The Free Economy

By Uncle Cheng

“Nothing in life is free”. We have all heard people say that. Yet I am beginning to wonder if it is still true. Nowadays so many things seem to be free. It is a perplexing phenomenon of the modern world.

Evidently it is a strict law of economics that somebody somewhere always has to pick up the bill — i.e. nothing is ever free of charge. But how to explain then the free newspapers and free telephone calls that are thrown at us? It seems the public are being showered with goods and information for which we are not being asked to pay a cent. We are living in an amazing economy full of freebies.

Wherever you look goods and information, which we once had to pay for, are now available for free. It is not just free newspapers on the MTR. When did you last have to buy a ballpoint pen, a diary or a calendar? DVDs are given to us as promotional items or we can buy them for virtually nothing.

Of course the internet is the biggest driver of this free economy. It is an odd paradox that in this age when intellectual property matters more than ever before in history, digital information is increasingly free. The internet is full of free articles, videos, and vast archives of data. Dictionaries, books, images and just about anything imaginable are legally available for free on the internet. Why buy a dictionary when it can be sourced free on the web?

Then there is something called “open-source” free software like Linux which means computer users no longer have to buy expensive Microsoft software. Email addresses, which used to be charged for, are now free. Computer memory is now available for free from Yahoo and Google.

These changes are happening at an astonishing speed. Not many years ago it could cost HK$20 a minute to phone overseas. Such a cost today is unimaginable. In fact we can now use the internet to make phone calls free of charge. Google’s CEO, who should know about such things, says mobile phones will be complimentary items financed by advertisers. An American professor predicts phone calls to any destination worldwide will cost the same minimal price, which in the case of the U.S. means between 1 and 2 US cents a minute. That would mean the cost of calling Guangzhou from Hong Kong would be the same to Buenos Aires.

I also read that even food is being given away. Tesco supermarkets in Europe have been distributing free tins of beans. Websites enable consumers to check where food is free (freesite or ourfreestuff).

Where the free economy is having by far the biggest effect is in the world of intellectual property. The cost of distributing information has quite simply crashed. Think of it like this. If you read a publication on the internet it does not matter to the publisher if you are one of 1,000 readers or one of 1 million readers — the cost is the same. Maybe it is only a matter of time before all intellectual property is free of charge.

Old accounting methods are being turned upside down. Financial institutions used to sell investment analysis but give it away free. An internet user who prints a newspaper article bears the cost that was once borne by the publisher. A whole new business world is being created at record speed. A new invention is the “freemium,” which is a marketing ploy to tempt consumers with free items before selling then extras at premium high prices. The phone website Skype has a neat trick — members call one another for nothing but must pay to call non-members. Publishers have learnt that readers of their free-to-view websites can be made to pay for special interest items like football games.

Unfortunately there are some prices that are immune to the internet. Restaurants for example. The cost of eating out just goes up and up. I will be horrified when a meal in my favourite restaurant costs $1,000 a head and it will be little consolation that the cost of a hour-long phone call to San Francisco is only $10.

Sophie's note: Sigh, Sophie has been blogging for free. Sophie has not earned any money to buy dog biscuits, which are not free in the real or virtual world.

Google Eats YouTube

By Uncle Cheng

Imagine the scene. A group of young executives wearing jeans and short-sleeve T-shirts working from a converted garage littered with empty Starbucks polystyrene cups and Big Mac wrappers. All of a sudden they find that their start-up business, which has little or no revenue, is worth HK$13 billion. Is this another 2000-style dotcom madness? I am of course referring to YouTube. If you don’t know what YouTube is, ask any kid.

I must admit that when it comes to the internet I am a happy novice and spend more hours with legal textbooks like Archbold (a sort of bible of the criminal law) than surfing the web. But ideas like Google and YouTube still intrigue me.

In the old days companies grew slowly and steadily and you could follow their progress year by year, even decade by decade. But the internet has changed all that. Firms like Google arrive like a meteor from heaven, their valuation exploding like someone with a massive nosebleed.

The experts in Silicon Valley seem to think the YouTube phenomenon marks the internet’s second stage, or what they call “Web 2". The old “Web 1" was just getting online and looking up stuff. The difference is that “Web 2" puts the user in control.

This is what YouTube does. It puts you the user in control. You make your home movie, upload it to YouTube, and then anyone anywhere can see it for free. You don’t get paid a cent but you can at least feel like Chen Kaige or John Woo. In this way YouTube overnight acquired a viewer population of hundreds of millions.

Now why didn’t I think of that? In fact, I nearly did. Well, I am almost sure I did. Anyway the YouTube phenomenon is a message for us all. Here was another huge new business set up in a Californian garage. The solution is simple. I am going to set up an internet business selling Californian garages, and then I will sell it to Google for billions.

Thinking about YouTube may numb your mind but consider this. Former US Vice President Al Gore has started something called Current TV which promises to “democratise television” by allowing viewers to produce and broadcast their own films, programmes, or whatever they want. Where will this all end? Will viewers be able to make their own news?

All this reminds me of the old worry in newspaper offices that the best material is written by the readers and appears on the letters page. Similarly, phone-in radio shows have proved so successful because they are user-generated. The same phenomenon is coming to television, which has been trying to get close to its viewers for years via reality shows, soap operas, quizzes, talent shows and “send in your funniest video” programmes.

So was Google mad to fork out such a vast sum for profitless YouTube? When you think about in terms of the democratisation of information and entertainment, my answer is no. This was a clever strategic investment. On the other hand Google has been behaving very oddly recently. It has threatened publishers with destruction by putting entire books online for nothing, and sending out lawyers' letters to anyone who uses `google' as a verb.

The truth is the more you think about Google, the more it leaves you feeling, well, googled. Just think of it. Google is still only eight years old. It ranks as the 31st biggest company in the world. Its capitalisation is HK$975 billion. It is bigger than Coca-Cola.

Is Google a corporate monster or the ultimate ultra-cool start-up?