Chris Anderson Takes Up The Free Banner

from the economics-of-free dept

As we mentioned recently, Wired Editor-in-Chief Chris Anderson has been working on a book called "Free" for a while now. To kick off discussion on the concept he's now written an article in Wired describing how "free" has been a part of economics for a while and then noting that it's becoming more common thanks to the digitization of so many industries. It's one more piece of the puzzle that you can point people to when they insist that "free" is a bad business model. While it's great that he's writing the book (and has written this article) as it will add to the wider understanding of how "free" needs to fit into so many business models, I have a couple of very minor quibbles about it.

The first, is that even though he positions "free" as something that's played a role in business models for a while, at the end he implies that this has "turned economics upside down." That probably helps sell books, but it's incorrect. By this point, we should be wary of books that claim economics has somehow "changed." As even Chris noted earlier in the piece, all it's really doing is applying economics correctly and realizing that "zero" doesn't break basic economic equations (as many had assumed it would). The second problem, is that by focusing on the most incendiary part ("free") it gets people focused too much on the controversial part, rather than the useful part. Again, that probably helps sell books, but as I've discovered here, focusing too much on "free" simply gets people yelling at you, rather than taking time to understand the arguments you're making. We're already seeing this, as News.com has a snip describing Anderson's theory as "more money can be made tricking consumers into thinking they are getting something for nothing." There's no "tricking" at all, but some people have trouble accepting that notion when it comes to "free." Perhaps it is for the best, though. Chris knows a lot more about selling books and influencing people than I do -- and if he can influence a lot more folks to recognize that "free" isn't a bad thing, then that's going to help push a lot of businesses forward.


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  1.  
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    LBD, Feb 25th, 2008 @ 4:01pm

    'Never be moderate'

    The silent majority has no voice. Sadly, if you come out sounding reasonable, no one hears you, and if you come out extream those who agree with you agree (Even if they only slightly agree), those who do not do not, and those who are in the middle just feel cold. This can be seen in most of the political dialog these days.

     

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  2.  
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    frank, Feb 25th, 2008 @ 5:34pm

    Re: 'Never be moderate'

    Well stated!

     

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  3.  
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    Kevin OKeefe, Feb 25th, 2008 @ 5:48pm

    Thanks for the sanity

    Good to get a contra view on this.

    As someone who has a web based solution people pay for through subscriptions, it's good to hear that neither our customers or us are mad.

     

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  4.  
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    SteamShare, Feb 25th, 2008 @ 6:01pm

    Exactly.

    If people realized how good 'free' was (take SteamShare for example), they'd be all over it. It's the 'wave of the future'. buhlee-dat.

     

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  5.  
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    ChurchHatesTucker, Feb 25th, 2008 @ 7:24pm

    Good call

    He's all about selling his book, which is fine, but he keeps saying that it's different if you give away A to sell B, than it is to give away X to sell Y. I found it quite confusing until you reminded me what the actual object of the exercise was.

     

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  6.  
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    svlad cjelli, Feb 26th, 2008 @ 4:15am

    Freedumb

    Those are all good points that you make, and I agree that the he seems to have focuses on the "controversial" or "incendiary" parts of the topic, though I don't think the only reason for doing this is to "sell books".

    Your criticism would be apt if this were going to be some kind of true economics book, which I seriously doubt it will be, at least not at heart. In the end the book sounds like it will just be a really long editorial on the subject. I expect it to have more of the focus that a news article would have than that of one that was attempting to teach a true lesson in economics. As that I don't feel that it is being misrepresented as such, I feel that it largely makes your complaints relatively moot.

    In the end it sounds like he'll be doing editorializing, and while your points would detract from a true economics book, they won't detract (or will detract less) from this editorial.

     

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  7.  
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    Twinrova, Feb 26th, 2008 @ 4:31am

    Incredible stupidity relating to online free

    It amazes me how articles like this keep popping up but don't detail the true definition of the word "free".

    I've said it once and I'll keep saying it again until it's understood: THERE IS NO SUCH THING AS "FREE"!

    A company, regardless if the item is actual or virtual, can not give away free and survive. It's just can't happen.

    In the case of youtube.com, the storage space isn't free to anyone. It costs someone SOMETHING and in the case of that "free" account, owners are bombarded with ads.

    It's no different than network television. The show one can watch isn't free because it's bombarded with ads.

    No, someone may scream "But consumers don't have to pay for a thing!" and that's true, but there's a difference between $0.00 and "free".

    "Free" is defined as "no strings attached". This means no ads with online, TV, downloads, etc.

    "No cost" is defined as "strings attached". This means ads with online, TV, downloads, etc.

    Understand this, because it's important. In the case of Gillette, this NO COST aspect of his razors worked. There was "NO COST" to the consumer for the actual razor, but the cost was established to run the business through selling the blades. Oh, and one thing to note: Notice how the razors themselves are no longer given away today.

    Competition may drive these prices down, but innovation will drive prices upward to recapture those lost revenues.

    Take a look at the Mach 3 (et al) razors today. They come with ONE blade cartridge, battery, and sell for nearly $10.

    Even a package of disposable razors is nearly $10 (for 10).

    In the virtual world, everything can be given away at no cost. It makes perfect sense to do so IF AND ONLY IF REVENUE IS GENERATED BY THE SITE.

    YouTube.com can NOT survive without ads. Someone's got to pay for the hardware back-end (even if it's leased, it still costs), the cost of site development/maintenance (since when do people work for free?), marketing (got to get the ads on the page, right?), etc.

    Remember the days of the "Premium Account"? Sure you do! It's those days in which sites offered ad-free accounts if you paid a yearly subscription. Where did those go? Oh, right, they were FORCED to zero cost because in order to stay competitive, change was necessary.

    But now those sites are ad driven with NO option to cut them off. Hell, most sites no longer offer the choice because there's a larger return on revenue to make EVERYONE's account ad driven. The more ads, the more revenue.

    Welcome to the new internet. Yes, it sucks because so many people mistake free for zero cost. People think ads are no longer intrusive because every site has them, so they're "part of the web".

    Mike, I beg of you to educate your readers better than stating everything is going to free. It's not and you should know better. Use "Zero Cost" in your articles.

    Because as the owner of Techdirt, you know very well that this site isn't free to you and you're generating revenue by the ads you host here.

    Just because I pay nothing means I'm not getting this site for free. I've got to see those ads which someone had to be paid to make.

     

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  8.  
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    SomeGuy, Feb 26th, 2008 @ 5:09am

    Re: Incredible stupidity relating to online free

    If I have a day job and, in my spare time, I write a series of novels, which I then pay out of pocket to have printed and subsequently give them away for free, how does this fit into your claim that there's no such thing as free? Is my daytime employer actually paying me to write books?

    That's an academic argument, but I think yours is, too. Yes, money makes the world go 'round. Yes, someone somewhere is paying for everything you enjoy, somehow. You probably have a point if we define "free" as "no cost", but if you look at "freebies" as advertising it's set into a new light. Customers don't pay to watch commercials; *sellers* pay to have commercials distributed. Commercials are free (no strings) to the consumer, and encourage him to poney up money for something else. Freebies ought to be the same.

     

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  9.  
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    RHH, Feb 26th, 2008 @ 7:23am

    Free stuff

    So, Will Chris Anderson be giving away free copies of his new book online so that more people will by the paper version? I didn't think so.

     

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  10.  
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    Mike (profile), Feb 26th, 2008 @ 8:55am

    Re: Free stuff

    So, Will Chris Anderson be giving away free copies of his new book online so that more people will by the paper version? I didn't think so.

    Actually, he has said that he will.

     

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  11.  
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    Anonymous Coward, Feb 26th, 2008 @ 10:22am

    Re: Free stuff

    So, given the reply above my response has less meaning, but:

    If he doesn't, that's unfortunate. I'd be much more likely to buy the book if I knew it's quality (unless, of course, it's quality is "poor"). But at the same time, just because he says "this can work, there are modles to support this" doesn't mean that the modle he's using is one such modle. And as unfortunate as that might be, you can't really blame him for it; part of the point is that these modles are untried and would take time to implement, isn't it?

     

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  12.  
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    Twinrova, Feb 26th, 2008 @ 10:42am

    Re: Re: Incredible stupidity relating to online fr

    But your example doesn't pertain to a business. If you were to do this and expect to make money, you won't be writing any new books anytime soon.

    Commercials are free to the consumer but consumers don't tune in to watch them explicitly. They tune in to watch the program, which in turn, displays them. To the consumer, it's not "free", it's at zero cost.

    In fact, if it weren't for the ads, there would be no program.

    Think in terms of going out to a fast food joint. You don't "pay" for the cup, straw, lid, napkins, etc. They're at zero cost to you but the cost is made up elsewhere, usually in the $1.59+ for the soda, which doesn't cost them that to distribute.

    My point is that when it comes to business, there is no such thing as free.

    But feel free to write and distribute your books for free. ;) (I'd be curious to know where you'd make any money on this model).

     

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  13.  
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    Anonymous Coward, Feb 26th, 2008 @ 12:10pm

    Sorry, I really just kept going here...

    Well, as a point, you simply state they're no such thing as free. My example was to point out that yes, there is. If you want to amend yourself and say, "there's no such thing as free if you intend to make money," then it's a different argument.

    There are, in fact, commercials people intentionally tune into. See: Super Bowl, the only time all year some people watch Football, just becasuse the commercials are so great. See also: the "I'm a Mac, I'm a PC" commercials. A well-done ad is engaging rather than annoying; you wouldn't have to trick or coerce consumers to watch well-done ads.

    In terms of fast food, it's always been my assumption that you DO pay for the straws, cups, napkins, etc. Not, as you'll note, explicitly; you don't order a quarter-pounder, a medium sode, and three napkins. But it's all wrapped into the price of a meal: you also don't ask for a sode, hold the cup, and expect a discount. Part of the service of fast food, which you are paying for, are the materials associated with holding and trasporting whatever it is your consuming. I don't find the analogy particularly compelling.

    Now, when you say there's no such thing as free in business, I'm not sure what you mean. Free to who? You argue on the one hand that customers pay for cups, but apply some other criteria to allow them to not-pay for commercials. They don't eat the cups, but they also don't 'watch' the commercials. Regardless, the point is that when people hear "free" they think of $0.00; so you'll have to better explain what free is other than $0.00 if you're going to say it doesn't exist. Beyond that, I hold that freebies should be more like commercials than, well, anything else. Put it in as part of your marketting budget, because that's what it is. If you then want to pass on your marketting budget with higher concert ticket prices and say that people are paying for the 'free' music there, fine. It's still actually free for just about every intent and purpose.

    And when I'm done my books, I have every intention to put them out for free. If you'd like to offer donations to expedite my writing (I can get more writing done if I need to do less work at my dayjob to pay the bills) I can direct you to appropriate methods. In the end, though, I'm not writing to make money: I'm writing to write. I'm writing because I have something to say. Anything beyond that is icing. Something about "work to live, not live to work," or whatever.

    (And if you missed it, donations can fund my writing. Or maybe book signings; those tend to be popular, and even if I don't charge customers to get their books signed, if i'm popular enough I can charge bookstores to have me come for signings. They can put THAT in THEIR marketting budget. There are LOTS of ways to move money around.)

     

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  14.  
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    Anonymous Coward, Feb 26th, 2008 @ 12:11pm

    Re: Re: Re: Incredible stupidity relating to onlin

    And just as a point, yes, you can make a program without commercials -- they've done it before! -- you just need to find some other way to fund it. And *that* is my point. Yours too, I think.

     

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  15.  
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    SomeGuy, Feb 26th, 2008 @ 12:15pm

    Re: Incredible stupidity relating to online free

    From Webster.com:

    Free (Adj.)
    ...
    10: not costing or charging anything
    ...

    To paraphrase, 'free' is defined as 'no cost.'
    Just saying.

     

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  16.  
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    alex, Feb 26th, 2008 @ 2:26pm

    Most misleading article in ages

    I read the article through 3 times to make sure I didn't miss anything. The whole "FREE" article has got to be one of most misleading pieces of "journalism" I have ever seen.

    First and foremost, the entire free concept is dependant on a paying model. Either you are giving away to 99% to massively overcharge 1% of customers willing to pay, or you are giving something away to entice consumers to also buy / rent / attend / use another product. The basic idea of a loss leader isn't new, it is something that has been around for years. Free (or nearly free) is the lazy marketer's standard move. It is way easier to give something away than it is to make a true value pitch that gets consumers to pull their money out because the product has actual value.

    The author fails to follow the premise through to it's logical conclusion. If you give away music to sell concert tickets, what happens if bands start playing free concerts to sell t-shirts? What happens if someone then also gives the t-shirts away for free, because they have advertising on them for another product?

    Free only works when someone pays. Advertising is paid for only because someone is actually buying something. If nobody is buying anything (or at least if nobody is PAYING for something) than the ad market dries up and all these free services have no income model.

    Just like the author's previous book, Long Tail, he is attempting to trap a short term phenomena and try to explain it like earth shattering changes to basic economics. Chris, wake up. The Long Tail existed because you had 40 or 50 years of pent up demand playing out. Once that demand is dried up, the Long Tail will be gone... and heck, if you can download all the old movies you want for free from P2P sites or from some "advertising supported free tube movie site", why the heck would anyone buy anymore anyway?

     

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  17.  
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    mike, Feb 26th, 2008 @ 4:12pm

    Free

    The worst sort of free is where it is actually paid for by a third party. If it is not selected and paid for by the consumer, it leads unfailingly to preverse competition.

    Our free cell phones almost always imclude a bad camera these these days. That was selected by the carrier to sell bandwidth. Most users would select an MP3 player, Pda, good camera, or GPS functions over a bad camera. The bad camera is not free it is paid for by bandwidth charges and you give up something you actually wanted.

    Doctor and patient select drugs. Insurance pays for them. You know how the drug industry "works."

    Stores select ATM machines on the basis of the cut given by the bank, you pay for them. Fees are 4x what is actually required.

    Pay phones ditto. This was a big driver for early adoption of cell phones.

    Free tv does not look a bit like the DVDs you pay to buy or rent.

    Rental car insurnce, real estate closing services, The loans your agent pushes are all examples of nominal free that is actually quite costly, due to perverse competion.

     

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  18.  
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    Justin, Feb 26th, 2008 @ 6:54pm

    Re: Incredible stupidity relating to online free

    SomeGuy,

    It’s called ‘opportunity cost.’ The supposedly ‘spare’ time you spend writing this series of novels is time you could be doing something else. There is no such thing as ‘spare’ time. The money you spend printing the novels could have been spent on other things, even saved to generate income in the form of interest. Opportunity cost is what you give up when you commit your resources to something else. Your daytime employer might not be paying you to write the books, but someone might be willing to do so, or pay you to do something else with your time. I'll give you $5 to clean my car. By not selling your books or otherwise monetizing your time you’re effectively foregoing that income.

    Sure, you may enjoy writing books. It matters is what you do with your time, energy, and money. But you cannot avoid implicitly monetizing your book-writing time in relation to your other priorities.

    Something can only be truly free if it's entirely costless to produce.

     

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  19.  
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    Mike (profile), Feb 26th, 2008 @ 11:51pm

    Re: Re: Re: Incredible stupidity relating to onlin

    My point is that when it comes to business, there is no such thing as free.

    And this is exactly why I said he shouldn't have called the book "free." NO ONE is saying that FREE means no money exchanges hands:

    http://www.techdirt.com/articles/20070919/230654.shtml

    What's been said over and over and over again -- and it's part of Chris' point, even if you are choosing to ignore it -- is that free is merely a *PART* of the business model.

    The trick is recognizing what's free and what you charge for, which is something we've discussed at great length:

    http://www.techdirt.com/articles/20070503/012939.shtml

     

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  20.  
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    SomeGuy, Feb 27th, 2008 @ 5:41am

    Re: Re: Incredible stupidity relating to online fr

    "Something can only be truly free if it's entirely costless to produce."

    And here is where I think you and I disagree. Or at least pass by each other in the night. I'm not talking about "truely free." What I am talking about is "free to the consumer," I think, which is what anyone thinks of when they think of "free" unless they're trying to make a point about economics or business modling (as I expect you are).

    Now, you're right about opportunity costs; anything I do, like writing this comment, precludes me from doing something else. Writing a book precludes me from, say, making music or building a deck. But since I'm equally bad with an istrument and a hammer, this is less of a concern for me. Whatever I do will take time, and i'm sure you wouldn't ask me to monetize "sitting on the couch watching TV," another alternative to writing. Yet somhow you think my writing hobby should be monetized, presumably because "it can be."

    And again, you're right, printing and binding and shipping physical books can be expensive. But if we're talking about PDFs, all of that is significantly less of an issue. The cost of publishing and distributing digital content approaches zero, and Mike points out that market pressures will drive toward that. NOW what I can do is give away my book for free as a PDF and avoid the costs you've mentioned. So now my only cost is the time I spend on my hobby which, as a hobby, I would choose to do anyways.

    If I wanted to menetize this, I could. I could take advantage of whatever popularity my free PDF gives me and monetize that reputation. That's not necessary, but it's possible.

    You start by saying everything has a cost. You end by saying something is only "truely free" if it's costless to produce. You conclude that nothing is "truely free." Sound reasoning and I concur, but I submit that "truely free" is an accedemic and practically useless concept. Freebies, as I've said, ought to be considered advertizing. Fort advertizing to work, yes, you need to have something else to advertize. So figure out what that "something else" is and build your modle. Recoup your "losses" from the Freebies with the price of whatever else you're selling -- and if it helps you sleep at night, remind yourself that the Freebies aren't "really" free; no one will notice the difference.

     

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  21.  
    identicon
    SomeGuy, Feb 27th, 2008 @ 5:46am

    Re: Most misleading article in ages

    If you give music for free and sell tickets, the model works. If you give away concerts, that modle breaks but you just present a new one, selling T-shirts. If you give away the T-shirts, THAT modle breaks, but you just presented a new one: ad space. All three modles use free, all three modles 'work,' some more than others (odds are you'd get littlre ad revenue from the T-shirts).

    Giving away digital music to sell tickets works better than giving away concerts to sell t-shirts because you're giving away something infintite (digital music) to sell something finite (tickets) rather than giving away something finite (tickets) to sell something finite (t-shirts). Anyone who wants the music can take it, and there's effectively no cost in distributing digital music, but even if you WANT everyone to come to your free concert, your venue can only hold so many at once.

     

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  22.  
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    Julian, Mar 4th, 2008 @ 1:28am

    Accessing the information costs

    He never mentions the cost of accessing the internet - in order to be sitting here and reading this article I had to buy an expensive computer, and pay a monthly fee for access. Which is why for millions of people in the world, the idea that the internet is 'free' is laughable.

     

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  23.  
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    Alper, Mar 5th, 2008 @ 4:16pm

    more voluntary than free

    I'm busy writing up a talk I'm giving on this concept, but if you think about it the trend bigger than free is voluntary. If you let people pay after the fact and what they think it is worth, you open the door for more price discrimination and stuff is definitely not free in that case, but people are happier with it. Our startup Tipit.to (http://tipit.to) applies this principle to websites so they can get tipped money by their visitors.

     

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  24.  
    identicon
    caity420 from the old steamshare, Jul 10th, 2008 @ 10:00pm

    Yea Check Out SteamShare now!

    Former team of Ariel Ruff and Chris Cashwell split up after running what was one of the porn tubes greatest sites.
    after this breakup chris let ariel have the site... but about 1 month later he went back on his word by hijacking
    steamshare to redirect it to explosivexxx.com a site he agreed he would work on after the break up, guess he had other plans,
    now the partner that was supposed to keep it is in a major situation as right before the site was hijacked he had just
    finished the new site steamshare v5. Sources say he is still persuing the name as he out of the two came up with the name
    while doing synonym searches on the net. Ariel told me he is very sorry to the steamshare fans for all of this but he
    will stand strong. He told me to tell you if everything goes bad LOOK OUT FOR www.steamview.com to be released Shortly!
    HES COMMING OUT STONG!
    We wish you luck Ariel!

    -Dedicated fan #2

     

    reply to this | link to this | view in thread ]


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