.

If knowledge is free, then how do researchers earn a living? One way is to rely on the power of government. In this model, the government collects taxes (coercively, if necessary) and uses this income to fund research. The resulting knowledge is then given away for free. This is how the public university system works … in principle. But in practice, most publicly funded research gets paywalled by private publishers.

This paywalling of research is a kind of reverse tragedy of the commons. Instead of over-exploiting a common-pool resource, we under-exploit it. Knowledge that could be free for everyone is instead restricted to the few who have journal subscriptions. (Fortunately we have Sci-Hub, which, to the chagrin of publishers, has liberated most scientific articles.)

Besides relying on government, how can researchers earn a living while creating free knowledge? The other option is to use the Wikipedia model: give away knowledge for free and then rely on the kindness of strangers for support.

This is a little awkward

Speaking of the kindness of strangers, that brings me to you, dear reader. On this blog, I give away my research for free. In return, I hope that readers like you will support my work.

If you’re already a supporter, thank-you! If you’re a new reader, here’s a little bit about this site. I started Economics from the Top Down on a whim. I was tired of writing academic papers and wanted to communicate my work to a general audience. So in April 2019, I started this blog.

What happened over the next year and a half surprised me. Economics from the Top Down became far more than a hobby. It’s now my primary research outlet. Since April 2019, I’ve written over 200,000 words here — enough for a sizable book. But that’s just the tip of the iceberg. Because this is a blog about new research, the underside is that I’ve done a ton of analysis. I’ve written about 18,000 lines of code and made over 300 charts to communicate my results.

I’ve been driven to do this by you, the reader. Over the last year and a half, Economics from the Top Down has had 150,000 views. Given that I’m writing primarily about new research, I’m thrilled with this attention. So thank-you, readers, for joining me on this journey.

If you enjoy my research, consider becoming a patron. Yes, you’ll be paying for something that’s free. And that’s exactly the point. Your altruism will help me keep my research where it belongs — in the public domain.

Cheers!

Blair

patron_button


P.S. My next post is going to analyze word frequency in economics textbooks. As part of that post, I’ve been asking people on Twitter to guess the most popular English word that’s missing from econ textbooks. Join the discussion here and here. If you’re not on Twitter, you can send me your guess using the contact form. (No one’s guessed correctly yet.)

[Cover image source: American Libraries Magazine]

Notes

  1. Hat tip to Jonathan Nitzan and Shimshon Bichler for finding this quote from Ebay.

Support this blog

Economics from the Top Down is where I share my ideas for how to create a better economics. If you liked this post, consider becoming a patron. You’ll help me continue my research, and continue to share it with readers like you.

patron_button


Stay updated

Sign up to get email updates from this blog.


2 comments

  1. Actually, it is a good idea to lay out the cost openly.

    In fifties and sixties in India you have to pay a fee to the government for owning a radio. It was the cost for producing the programs. It did not restrict access though. Whenever there was a good play or concert, neighbors who could not afford the radio and the license would come to our house for listening.

    When I came to the US, I was surprised to know that TV was free to watch. In reality it was not. When I realized the true cost of watching TV – buying things that I did not need and diverting my time away from reading quality books – I cut the power chord of my TV.

    Same is true of Facebook and Google. I wish they set an operating fee that I know beforehand, instead of the practice of selling my data.

    Like

  2. Something I would add on the subject of the free open source software movement is that it also provides a different model of capitalism.

    Rather than the relationship between labour, capitalist/entrepreneur and consumer being purely transactional, FOSS encourages users to also contribute to the upkeep of the product – anyone can join in and help develop the product on a purely voluntary basis. The software belongs to everyone, and can be worked on by everyone, to improve the experience for everyone.

    In my opinion that’s what makes Linux and the rest of the FOSS community such powerful challengers to established monopolists.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s