Book Review: The Mind Share MarketPosted: June 23, 2011 | Author: Greg Linster | Filed under: Book Reviews | Leave a comment »
Suppose you were starting a company with the intent to make money. Two obvious questions you’re liable to be asked in the start-up stages are: how are you going to generate revenue and how are you going to turn a profit? If you said that you planned on giving away your product for free, investors might look at you like you’re crazy. Free products are, however, contrary to popular belief, a means to increasing market share and profits.
According to Nicolas Pujol, a “currency” is also exchanged at the zero-price level even though no physical currency is actually exchanged. The currency used in this transaction is called “mind share” and I would argue that it’s one of the most important forms of currency for many of today’s aspiring entrepreneurs. Understanding how this “mind share” currency works and learning how to capture value for your business with a zero-price is what Nicolas Pujol’s book The Mind Share Market is all about.
If you remain skeptical of the zero-price you must ask: How did Google, providing merely a free service, obtain a market value of $160 billion (that’s billion with a “b”) at the time this book was written? Pujol details the answer to this question exquisitely throughout the book. The answer appears to defy everything we thought we knew about the foundation of economics, i.e., that buyers and sellers come together in a place called a market and use a monetary currency to trade goods at a positive price.
At a zero-price (or a negative price), there should theoretically be no sellers, but as we see in reality, strangely, there are firms pricing products and services at zero. What’s happening here? Is everything we thought we knew about economics wrong? Not exactly. The short answer is that there is a non-monetary and invisible currency being exchanged between the buyers and sellers. It’s called “mind share”.
Network effects are one example of an effect that can be created using “mind share”. A network effect is defined as “a change in the benefit, or surplus, that an agent derives from a good when the number of other agents consuming the same kind of good changes.” Cell phones are a great example. The more cell phones there are on the market, the more useful they become. Hypothetically, one could create a network effect by giving away a product for free and then charging for a service that must be used with the product. This is one small example of the power of “free” for entrepreneurs.
What, then, is the exact value of free? Can it be quantified? Can free products lead to dramatic gains in market share and profits? Pujol touches on these questions and more in brilliant detail throughout the book. The Mind Share Market contains success stories and illustrates many of the concepts I’ve briefly touched on here and many I haven’t. The book also uses a fictional company to analyze how a company may respond to various real events. I’ll warn that sections of the book are a bit academic in nature and tone, but there is still plenty of value to be had for the lay business reader as well as for academics. Capitalism rewards those who understand the power of mind share markets, and as such, I would recommend reading this book if you’re interested in business and entrepreneurship.