Competing with open – and free

I’m writing a chunk of my book now about one of my favorite topics: how much I despise real-estate agents and how eagerly I await the doom of their business model. And it so happens that Saul Hansell just wrote a blog post about Zillow and its effort to open up the mortgage market by providing information while protecting customers from spam. There’s this nice quote at the end from founder Rich Barton:

The Internet is a great big race to free. Anyone who has built a business model with a price above free for something that can be free is in a tough strategic position.

Add that to the line from Umair Haque via Fred Wilson that I quoted just below and will repeat now:

Competitive advantage is fundamentally about making markets work less efficiently. One catastrophically effective way to do that is to hide and obscure information – to gain bargaining power relative to the guy on the other side of the table.

And add that to Chris Anderson’s Wired cover story on free as a business model.

Once a marketing gimmick, free has emerged as a full-fledged economy. Offering free music proved successful for Radiohead, Trent Reznor of Nine Inch Nails, and a swarm of other bands on MySpace that grasped the audience-building merits of zero. The fastest-growing parts of the gaming industry are ad-supported casual games online and free-to-try massively multiplayer online games. Virtually everything Google does is free to consumers, from Gmail to Picasa to GOOG-411.

The rise of “freeconomics” is being driven by the underlying technologies that power the Web. Just as Moore’s law dictates that a unit of processing power halves in price every 18 months, the price of bandwidth and storage is dropping even faster. Which is to say, the trend lines that determine the cost of doing business online all point the same way: to zero.