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this business model is now the foundation of entire industries: Give away the
cell phone, sell the monthly plan; make the videogame console cheap and sell
expensive games; install fancy coffeemakers in offices at no charge so you can
sell managers expensive coffee sachets.

Thanks to Gillette, the idea that you can make money by giving something away is
no longer radical.

Virtually everything Google does is free to consumers, from Gmail to Picasa to
GOOG-411.

But tell that to the poor CIO who just shelled out six figures to buy another
rack of servers. Technology sure doesn't feel free when you're buying it by the
gross. Yet if you look at it from the other side of the fat pipe, the economics
change. That expensive bank of hard drives (fixed costs) can serve tens of
thousands of users (marginal costs). The Web is all about scale, finding ways to
attract the most users for centralized resources, spreading those costs over
larger and larger audiences as the technology gets more and more capable. It's
not about the cost of the equipment in the racks at the data center; it's about
what that equipment can do. And every year, like some sort of magic clockwork,
it does more and more for less and less, bringing the marginal costs of
technology in the units that we individuals consume closer to zero.

As much as we complain about how expensive things are getting, we're surrounded
by forces that are making them cheaper.

What does this mean for the notion of free?

The Web has become the land of the free.

From the consumer's perspective, though, there is a huge difference between
cheap and free. Give a product away and it can go viral. Charge a single cent
for it and you're in an entirely different business, one of clawing and
scratching for every customer. The psychology of "free" is powerful indeed, as
any marketer will tell you.

the original "free lunch" was a gratis meal for anyone who ordered at least one beer

Milton Friedman himself reminded us time and time again that "there's no such thing as a free lunch.

"But Friedman was wrong in two ways. First, a free lunch doesn't necessarily mean the food is being given away or that you'll pay for it later — it could just mean someone else is picking up the tab. Second, in the digital realm, as we've seen, the main feedstocks of the information economy — storage, processing power, and bandwidth — are getting cheaper by the day. Two of the main scarcity functions of traditional economics — the marginal costs of manufacturing and distribution — are rushing headlong to zip. It's as if the restaurant suddenly didn't have to pay any food or labor costs for that lunch.

Surely economics has something to say about that?

Chris Anderson (canderson@wired.com) is the editor in chief of Wired and author of The Long Tail. His next book, FREE, will be published in 2009 by Hyperion.