Re: ECON: Everything's free.

Max M (
Tue, 9 Feb 1999 17:00:42 +0100

From: Eliezer S. Yudkowsky <>

&gt;We have three basic business models here:
> is financed by stock prices, which are dependent on market
>share. The incentive is therefore to operate at a loss, because the
>resulting increase in market share brings more stock-based revenue than
>they would get from selling at normal prices.

Unless they turn a profit it's just a pyramid scheme, and those will stop when the market is saturated. Big bang could follow.

It does seem though that amazon are serious. What they are trying to do is just brand marketing as usual: Get a realtionship with the customer to make him loyal, thereby building a brand. As long as the "lifetime" value of a loyal customer is higher than what you spend to aquire that customer, then you have a healthy bussinesplan.

Usually you use the profits from your existing customer base to get new customers, Amazon just borrows from their shareholders. This isn't unusual either. Perhaps they are spending to much money on their new customer base. I would think so, but only time can tell.

Don't buy stocks in this venture right now. They are probably to expensive compared to the kind of income they will generate. Beside. Books will probably cease to exist in any serious form within a decade. The flat monitors are getting better FAST, and wireless technology will be in the homes within 5 years.

All the ISP's will probably be giving away "hardware browser" in a few years time to gain subscribers (that there lifetime value again). Allready You can buy a mobile phone or a modem for less than a dollar here in Denmark!!

>Onsale's atCost distributes items at cost (not at a loss), and is
>planning to make a profit (not operate at a loss) by selling lots of
>cheap ads.

They will probably fail at this bussines model. Due to the extreme competivnes in the PC retail bussines profits are often as low as 10% on a PC system. Giving away the stuff for free will thus not save a lot of money. And then what about support, warranty etc?

Don't buy stocks in this venture :-)

>Free-PC is distributing items for free, on the theory that they can get
>more ad revenue by assembling very thorough marketing profiles and
>charging a percentage of sales.

Those marketing profiles will be VERY expensive to buy if they are to sponsor PC's! I know that we started a direct marketing campaign for a toy chain. It was a huge succes. 200.000 kids became members of the club in a few months. The problem is that it costs $150.000 every time you send a mail to the kids. This is pretty serious marketing money that would probably be better spend on TV adds, or something else.

Thus when the contact price becomes high enough, there are other ways to get your message thru.

Don't buy stocks in this venture :-)

The problem is that all of these "new" bussines models are being hyped, and ignorant stock buyers are jumping the gun. The above mentioned bussineses are not succesfull yet, and they are not any large part of the economy. It's hype pure and simple. The day when one of these models starts to be succesfull then we should take them seriously. We got to keep a little rational sceptiscism.

"There will be a backlash." he said. :-)

# Max M Rasmussen,   New Media Director   Denmark
# Private  
                                  TheWorld =~ s/Microsoft Corporation//g;