Why Free costs more than Not Free!

The following article might go a long way into understanding why there is a second Internet bubble coming - and how so many more people in the interactive space seem to possess a unique lack of qualifications.
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I find it interesting, and a little disturbing, to see pre-bubble trends repeating themselves in such an obvious fashion; huge investments into a crowded development/market-space focused on a single product type that is promising to make everyone rich. WidgetBucks, like so many social networking / web 2.0 start up is nothing more than an e-commerce referral/pyramid scheme glommed onto an ad network.

I also believe that there is a dangerous trend in what should be a tactical stronghold. Let's call it, "Why Free costs more than Not Free".

A social ad network knows that they offer little value beyond the immediate service of displaying ads/widgets in a context that should be more relevant to a user... based on assumed points of interest. So, they seek to bolster their value, and one way is by offering ideation, creative, and development services. Unfortunately, they often devalue these services by not representing their true costs - they call it "added value" and would argue that it's a competitive advantage. Advertisers are supposed to do the math and figure that they are getting top notch creative services for free. And, everyone likes Free. Or so they think.

In my opinion, the position that ad networks should take is that their networks are only as good as their ability to contextual creative AND the execution of said creative. This would strengthen their position, especially if they were able to point to specific partner relationships and developments, and were able to use THOSE examples as the strategic advantage. Suddenly you have something tangible to tout, advertisers understand their fee structures, and the medium and the message suddenly have value again. I think that often people hear Free and think "this doesn't cost anything, what a bonus" -- what they should hear is that they've been given something without value.

So here is the downfall, ad networks give something away for nothing and in the process devalue both the commodity and the relationships. They do it to gain marketshare. But then so do their competitors. Since you can't go back and start charging for something that used to be Free the only way to keep an advantage is to lower your costs OR innovate new developments and BOTH deplete the ad networks bottom lines. The bottom falls out when you realize that a $10M investment has resulted in some very expensive "tweaking the algorithms" so that the company can remain competitive in a flooded marketplace. So you spend the rest of your cash trying to buy up the competition and plug the leaks. If you are smart you'll have taken a modest investment, pocketed most of it, and waited for the gluttons to offer you $5M to be acquired.

And all of this could have been avoided & positions strengthened (possibly) if you'd represented real costs to advertisers. Well, you'd have to do away with human nature and the compulsion toward Free, but that should be easy. In fact, there must be a widget that does just that.

What! A Post that has nothing to do with cars, racing, or wanderlust? Go here then to be entertained.