Deflationary economies yield free-product ecologies

Peter JonesMedia Ecology, Social Innovation, Strategic Innovation

As someone who gets paid to do foresight research, I have a brief response to the Fast Company article How To Thrive In The Free-Product Economy. They state as a “law:”

If a product on the market can be monetized by any means other than directly selling it, a comparable version of that product will eventually be offered for free.

The problem here is the word “monetized.”  And the word “eventually,” which is a long time. But let’s piece apart the dynamics and see why this is the case.

Prices continuing to drop in the face of new entrants in a market is not a given. Competitive dynamics are different based on positioning, market share, strategy.  In the 1980’s prices went up as new entrants competed on features. Televisions did not get cheaper, and consumer commodities such as video rental and CDs raised prices  over the decade, even with cheaper production technology. It was an inflationary time, and it was not all bad. Inflationary periods employ a larger proportion of the population, people buy things, demand rises,suppliers have pricing power.

People who have not experienced a deflationary economy (that’s all of us who weren’t around for the last depression) are making up temporary reasons for this phenomenon. We have a cognitive bias to not recognize deflationary dynamics. So yes, technology enables the “free world,” but it does not determine it. Deflation is recognized when prices drop, quickly, broadly across the economy. The free product economy is not an economy, but a product ecology.  Its a choice among providers to compete on price but earn revenues – usually temporarily – on other business models.

I’m with Jaron Lanier on why this is bad for the culture and economy. Creating a culture of free stuff for consuming privileges consumption over production (art and making), not for those with “patronage” perhaps, but for most. Artists and craftspeople cannot earn a living in this environment and are forced to compete for Starbucks jobs with the other underemployed.

These product ecosystems create a vulture culture, where even hip, otherwise well-meaning startups exploit depression economics to their individual advantage.  Things are free because capital is earning its revenue on the side.  This is a positive reinforcement cycle of diminishing returns – as Facebook is finding this very week.

Following panarchy cycles, this deflationary economy and product ecology may not change until the globalized debt collapse is worked out of the system, and a reorganization of regional economies recovers the next phase of what we once called “economic growth.”