- Jim and I talked about marginal costs in the comments to his post about the “marginal cost of creativity”: http://www.jmg-galleries.com/blog/2009/07/22/th...
- how to leverage free: http://www.taylordavidson.com/writing/2008/10/0...
- freemium and intellectual capital: http://www.unstructuredventures.com/uv/2008/12/...

(btw, if you want a better analysis of Free than Gladwell's check out Mike Masnick and Alan Patrick. Real economics.)

And I agree with your take on the ability to use free to develop intellectual capital: it's a concept I discussed in a post last year about my fremium life.

But you're right, many debates about free often leave out an analysis of marginal costs; another bit often lost is that some products can be priced below marginal cost as long as total profitability works out (e.g. loss leaders, as you point out).

But you're right, many debates about free often leave out an analysis of marginal costs; another bit often lost is that some products can be priced below marginal cost as long as total profitability works out (e.g. loss leaders, as you point out).

That said, I notice I didn't mention marginal costs once in this post or the comments; but that's because I've written about marginal costs and “free” in other posts about freemium and how to leverage free, and Jim and I talked about marginal costs in the comments to his post about the “marginal cost of creativity”.

(btw, if you want a better analysis of Free than Gladwell's check out Mike Masnick and Alan Patrick. Real economics.)

And I agree with your take on the ability to use free to develop intellectual capital: it's a concept I discussed in a post last year about my fremium life.

The problem comes in counting the full marginal costs and benefits of our actions, few metrics have the robustness to account for the impact of the free intellectual property we supply to the world. Focusing on value, instead of profit, is the real opportunity.

I don't think I could say it any better :)

The odd thing is that most people that create content either a) reject the notion of free and posit that “free” will destroy society and creative content or b) think of free as the solution to all their ills, the best strategy for everyone, for everything, and that everything will be free in the future.

And answer, as we both agree, is neither :)

This too is not an entirely new concept as retailers have used loss leaders for years. However, I think it gets especially interesting when free is combined with a dissolution of intellectual property. For instance, in professional services, free can almost be an analogue to open source. By using free to develop intellectual capital in a free environment, opportunities arise in secondary markets for mature ideas (eg freemium or something like that). Clearly care has to be taken as selling too many things where marginal costs exceed marginal revenue is a failed venture. However, it's also possible we've been overcounting certain costs (at certain times of the product development cycle) and therein lies an opportunity.