Branding Transit System

In the Nokia World 2007 (Webcast), Chris Anderson of Wired gave a keynote speech on "Free". He described a scenario in which an entire subway line is made free through corporate sponsorship. Corporate sponsorship has enered public transit system, in Dubai. The WSJ talks about the city state auctioning off naming rights of the train lines and the stations.

This isn't going to be free but the Ad revenue will go on to subsidize otherwise expensive tickets. It is a clever move by the Dubai transit authorities this isn't guaranteed to work for two reasons:

1. When you base your profit on sponsorship revenues even though your service adds value to your customers you destroying this value add. Your customers will end up valuing your service lower than they would have otherwise. 
2. If there are any changes in your Ad revenue you will need to compensate with increase in fees paid by travelers. As studies showed, moving from fee to free and increasing fees for an Ad subsidized service  causes customer dissatisfaction. The recent example is the failed attempt by The New York Times to charge for their Op-Ed pieces through Times Select.

In the end it still makes sense to determine your costs correctly and price it based on what your customers will value it.