Still No Free Lunch

Late last month, IAC Chairman Barry Diller said that it's "mythology" to view the Internet as a system of free communications. He’s absolutely right; what's wrong is why he'd even have to say it, or that it would merit any news coverage.

We're going to look back at this decade and laugh, if we're not too horrified by the inanity of our most popular business fantasies.

"Free" is one of the wacky theories that attempts to explain the ways the Internet is rewiring company and consumer interaction; its premise is that since anybody can produce and distribute digital content, the monetary value of writing, music, movies, and even conversation with one another, is just about zero.

Money emerges from other, perhaps ancillary sources to this content, mostly rumored to be advertising, only we already know that online ads don’t necessarily do so well, generally, and that online consumers don’t like seeing them, in particular.

Since so many people are using online services like YouTube, Facebook, and Twitter that profits must inevitably come from all that the activity. The fact that these companies can't figure out how to deliver it -- or can blithely claim to not care -- is evidence of a new economic reality, if not simply a temporary inconvenience. They're rich with billions in unrealized value. "Free" is actually worth lots.

Right. Just like failing to find a price tag on an item at the grocery store means you can take it without paying. Our model for Internet commerce isn’t a mathematical proof as much as a sketch for a perpetual motion machine.

In fact, I'd suggest the "free" model is better labeled the "stupidity" model:

• Consumers have to be dumb enough to miss valuing their own attention and time
• There are infinite resources of free stuff on which folks will spend said value, and
• People with vested interests in promoting points 1 and get to tell us what it all means

Diller, and other media moguls like Rupert Murdoch and Robert Iger, has a vested interest in challenging this model, of course, but his aspirations can be held accountable to, well, accounting. You don't have to throw away the basics of economic theory or human behavior in order to perceive potential profits, or rely on VCs getting investors to suspend their disbelief in order to realize them.

There are cataclysmic changes underway in the marketplace, and entire industries are reinventing their businesses in order to survive (while new ones are being created). But this change challenges us to see through or beyond the immediacy of the moment, and discern what's really going on.

Revealing the myth of free Internet communications shouldn't be such a contrarian idea. In doing so, Diller affirms a deeper, more sustainable idea: there’s still no such thing as a free lunch.

• If a marketing tactic costs less, could it be worth less?
• Do your traditional measures of brand awareness translate online?
• Why is it that trying to make money online isn't the coolest thing anybody could do?