The Greek philosopher Zeno wrestled with this concept in a slightly different context. In Zeno's dichotomy paradox, you run toward a wall. As you run, you halve the distance to the wall, then halve it again, and so on. But if you continue to subdivide space forever, how can you ever actually reach the wall? The answer is that you can't: Once you're within a few nanometers, atomic repulsion forces become too strong for you to get any closer. In economics, the parallel is this: If the unitary cost of technology "per megabyte" or "per megabit per second" or "per thousand floating-point operations per second" is halving every 18 months, when does it come close enough to zero to say that you've arrived and can safely round down to nothing?
The answer: almost always sooner than you think. What Mead understood is that a psychological switch should flip as things head toward zero. Even though they may never become entirely free, as the price drops there is great advantage to be had in treating them as if they were free. Not too cheap to meter , as Atomic Energy Commission chief Lewis Strauss said in a different context, but too cheap to matter.
Indeed, the history of technological innovation has been marked by people spotting such price and performance trends and getting ahead of them.
From the consumer's perspective, though, there is a huge difference between cheap and free. Give a product away and it can go viral. Charge a single cent for it and you're in an entirely different business, one of clawing and scratching for every customer.
The psychology of "free" is powerful indeed, as any marketer will tell you. This difference between cheap and free is what venture capitalist Josh Kopelman calls the "penny gap. In many cases, that's the difference between a great market and none at all. The huge psychological gap between "almost zero" and "zero" is why micropayments failed.
It's why Google doesn't show up on your credit card. It's why modern Web companies don't charge their users anything. And it's why Yahoo gives away disk drive space. The question of infinite storage was not if but when. The winners made their stuff free first. Traditionalists wring their hands about the "vaporization of value" and "demonetization" of entire industries. The success of craigslist's free listings, for instance, has hurt the newspaper classified ad business. But that lost newspaper revenue is certainly not ending up in the craigslist coffers.
But free is not quite as simple — or as stupid — as it sounds. Just because products are free doesn't mean that someone, somewhere, isn't making huge gobs of money. Google is the prime example of this.
The monetary benefits of craigslist are enormous as well, but they're distributed among its tens of thousands of users rather than funneled straight to Craig Newmark Inc. To follow the money, you have to shift from a basic view of a market as a matching of two parties — buyers and sellers — to a broader sense of an ecosystem with many parties, only some of which exchange cash.
The most common of the economies built around free is the three-party system. Here a third party pays to participate in a market created by a free exchange between the first two parties. Sound complicated? You're probably experiencing it right now. It's the basis of virtually all media. In the traditional media model, a publisher provides a product free or nearly free to consumers, and advertisers pay to ride along.
Radio is "free to air," and so is much of television. Likewise, newspaper and magazine publishers don't charge readers anything close to the actual cost of creating, printing, and distributing their products. They're not selling papers and magazines to readers, they're selling readers to advertisers.
It's a three-way market. In a sense, what the Web represents is the extension of the media business model to industries of all sorts. This is not simply the notion that advertising will pay for everything. There are dozens of ways that media companies make money around free content, from selling information about consumers to brand licensing, "value-added" subscriptions, and direct ecommerce see How-To Wiki for a complete list.
Now an entire ecosystem of Web companies is growing up around the same set of models. Between new ways companies have found to subsidize products and the falling cost of doing business in a digital age, the opportunities to adopt a free business model of some sort have never been greater.
But which one? And how many are there? Probably hundreds, but the priceless economy can be broken down into six broad categories:. This term, coined by venture capitalist Fred Wilson, is the basis of the subscription model of media and is one of the most common Web business models. Again, this sounds familiar. Isn't it just the free sample model found everywhere from perfume counters to street corners? Yes, but with a pretty significant twist. The traditional free sample is the promotional candy bar handout or the diapers mailed to a new mother.
Since these samples have real costs, the manufacturer gives away only a tiny quantity — hoping to hook consumers and stimulate demand for many more. But for digital products, this ratio of free to paid is reversed. A typical online site follows the 1 Percent Rule — 1 percent of users support all the rest. In the freemium model, that means for every user who pays for the premium version of the site, 99 others get the basic free version. The reason this works is that the cost of serving the 99 percent is close enough to zero to call it nothing.
Broadcast commercials and print display ads have given way to a blizzard of new Web-based ad formats: Yahoo's pay-per-pageview banners, Google's pay-per-click text ads, Amazon's pay-per-transaction "affiliate ads," and site sponsorships were just the start. Then came the next wave: paid inclusion in search results, paid listing in information services, and lead generation, where a third party pays for the names of people interested in a certain subject.
Now companies are trying everything from product placement PayPerPost to pay-per-connection on social networks like Facebook. All of these approaches are based on the principle that free offerings build audiences with distinct interests and expressed needs that advertisers will pay to reach.
Scenario 3: It's a free second-gen Wiii! But only if you buy the deluxe version of Rock Band. The company is offering the DVD below cost to lure you into the store, where it hopes to sell you a washing machine at a profit.
Expensive wine subsidizes food in a restaurant, and the original "free lunch" was a gratis meal for anyone who ordered at least one beer in San Francisco saloons in the late s. In any package of products and services, from banking to mobile calling plans, the price of each individual component is often determined by psychology, not cost.
Your cell phone company may not make money on your monthly minutes — it keeps that fee low because it knows that's the first thing you look at when picking a carrier — but your monthly voicemail fee is pure profit.
Like CDs from most street vendors, these did not come from a record label. But neither are they illicit. They came directly from the band. Calypso distributes masters of its CDs and CD liner art to street vendor networks in towns it plans to tour, with full agreement that the vendors will copy the CDs, sell them, and keep all the money.
That's OK, because selling discs isn't Calypso's main source of income. The band is really in the performance business — and business is good. Traveling from town to town this way, preceded by a wave of supercheap CDs, Calypso has filled its shows and paid for a private jet.
Free music is just publicity for a far more lucrative tour business. They then divide that number by the index and multiply by to get a percent. As we mentioned, future inflation calculators generally base their projections on recent averages. A future inflation calculator lets you see how many future dollars will equal a certain number of today's dollars.
Sometimes you can even adjust the inflation rate to see what would happen to your purchasing power if there were extreme inflation or deflation. If your investments aren't providing returns equal to or greater than the inflation rate, you're probably in trouble. You'll find yourself making tough choices about what you can afford as inflation eats into your purchasing power.
In other words, investors should count on inflation and plan accordingly. Preparing for retirement by stashing your savings under your mattress won't cut it if you want to maintain or improve your standard of living. You should consider all investments, among other things, based on their ability to provide inflation-beating gains. The fact that Social Security benefits automatically adjust for inflation is part of what makes them such a powerful resource for retirees.
Now that you know about inflation, you can start working on strategies for beating it. Zoom between states and the national map to see the places that have been the most resistant to inflation over ten years. Methodology We determined the cost of living for each location by looking at the price for a basket of goods. The goods included basics like milk, shampoo and rent.
We did this for both and We also calculated the average per capita personal income for each city for both years. To figure out how far money would go in each city, we calculated purchasing power.
We divided the average per capita income by the cost of living in each city for both and The change in purchasing power from to then shows us the metro areas in the country that have seen the least inflation over the past decade. What is an Index Fund? How Does the Stock Market Work? What are Bonds? Investing Advice What is a Fiduciary? What is a CFP? I'm an Advisor Find an Advisor. Your Details Done.
This is an average inflation rate of and cumulative inflation of. The following chart shows the change in value of from to. A projected inflation rate of was used to calculate values from to. Historical Rate Projected Rate. About This Answer. Our Assumptions. Historical inflation rates are useful for determining general trends over long periods of time. Historical inflation rates, however, will not necessarily provide an accurate estimate of future inflation rates -- unless they are not expected to change.
It is better to find estimates of expected future inflation rates. In addition, you should account for any differences between the expected inflation rate of a particular good from the composite inflation rate.
The general formula for the future price equals the current price times the inflation rate for every year into the future. If you wanted to compute the expected price in two years, you could use the formula:. Estimated inflation rates are 0.
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