The Dilemma (and Power) of Free

In recent days, I have focused on getting paid for what you know. But, of course, there is another big story in the knowledge economy—one that is still being written. Basically, one of the challenging truths of the knowledge economy is that you will end up giving away a lot of your knowledge.

Google’s search business is the simplest but most dramatic example of this. Their search business yields $20+ billion in advertising revenues each year. But the core product, the search itself, is free. This means that Google gives away huge amounts of value every day and still has managed to become one of the leading companies of the knowledge era thus far.

Another great example is the Grateful Dead. Long before the Internet and downloadable music, the Dead built a business model that was very different from other rock bands. They made their money from concert tickets and merchandise like tee shirts. They allowed people in their audiences to tape their performances—a practice strictly prohibited by other bands, who made most of their money from selling records. Along the way, the band developed a group of rabid fans, some of whom followed them from city to city. This strong community pioneered, in many ways, the approach taken today of countless business people using social media to create communities with and for their customers.

The open source movement is another example of the free versus paid dilemma. This approach is most common in the software market. Java and Linux are the two largest examples of software that is developed by a community and available to all at no charge. Yet there are plenty of vendors that make money selling hardware, services and related software to support the free and open product.

The open source approach is also being taken by selected hardware companies. An example that we have found very intriguing is Arduino, a company in Italy that put the designs of its simple electronic gadget on the web. You can use its designs and build as many of your own gadgets you want. The only restriction essentially is that you cannot use the Arduino brand. Users have used the designs to create projects as varied as a Wii controller for a remote control car, a breathalyzer microphone and a miniature pocket piano. The company benefits from the improvements to the base design shared by their community and gets much more attention than it would if it were just a small company selling electronic gadgets. And it does still make money from selling its own gadgets.

The free-versus-paid dynamic also creates a lot of conflict with traditional approaches to intellectual property. Our legal system affords protection to certain kinds of knowledge assets through patent, trademark ,and copyright systems. The ease of sharing and the open communication of the knowledge economy have created many threats to this system. Some, like the Pirate Party in Europe, advocate the elimination of this kind of property right. It is too hard to predict today where it will all end up. But we can tell you two things with certainty: You should find ways to share some of your knowledge for free and you will still have plenty of ways of making money.

From Intangible Capital: Putting Knowledge to Work in the 21st Century Organization