[venus]

I hope so. Currently, VC money is a horrible market distortion that encourages what is basically dumping - companies with good products and actual business models being starved of oxygen by cashed-up competitors who simply give products away for free. I'm not even sure of the economic term for it but wouldn't be surprised if it's illegal in a few years, after we've gotten more sophisticated.

[api]

A related argument had been made a lot lately about how "free" can lead to scummy business models like surveillance and manipulative black hat media tactics.

You can do free sustainably if your costs are low and if you have something a tier up you can sell. That's freemium and it can work for some things. But if your costs are high or if a paid tier does not materialize... Now you have a big problem. You own a liability, one purchased via massive investment and employing many people. You must find a way to make it pay, so you start looking at what you have a little differently. Your users... Now there's a product.

South Park parodied the grow-first-monetize-later gambit in the "underpants gnomes" episode:

1) collect underpants

2) ...?

3) profit!

Nobody knew the second step back then. Of course now companies like Facebook have shown us what step two is. It's:

2) sniff underpants

:)

[sliverstorm]

I used to think it was illegal under the anti-competitive regulations, but just based on proliferation of the strategy I'm not so sure anymore.

[jiggy2011]

Dumping is usually only illegal for foreign companies to do. The government doesn't care about two domestic firms competing with each other, what they are worried about is the Chinese government using it's vast resources to subsidise the dumping of millions of almost-free tablet computers onto the US market and putting Apple out of business.

[tanzam75]

It is also illegal for a domestic company to price below cost, if that company is a monopoly. Under the anti-trust laws, this is known as abusive pricing.

However, it is legal for a non-monopoly to price below cost. The assumption is that this behavior is self-regulating, because the company will eventually go out of business if it can't make a profit.

If otherwise-viable competitors are driven out of business in the meantime, that's simply collateral damage. The current thinking about antitrust laws is that they should protect competition, not competitors. Eventually, new companies will spring from the nuclear wasteland. (Google Reader and RSS comes to mind.)