Chris Anderson, the editor in chief of Wired and author of The Long Tail, has posted a very good article on the economics of "free" at Wired.com.

"This difference between cheap and free is what venture capitalist Josh Kopelman calls the "penny gap." People think demand is elastic and that volume falls in a straight line as price rises, but the truth is that zero is one market and any other price is another. 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."

The article goes onto explain six busines models that use free products or services. So, if you've never heard of the "penny gap" or don't understand how someone can make money giving stuff away for free, then this article is a must read for you. Afterwards, ask yourself, which of the six models could you apply to your business or town? Post your comments below to stimulate more ideas from other readers.

http://www.wired.com/techbiz/it/magazine/16-03/ff_free?currentPage=all