Computer

In Six Years in the Valley, The Economist describes how Silicon Valley is entering their second ‘nuclear winter’ of the 21st century. After the dotcom bust, we saw a revival centered on Web 2.0 services, typically provided free to the user, with the assumption that online advertising would eventually provide the revenue stream to ‘monetize’ the venture. Well it might have worked for Google, but now the recession is hitting hard, there’s nowhere near enough advertising revenue to go round. Silicon Valley stands on “ground that is as unstable, seismically and metaphorically, as it was in the earlier bust. The world economy is in crisis, advertising is collapsing and start-ups are once again vanishing into thin air.”

Typically, if something looks too good to be true, it probably is. Products and services can only be provided free of charge if someone other than the user is prepared to foot the bill. If advertising is not sought or is not available in sufficient quantities, it seems to me that there are only so many reasons why this situation might arise:

• The provider is the beneficiary of some form of grant, most likely through government, but perhaps from some charitable institution.
• The provider is treating the product as a ‘loss leader.’ They hope that a positive reaction to the product will boost their visibility and reputation, making it easier for them to sell other products and services.
• The provider offers an entry-level product, hoping to build an appetite for the product that can only be satisfied by a premium version or with the aid of add-on services, such as consultancy, support, training, hosting or adaptation of the product.
• The provider earns enough from other activities that they can afford to offer the product in question for free, perhaps simply because they believe in it. This argument also works at the level of those individuals who contribute their spare time freely, as a hobby or as a form of voluntary work.

We have got used to free content, free web 2.0 services and free software. We cannot assume that this situation will continue indefinitely and we may have to start dipping into our pockets to keep those services that we most value alive. After all, there’s no such thing as a free lunch.