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Free wifi is like a free lunch

The axiom that nothing is free may seem cynical to some, but stands as a tenets of belief to others, particularly economists.  Because nothing is free, humans rely on exchange to get anything done.

Consider babies who depend on others for survival.  As they get older, they get cuter, especially when they coo, smile, and laugh.  Any combination of the above draws greater attention, which enhances the baby’s chances of receiving proper care: a giggle for more Gerbers.

Mythology and religions basically function as a mortality exchange.  It seems the ancient Greeks were always making saps: fruit for living in the underworld; settle a feud between goddesses to get the girl; rescue the girl for a song- just don’t look back.  Judaism and Christianity both offer paradise in exchange for good behavior on earth; the Catholic Church traded forgiveness for gold.  These are just a few, Margaret Atwood actually has an interesting book that explores the pervasiveness of exchanges and payback.

In the long history of exchange, money, in exchange for goods and services, is a relatively recent, but well-used, entrant.  It certainly benefits a company and consumers in the modern world to have money and make more money.  While a focus on money can deprive someone of other things in life: standard examples include Citizen Kane, Mr. Scrooge, and Mean Mr. Mustard, it also prevents understanding money as on medium of exchange.  The most exciting and successful tech companies seek out exchanges with consumers, while short-sighted people blow-off such ventures because the monetary exchange with consumers doesn’t exist.

While Google may not have been the first company to search out an alternate exchange model, they provide an example excellent for its familiarity.  Instead of charging people to use their site, they accepted people’s information to provide the service.  People may not have known the terms originally, but the model is now common knowledge.  Given that people regularly type google.com to solve many a query, it seems people find the terms of exchange very reasonable.

Monetary exchange between producer and consumer may not be essential but at some point money still talks and very loudly.  In the monetizing paradigm that has evolved, a site offers free services to the consumer who provides information and an audience.  The site then sells information to businesses and the audience to advertisers.

Because the model is so ubiquitous, the consumer expects such an exchange.  So when a statistic like only 20% of Pandora listeners will pay to go premium surfaces, some fear for the future of technology companies.  However, it is simply a matter that the consumer has already paid and is unwilling to pay any more or any differently.

Advertisers and the intended audience seem to play a kind of “try and collect” game, similar to a borrower and a loan shark.  The audience knows the advertisers will eventually “collect” and show them an ad, but tries to delay the ad by ignoring it, switching stations, or inputting false information into online forms.  However, with the new information-based model, consumers now expect a different sort of exchange with the advertisers.  Some information would not be falsified, such as the actual song listened to on Pandora or wall posts on Facebook.  Consumers know companies have such information and want ads accordingly.

Such a game has no real winner, but a new model might end the chase between audience and advertiser.  Boingo, a company that provides wifi service through their network recently acquired Cloud 9 Media, which offers wifi sponsorships.  Companies want accurate information about a consumer’s location to effectively use their advertising budget.  Most people will give their location information in exchange for a service, like wifi, which Boingo now supplies at no charge. The consumer must log-in to a Boingo hub, which then ties the consumer’s device to a specific location.  The advertiser receives accurate location information and the consumer serves as an audience and sees more relevant ads.  As Boingo expands its wifi network in New York CIty, it has partnered with GoogleOffers to deliver advertising tied to Manhattan locations.

Boingo rightly realizes that their new product aligns with consumer expectations of unfettered wifi accessibility and willingness to pay: information and attention: yes, money: not so much.  Their model is also relevant even to those with access to the 3G network because wifi does not count against data usage.

With their new business model and partnership, Boingo has reached, or rather sprung to, the same conclusion as the most promising tech companies: that consumers part with their information much more readily than with their cash.  While cashless trades might seem like the end of profitability, it is simply an early act in a long future of exchanges.

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Trackbacks/Pingbacks

  1. Pingback: Boingo could be a go « econobytes - August 15, 2012

  2. Pingback: Analyze that: challenge accepted « econobytes - August 15, 2012

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