THE BATTLE OVER FREE WEBMAIL

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Finally, there was the revenue side. Yahoo's email wasn't just earning the company money by displaying ads and selling premium subscriptions, it was also increasing consumer attachment to the rest of Yahoo. As people went from email to the Yahoo home page or any of its other services, from finance to news, the company made lots more money. Yahoo couldn't afford to lose market share in email, because those users were so important to the rest of the business. And the value of each user was going up along with advertising rates. As 2004 dawned, it became clear that Google was indeed going to release Gmail. Yahoo needed to have its response ready. On April 1, Gmail launched, and it was just as Yahoo had fconjdtheared: one gigabyte of storage for free. So Rosensweig, then Yahoo's chief operating officer, pulled the trigger and authorized the purchase of tens of millions of dollars' worth of server and storage equipment. On May 15, at an analysts meeting, Yahoo announced that free email storage would go from ten to one hundred megabytes immediately and would soon go higher premium users who had paid for that much storage could have a refund. By the end of the year it had matched Gmail's one gigabyte, and in 2007 Yahoo went all the way, announcing unlimited email storage for free. (Meanwhile Gmail has only gradually increased its free storage, which now stands at just under eight gigabytes.)

What happened after this surprised all the Yahoo executives. Users didn't flee Yahoo's premium email package in droves. There were still some features worth paying for, such as Web mail without ads, and even those people who didn't renew tended to stick around for a while since

they were on an annual plan. People's email behavior didn't change radically, and they continued

to delete messages storage consumption grew more slowly than feared. Nakayama's team wrote software that caught abuse efficiently and kept the spammers at bay. The definition of "unlimited" storage was also something Yahoo could control. You could add all the email you wanted, but Yahoo would watch if you were adding it too quickly, which is one sign of abuse. As Nakayama puts it, "You can drive as far as you want, but not as fast as you want." That meant that Yahoo could add storage capacity at a slower pace, and the longer it could wait, the cheaper that storage would be. In the end, it worked: Yahoo didn't lose any significant market share. Today, it remains number one and Gmail is a distant number three. Yahoo Mail, rather than turning into a black hole of spending, remained profitable. It competed with Google's free by becoming even more free getting first to the inevitable end point of unlimited capacity at no cost. Yahoo "rounded down" and it paid off.

HOW CAN AN EXCLUSIVE CONFERENCE REMAIN PRICEY IF IT'S FREE ONLINE? One ticket to TED, the invite-only conference on tech, entertainment, and design, costs $6,000. Each year, CEOs, Hollywood elite, and ex-Presidents flock to a resort in California (now Long Beach, after a quarter-century in Monterey) to watch 18-minute presentations given by the likes of Darwinist Richard Dawkins, Sims creator Will Wright, and Al Gore (and occasionally, me). In 2006, after years of exclusivity, TED started broadcasting the talks on its Web site for free. To date, TEDTalks have been viewed more than 50 million times. How can TED give away its crown jewels?

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TED Conference, price and attendance Streaming content online isn't the same as being there. Watching the presentations is only part of the experience; an equal part is mingling with other attendees, who are often of the same caliber as those on stage. Come for the talks, stay for the hallway conversations. Plus there's the allure of seeing it first. A ticket to TED isn't devalued by delayed access to the talks; if anything each tickerstjhe t is worth more now that people know what they're missing. In 2006, the first year TEDTalks were available to anyone with a Web connection, the cost of one ticket was $4,400. By 2008, the price had jumped to $6,000 (double what it was in 1999). Granted the price hike included DVDs and special mailings for members, but let's face it, the ticket is

the real incentive. Last year, a ticket was auctioned off on eBay for charity and sold for $33,850. Sure the auction included a few "perks," like coffee with eBay founder Pierre Omidyar and a lunch date with actress Meg Ryan. But then again, regular TED attendees might do the same; both luminaries are regulars. As demand for tickets grows, so does attendance. Since 1998, attendance at TED has nearly tripled, rising by 10 percent each year. In fact, 2008 was the only year in which attendance did not increase. The reason? The venue in Monterey was simply too small to fit any additional people. In 2009, three years after TEDTalks started broadcasting for free, the conference moved to a theater in southern California with double the capacity.

But Google wasn't done. Indeed, it had only just begun its march to use free to enter and compete in any market where software and information economics could disrupt old businesses and create new ones.