Land of the freebies
The best way to make money may be to offer products for nothing. Huh?
Talk always has been cheap, but transistors have gotten cheaper. That changes everything. Why? Because information wants to be free.
For clarification, please schedule (and be willing to pay for) an appointment with Chris Anderson, the editor-in-chief of Wired and author of The Long Tail: Why the Future of Business Is Selling Less of More, who now has written another book about Web-era economics, Free: The Future of a Radical Price.
Of course, in this context “free,” “future,” “radical” and “price” are relative terms. But for Anderson, one self-evident absolute is that the Internet has made freeness inevitable and ubiquitously viable: The future of business is not just selling less of more, but also selling it for less, and sometimes for nothing.
This is not new (one common variation is the three-party market system—of readers, advertisers and journalists—by which free weekly newspapers exist), but it is evolving. “Today the most interesting business models are in finding ways to make money around Free,” Anderson writes, without really defining “most interesting” in any meaningful way other than by implication that all the cool kids are doing it. And he continues: “Sooner or later every company is going to have to figure out how to use Free or compete with Free, one way or another. This book is about how to do that.”
This is how: Find a profitable way to give away whatever you make instead of selling it. “Give a product away, and it can go viral,” he writes. “Charge a single cent for it and you’re in an entirely different business.” In other words, people won’t pay a penny for crap, but they’ll eat it by the bowlful so long as it’s free. As for how to manage the cost of actually making your product, or how to hedge against the fact that just because it can go viral doesn’t mean it will, well, you’re on your own. A profitable way? Good luck with that.
This is not to say that Free lacks illustrative examples and clever observations. Anderson has considered the important conceptual differences between “free as in beer” and “free as in speech,” between gratis and libre. He has probed the amusing curiosities of extant research on his subject, like price-adjustment experiments elaborating the variable valuation of Lindt chocolate truffles and Hershey’s Kisses, or his own home-entertainment experiments elaborating the variable valuation of Star Wars movies and stop-motion Lego animations thereof. And he has drawn conclusions.
“The more products are made of ideas, rather than stuff, the faster they can get cheap,” Anderson writes. Sounds logical. So if you happen to be Google, for instance, you could give away Web searches and e-mail and become one of the world’s biggest companies, selling lots of highly targeted advertising all the while. But then, if you happen to be Google, you already knew that.
For everyone else, Anderson supplies historic tales of paradigm-shifting products such as disposable Gillette razor blades, which helped popularize “one of the most powerful marketing tools of the 20th century: giving away one thing to create demand for another.” (Sell the razors in bulk at low margins, profit from high margins on the blades.) What he believes the next century will require is the further evolution of that loss-leader mentality: a widespread change from “scarcity thinking” to “abundance thinking.”
“If you’re tapping into abundant resources,” Anderson writes, “you can afford to take chances, since the cost of failure is so low. Nobody gets fired when your YouTube video is only seen by your mom.” Yeah, OK, but nobody gets hired either, and that seems pretty important, too. Not that that’s Anderson’s fault. Maybe it’s your mom’s fault, for being such an enabler of your squandered life. But at least everybody else’s mom seems to have made the same mistake.
Speaking of mistakes and of tapping into abundant resources, there is also the matter of Anderson having copied and pasted passages from Wikipedia straight into his book without attributing them. Once called out on this, he apologized, explaining that after a misunderstanding with his publisher on how best to format citations, he made a pass through his manuscript to rewrite the Wikipedia bits in his own language, but missed some. It’s understandable, and forgivable, but it does send an unpleasant message about how real value can be affected by the will to cheapen.
First published in free digital and paid print versions, Free has been noticed mostly by media-industry professionals (and nonprofessionals), particularly the self-consciously endangered species of hand-wringing journalists who like to write articles mostly for other journalists and wonder why regular readers don’t care. For such people, Free is essential reading, and sometimes very compelling—but also sometimes boring and chorelike, and, in the end, not very useful. Quoth Malcolm Gladwell: “Does he mean that The New York Times should be staffed by volunteers, like Meals on Wheels?”
Not exactly, but Anderson doesn’t necessarily have a better idea. He essentially concedes that what we’ve already learned is still true: Free works until it doesn’t. In his own words, “Free may be the best price, but it can’t be the only one.” Even an infinite profusion of products made of ideas won’t cover all the costs of products made of stuff.
Yet Anderson, who has said he doesn’t like to use the words “news” and “media” and “journalism,” stays his course, breezing right through this conference keynote speech of a book and hocking the premium edition — a live Chris Anderson keynote speech, exclusive to your conference! As he explains, rather crassly under the circumstances, “I’ve got a lot of kids and college isn’t getting any cheaper.” Which is just another way of saying you can bet your bottom dollar that he doesn’t give those speeches for free.