Economics made easy

The amazing freebie economy

Wednesday, 15th November 2006

Banks that make investment analysis or financial news freely available hope that this will attract customers, who will pay for broking services and indirectly pick up the bill for the website. Consumers who print out documents obtained from the internet incur costs that were once borne by the publisher. There are also other ways of generating revenues. The latest buzzword is ‘freemium’, which translates as ‘entice customers in with free stuff, then charge for extras’. Skype users phone other members worldwide for free, but the company makes its money by charging premium rates for calls outside its network. Newspaper websites make a mint by charging for crosswords and football games.

Even the freebie economy is finding its limits, however. It cannot encroach on labour-intensive services such as hairdressers, plumbers, restaurants or private schools, where costs and prices keep on going up. The reason: productivity gains are few and far between in traditional service industries, which are also hit by higher property prices and taxes. The freebie economy is triggering huge cultural changes but ultimately Heinlein was right: as anybody who ever eats out knows all too well, truly free lunches simply do not exist.