Estimating the value of the free economy at 300 billion

Chris Anderson has done a useful exercise to estimate the value of the ‘really free economy’ (which excludes free as a gimmick and advertising-supported media), which he considers to be in the ballpark of $300 billion.

The article starts by explaining a typology of the free economy, which I think has been done better elsewhere.

See here for an alternative typology of the free economy (graphic here)

See also my own “ladder of open business models“.

Here is Chris Anderson’s calculation:

Open source software (service and support around free software):

* The “Linux ecosystem” (everything from RedHat to IBM’s open source consulting business) is around $30 billion today.

* Other companies built around open source, such as MySQL ($50m annual revenues) and Sugar CRM ($15m), probably add up to less than $1 billion.

Free-to-play videogames:

* These are mostly online massively multiplayer games, which are free to play but make money by charging the most dedicated gamers for digital assets (upgrades, clothing, new levels, etc). They started in South Korea and China (where they’re now a $1 billion business) and have now come to the US, with games like Runescape and NeoPets.

* The “casual games market” (think everything from online card games to flash games) is now at nearly $3 billion.

Free music:

* How much of Apple’s iPod $4 billion in annual sales should be credited to the libraries of “free” MP3 that created demand for gigabyte storage devices? How much of MySpace’s $65 billion estimated value is due to the free music bands put there? How much of the $2 billion concert business is driven by P2P file sharing?

So what’s the bottom line? By a strict definition of free (just the third category), it’s pretty easy to get to $50 billion total revenues. Include the next most interesting free market, online ad-driven content and services, and you’re around $75 billion. Expand that to the traditional ad-supported media, and you can get to $150 billion. Go worldwide, and you can easily double all those figures.

Whichever definition you like, there’s a lot of money to be made around free.”

Of course, money is not the only value evaluation system, and there are sections of the free economy, where no cash changes hands at all, for which we need different wealth acknowledgment systems.

To measure, this kind of ‘immaterial value’, we need a new type of ‘peer to peer metrics’, which we are monitoring via this special page.

Chris calculation also do not take into account eventual destructive effects on monetary wealth, that for example open source software may have caused to proprietary software, estimated at a loss of at $60 billion annually.

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