Capitalism in the Age of Free Riders

LinkedIn’s recent sale to Microsoft is yet another case in point that freemium business models are a struggle to scale. LinkedIn offers excellent value to its users. Still, few are willing to pay for that value. Thus, the company faces a slowing growth curve, resulting in the decision to sell.

The truth is, on the Internet, everyone wants everything for free. Especially consumers.

And so, almost all media / content related business models are facing a wall.

Yahoo! could not monetize and is on the block. Companies like New York Times and Washington Post are struggling, despite massive audiences.

It seems, Capitalism’s future is bleak.

In its purest essence, Capitalism was about producers creating value and consumers paying to consume value.

On the Internet, consumers assume that value should be available for free.

Of course, the flip side of this assumption is that the consumer then becomes the product, gets monetized through advertising, and all related data is fair to be utilized to make advertising hyper-targeted and effective.

The best-case scenario of this logic is Facebook. The company is making out like a bandit monetizing its highly engaged and infinitely data generating users with super sharp advertising.

The rest of the free/freemium Internet is struggling to grow, even sustain in many cases. In the upcoming years, we will experience the demises of many more brands with large audiences and often, quality offerings.

And after that, what happens?

But for Facebook and a few others, the number of companies that can survive with robust, sustainable business models becomes dramatically smaller. Large sectors of industry experience market failures. Most content oriented businesses fall in this endangered category, and have to turn into non-profits on life-support by the generosity of certain capitalist winners. Washington Post, for example, is on life-support thanks to Jeff Bezos, Founder of Amazon, for whom, writing a $250 million check isn’t such a big deal.

In the twenty-first century, finally, Capitalism is hitting its limits on many dimensions. Welfare and philanthropy are becoming essential blocks to sustain important instruments of society and democracy.

The Internet, one of the great capitalist tools for wealth creation, has simultaneously emerged as the great boundary less welfare state.

Capitalism isn’t dead. It is, however, getting increasingly marginalized, with benefits accruing to small numbers of people.

Photo credit: Chris Potter www.stockmonkeys.com/Flickr.com.