On today’s show we’re talking about the race to the bottom. You have to admit, it’s hard to compete with “free”.
There are numerous examples of products and services that used to cost money, that all of a sudden are “free”. If you were in business relying upon service revenue and one of your competitors up-ends the market by offering your service for free, what are you to do? Are you out of business?
Earlier this year, Luxembourg decided to make its public transit 100% free. Luxembourg City, the capital of the small country, suffers from some of the worst traffic congestion in the world. It is home to about 110,000 people, but a further 400,000 commute into the city to work. A study suggested that drivers in the capital spent an average of 33 hours in traffic jams in 2016. While the country as a whole has 600,000 inhabitants, nearly 200,000 people living in France, Belgium and Germany cross the border every day to work in Luxembourg.
Annual revenue from fares – 41M Euros – covers less than 10% of the network’s 491M-Euro operating costs. When you consider how much labour and expense is spent collecting money, counting, sorting, enforcing payment, it actually made sense to eliminate the fares. But think about the impact to the other forms of transportation. If you’re a taxi driver in Luxembourg, you’re probably unhappy about the new free alternative. Will taxis go out of business? Probably not, but free doesn’t help bring more business.
If you’re in the online dating business like match.com, e-harmony, tinder or bumble, you were probably unhappy to hear that Facebook was going to enter the market with a free offering. The service has been live in 20 countries for a while and is now live in the US over the past few weeks. The service aims to put a dent in the $2.5B dating market that is aimed at the 200 million Facebook users in North America who identify as single.
In other news, Charles Schwab began offering commission-free online trading for U.S. stocks, exchange-traded funds and options on October 7. Previously, each trade cost investors $4.95.
Commission fees are charged by a brokerage when you buy or sell a stock, ETF or other type of investment product.
So far, one area that has been defended strongly from “free” services is real estate commissions. The standard model of 6% commissions being split half way between the buyer and the seller side hasn’t budged in a few decades, even though much of what a realtor does has changed significantly.
Finally, specialty news services, Cable TV, and subscription radio are struggling to survive in the era of YouTube, online news sources like Business Insider, and of course the entire podcast movement.
I’ve had several people who want to start a podcast ask me how to monetize a podcast. The simple answer is that you don’t monetize a podcast, at least not directly.
So the question is, why would anyone provide something for free?
Why would a broker provide free brokering?
Why would Facebook provide a free platform?
So why would someone host a podcast for free?
In the case of the podcast, it’s a fair exchange. I provide you with something valuable each day for free. My message will connect with some of you and some of you will want to reach out to me and propose doing business together. That doesn’t mean that every one will be a match, but a subset could be and that’s enough for me.
Some people view free as a race to the bottom. Some free offerings are just click bait. I view free as an opportunity to engage in a conversation and develop a relationship that may turn into something more in the future.