Where Do You Go When All Tech Is (Near) Free?

The tech industry has been good at making money when there was an air of mystery about technology and availability was almost considered a privilege. But now we’re seeing evidence that almost everything is dropping away in price to nothing. Is it time to start finding “day jobs?” Look at some of the evidence:

• As I’ve mentioned before, the price of hardware is quickly dropping away to virtually nothing. When even PCs are commodities, you end up with devices as premiums for telecommunications or even, as the world turns ironic, content subscriptions. Yes, there are niches for people who will spend real money on computing, but it shrinks in size by the day, particularly when more and more of the computing can be shifted up to the web.
• Software vendors — whether of shrinkwrapped products or some variation of cloud-supplied services — also seem to be racing either other to give ever more away. Although they point to increasing their potential market, they’re also shrinking their saturation size, as they cannibalize the segments that would have paid if it had been the only way to get what they wanted.
• Telecom is going free, or at least unbelievably cheap. Want inexpensive national calling? Skype sells unlimited US calling for something under $40 a year. Double the money and you have a phone number. Or sign up for Google Voice and you get a permanent phone number that you can use now as a single inbound way to reach you. And Google even has apps on a couple of mobile platforms (not Apple — hey, either it or its carrier partners must feel threatened) that will let your Google Voice number be the one that shows up when you place a call, and in its one-time bid for frequency licenses, Google has shown that it wants to build or acquire a wireless infrastructure of its own. That will eventually happen, and then how much longer would wireless carriers be able to charge $99 a month for unlimited calling? Picture low-cost or advertising subsidized calling, maybe with Google piping voice ads into times when you’d otherwise heard dial-tone or on-hold messages.

The concept of “free” is being driven by dropping costs, however that isn’t something only affecting content. When hardware, services, and software creation and distribution costs become so low, the high tech industry finds itself in the peculiar position of newspapers. At one time, scarcity and a lock on distribution fueled high margins. But the foundation is showing not just gaps but fissures. That will have a few implications:

1. Barriers drop to new competition, even in areas like telecommunications that were once considered “safe,” as companies like Google are showing that new business models (even if having insufficient long-term diversity) can throw off enough money to create ambition and competitive danger.
2. Competition begets pricing pressure, as a high degree of function and feature becomes standard.
3. The above two combine to drive prices to levels so low that they might as well be zero.
4. Companies will have to combine free basic and paid advanced offerings (taken up by a tiny minority of users) to gain enough economy of scale to make a significant profit of the few that do pay.
5. Potential business size starts to fall, as revenue potential drops away.
6. The dynamics of stock price start to shift radically as revenue potential changes for most companies, in turn affecting compensation, talent acquisition, and financing future growth.

Welcome to the future. Find a seat and strap yourself in, as the ride will be bumpy.

Image via stock.xchng user lumix2004, site standard license.