New economics: The onslaught of free

Ten years ago, the Dot.Com boom heralded the destruction of the offline world. Not quite true, as it turned out... but today, some of those predictions are finally starting to come true. The printed media industry is under threat from online competitors (particularly in the US where some venerable and established newspapers have gone under in the past year), online retailers such as Amazon are thriving while the recession is closing their offline competition, Google is putting pressure on 'traditional' software vendors like Microsoft (online applications, email and storage), Voice over IP (virtual telephony) has undercut incumbent telecoms suppliers, and online video and replay is changing the established mass market model of watching television.

The one thing that most of these new models have in common is also the greatest threat - most of what they offer is free. Free to the user anyway. The commercial model that has worked (particularly in Google's case) is online advertising, which is making serious inroads into offline advertising revenues - hence the pressure on newspapers and commercial TV. Can this model stretch to all the new players hoping to drink from the fountain of advertising, or is there not enough money to go around? Can advertising power all online business models, or will we need to create new business models to enable new players to become profitable?

And amongst all this rise of free, why is the subscription model of Sky so successful? In an era of fragmented audience interests, what does that mean for the publicly-funded licence fee that keeps the BBC going? And is it fair that the licence fee should in part be funding the BBC's award-winning online presence, which in turn takes paying readers from the traditional media, and (through iPlayer) viewers from commercial channels?


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