Chris Anderson, Malcolm Gladwell And A Look At Free

from the might-help dept

Malcolm Gladwell is an interesting guy. He's an amazing writer and storyteller -- perhaps the greatest storyteller of this generation. And, as such, he's amazing at taking complex ideas or research and making it seem simple and easy to understand. I have to admit that I really enjoy reading almost anything he writes for the pleasure of seeing how it's written. That said, I've found his books to be unsatisfying in the end. Great, fun reads at the time, but I kept feeling like I was waiting for more. I was waiting for the actual substance to back up the amazing thesis. It's amusing then, to see him basically suggest the same thing about Chris Anderson's new book, Free in his review of the book in the New Yorker. That review has kicked off quite an online conversation -- with a response from Chris, and other "luminaries" like Mark Cuban and Seth Godin weighing in as well (Godin agrees with Chris, Cuban doesn't).

A few people asked me if I was going to respond to Gladwell's review, and at first I wasn't sure if it was worth digging in to it, but at the same time, I did want to put up something of a review of Free myself. So, I might as well kill two birds with one stone here. First: a bit of disclosure: I know Chris. Not well, but we've been known to email and talk on occasion, and we sat down and got lunch a year and a half ago when he was first planning out this book, during which I made some suggestions (some he took, some he didn't) though I doubt my words really had that much of an impact (I'm sure he heard similar things from others, and that they were much more clear and eloquent than I was). Also, Chris does mention me in the acknowledgments section of the book, noting that my daily writings here "informed and inspired" the book. Thus, take anything I say with a grain of salt.

There have already been some attacks on Free that have really missed the point. There are plenty of points to attack, but it seems that the problem is that (once again) people get stopped by the big zero, and forget to keep working through the rest of the details. Like I said last time, it's as if our brains have a "divide by zero" error message that prevents all additional thinking on the subject. Nearly all of the attacks on the concept of free seem to focus on the fact that not everything is free (this is what Cuban does, for example). Except... no one ever claims that everything is free. The whole point is that "free" is simply a part of a larger business model, and the fact that you charge for some stuff doesn't take away from the idea of embracing "free" where it makes sense as a part of that business model.

Gladwell, to his credit, stays away (mostly) from this type of mistake, but he makes a few other ones in the process. For example, in responding to Anderson's recognition of the value of non-monetary rewards as a part of the larger economic ecosystem where some business models involve "paying people to get other people to write for non-monetary rewards," Gladwell's retort is:

That said, it is not entirely clear what distinction is being marked between "paying people to get other people to write" and paying people to write. If you can afford to pay someone to get other people to write, why can't you pay people to write?

The answer to Gladwell's question is simply one of economic efficiency. You can pay people to write -- just as Encyclopaedia Britannica does. Or you can get other people to write for non-monetary rewards -- as Wikipedia does. The latter is a lot more efficient a solution, and the difference in productivity and output is quite evident. It's not saying that there is no business in paying people to write, but it's a very different business than the indirect business model, and it's the economic efficiencies that come into play.

Money, at times, is a transactional lubricant. It helps us make transactions faster than bartering three pigs for two trees, a goat and a bushel of corn. At other times, though, money can be friction. It can limit transactional effectiveness by acting as a kind of crutch. That's where non-monetary benefits can suffice (or do a much better job) in rewarding people for their actions. In those scenarios money gets in the way and actually makes a transaction less efficient.

A more efficient solution is a good thing. It helps enlarge markets, increase productivity and make the net of society better off. Much of what Chris discusses in the book is that end result. The process may be messy, but economic growth through efficiency is undeniably a good thing -- and Gladwell seems to miss that point entirely.

That said, Gladwell's comment actually does bring to light my biggest complaint with Anderson's book. I think it's a fantastic read, and quite educational and (at times) thought provoking. But I don't think it goes far enough in diving into the meaty details, which is where folks like Gladwell are led astray. So while I think that Anderson is correct, I'll also say that Gladwell is correct in suggesting that Anderson doesn't clearly answer that question. That doesn't mean that Anderson cannot or that the failure to answer that question means that Anderson's thesis is wrong, even though Gladwell implies the failure to answer such questions calls the entire work into question.

My second issue with the book is related to this, in that while it outlines why "free" is so important and how it's being used and how it plays out in other areas, it really doesn't explain much of what to do about it. This, too, is echoed in Gladwell's questions. He feels that there should have been more about how do you actually apply such things -- and I agree that the book comes up short here as well, though I believe it is on purpose. It lists out examples and business models that are certainly useful to read about, but does little to suggest how you actually apply them. This is speculation on my part, but I remember in our discussion before he started writing the book, Chris explained his goal was to make the book more descriptive than prescriptive, recognizing the difficulties in making a prescriptive book on a topic where there are so many other factors that it's often difficult to outline specific prescriptions. I recognize that challenge, but it does leave the book open to many attacks from people who read it and are left saying "ok, but what do I do about this?" On that, I think the book comes up a bit short -- though, it should provide plenty of consulting fodder for Anderson (and other consultants who jump on the bandwagon, probably without understanding it too much).

The big problem here is that not only will people among the critics misinterpret the lessons of the book, but so will businesses. They'll implement bad business models that have "free" as a component, but that won't be economically sound. No one claims that "free" solves everything, but some will undoubtedly interpret it this way. Then, when they fail, they'll blame "free" and claim that it was wrong, rather than the fact that they implemented a bad business model. This, in fact, is what happened in some areas with The Long Tail, Chris' earlier book. They assumed it said stuff it did not, and then got upset when their improperly created business models failed.

From there, however, Gladwell then goes on to bring up some other criticisms that don't pack much of a punch. He knocks Anderson for using YouTube as an example of using "free" as a part of a business model, noting that YouTube is losing money (though, Gladwell relies on debunked numbers to assert those losses). Similarly, he talks about how the WSJ can charge, Apple can charge for iPhone apps, and cable TV can charge -- but his mistake here is taking a static picture and (often) removing the context. The WSJ can charge, but there are questions about whether that strategy really can last -- and the publication has been opening up more and more stuff as "free" to try to draw people in to that subscription model. The Apple example is quite misleading as well. Estimates suggest that Apple makes very little on iPhone apps, but has really nice margins on the iPhone.

But beyond shoddy research by Gladwell, the bigger issue is not recognizing the dynamic nature of these things at work. Using a little game theory economics wouldn't hurt. By looking at how business models play out when goods have a marginal cost of zero, you quickly learn how opportunities to be more efficient via a well-placed use of free expands the size of certain markets. The trick is recognizing that things that are "free" stop being products that are sold, and become resources -- inputs -- into other products... for free. Thus, you get markets where increasing marginal returns carry the day, rather than diminishing marginal returns. This seems especially odd, given that Gladwell's claim to fame is his ability to pick up on trendlines. To then look at Chris' book and compare it to a static picture of the world is quite unconvincing.

Furthermore, it misses the main point of the book: which is that competition happens, and when it does, price gets driven to marginal cost. You might not like it. You might wish it didn't happen, but arguing against the fact that it's how markets work is like arguing that the sun won't rise tomorrow. No one said that it didn't make economic sense when other businesses had margins squeezed. Yet when that big "zero" shows up, people seem to forget that it's just a number and the basic lessons of the book aren't new or radical -- but the same economics we've always known. It's just that it's applied to markets where marginal cost is zero, something that's become more common thanks to technology.

Gladwell's review, then, does Anderson's book a disservice. It criticizes it because it doesn't answer questions the book didn't set out to answer, and then attacks the picture today without acknowledging the trendlines and the direction that they're moving in. And, finally, it ignores the actual nature of the argument (this is happening) with a moral discussion (is this good?). That's unfortunate. Where Chris' book shines quite frequently is in laying out these trendlines clearly and in a way that will get you thinking. It may not answer all the questions about free, but it should certainly help those who don't stop thinking at the zero to at least recognize the trendlines and get them thinking about how to deal with them. And that is, unquestionably, a good thing.

As Chris did with The Long Tail, he's taken complex economic theory and made it easy to understand in a compelling and highly readable format. While my own personal complaint (above) concerns how much of that economic theory may have been left on the cutting room floor, that's a critique that probably only applies to folks like myself who spend way too much time reading, talking and thinking about these issues. I'm guessing the mass audience this book is targeted for doesn't care so much about understanding the deeper economics, even if it answers the basic questions raised by Gladwell. If you read Techdirt frequently (and enjoy it), then you're quite likely to enjoy reading Free. It certainly complements and adds to the material we write about here frequently, and presents it in a great package.

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I did want to bring up one separate issue, because I get the feeling it will be raised in the comments. There was a lot of attention paid recently to charges of plagiarism in the book. Chris has admitted to the basics of the charges, and explained it as sloppy editing in an effort to deal with concerns about how to cite online content. I have to admit that sloppy editing seems like a weak excuse here, and a bit disappointing. It seems a bit lazy.

That said, I've discussed at great length my position on "plagiarism" in the past -- and, amusingly, much of it is inspired by Malcolm Gladwell's own discussion on plagiarism, where he recognized that someone taking his own work and adding value to it and doing something different wasn't such a bad thing after all, and that it could actually represent an inspiration. So if I were actually "plagiarized" by Chris or anyone else (and I don't believe I was), I'd actually find it something of an honor to have my works as a part of something better and more interesting. I don't think it takes away from the quality of the overall work at all. I would have preferred that such mistakes in attribution did not happen, mainly because it's a distraction, but the issue is a minor one. If Chris can take the works of others and make it into something more valuable, aren't we all better off because of it?

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And Here Come The Attacks On 'Free' Economics

from the it-helps-to-actually-understand-first... dept

You had to know this was coming. With Chris Anderson's latest book, Free, coming out shortly, reviews are starting to pop up misinterpreting much of the book, and making bad assumptions that have nothing to do with the book at all. The key problem? People who are so confused by the title that they think "free" means "no business model at all." That seems to be the problem with James Ledbetter, who complains that Chris Anderson is a hypocrite for not making Wired Magazine free. Except... he does. It's free online for everyone to read. You pay for the scarcity -- the paper version (and even that is sold at a subsidized loss and made up by advertisers). If you understood the economic arguments in the book (i.e., free works really well for goods with a marginal cost of zero), then you wouldn't even bring up the issue of Wired charging for the paper magazine. Then there's an angry critique of Free in the New Statesmen, which starts out with a misguided attack on Anderson's last book, The Long Tail, using a single study (whose methodology had some issues) as support. In attacking "Free," the critic uses some guy who generated some computer models that insisted "free" doesn't work. Yes, computer models. With that, apparently, we can ignore reality. Perhaps the problem was with the computer models?

This isn't really a surprise, of course. When it was first announced that Chris was writing his book (which, contrary to the reviews above, is absolutely worth reading), I warned that by calling it "Free" people would, like moths to a lightbulb, focus entirely on the "free" part, and not the actual economic arguments behind it. Just as I had noted in the past that people seem to get screwed up by the concept of "zero," they also get screwed up by the concept of free. It would be an interesting brain scan study to do, but it seems that many people's brains run into something of a "divide by zero" calculator error when they encounter discussions of "free." They get stuck at the "free" part and fail to get beyond it to see how you use free as a part of a larger ecosystem and business model to increase the overall market potential.

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Update On The Free Summit: Speakers Announced

from the update dept

Wanted to give everyone an update on The Free Summit that I'll be emceeing next month. We've lined up most of the speakers, so check out the agenda. As already mentioned, Chris Anderson will be doing the keynote, talking about some of the concepts from his new book on "Free" (I'm reading it now -- and it's great). There will also be two panels that should be quite interesting. One of the things that we wanted to ensure was that the panels we put together didn't just involve people who all agreed with each other (or with me, certainly), so that the discussion would remain quite interesting. So, on the panel about music, we're having Jim Griffin (who I've certainly clashed with in the past) from Choruss, the major record label-backed attempt to come up with a new business model for licensing music, Gigi Sohn from Public Knowledge, the public advocacy group that has taken a strong pro-consumer position on copyright issues, and Dave Allen from the seminal band Gang of Four, a big advocate of "free," and who now helps plenty of other bands learn how to embrace and profit from "free." It should be an exciting discussion.

We've also got a panel on the news business, involving Kara Swisher from AllthingsD/Dow Jones, Dan Gillmor, the director of the Knight Center for Digital Media Entrepreneurship as well as one of the first "old school" reporters to jump on the participatory media bandwagon, Alan Mutter, a journalism professor/investor/entrepreneur/former reporter who's been a vocal critic of newspapers' decision to go free online (calling it "the original sin") and Marshall Van Alstyne, an economics professor from Boston University and MIT who has studied information economics and who recently debated with Mutter and others on the Freakonomics blog about news organization business models. There will also be a session from Alex Iskold (another person I've disagreed with in the past) who will be presenting on "the dangers of free."

What's great about this is that it really is a mix of folks with (sometimes starkly) different opinions -- but who all believe quite strongly in their positions and are willing to discuss and defend them. I'm hopeful that what comes out of all of this will be some great new insights from all sides about what "free" means in terms of business models and economics today.

Finally, we're excited to announce that, as a part of this, we'll be including a mini-Techdirt Greenhouse at the beginning of the event. For those who have followed Techdirt for a while, you may recall we ran a series of "idea workshops" called the Techdirt Greenhouse, where individuals would do short, 5-minute presentations not as a "demo," but to discuss a challenge they were facing -- and then we broke up the audience into workgroups to take on those challenges and come up with ideas/plans/suggestions. Those events were a lot of fun, and we received a ton of great feedback. We've been meaning to start them up again (and we still get emails from attendees demanding we do so), but have been too busy to focus on them -- so this is a good way to sneak in a mini-Greenhouse, and also get us geared up to do a full Greenhouse again in the near future. In this mini-Greenhouse, we'll be focusing on the challenges associated with using "free" in a business model. It should be a lot of fun...

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Selling To The Long Tail Doesn't Mean You Ignore The Hits

from the understanding-business-models dept

There's an interesting new article in the Harvard Business Review that looks to challenge Chris Anderson's well-known theory of "the long tail." In it, a Harvard professor, Anita Elberse, talks about how hits still make a lot of money, and the idea that all the money is now over in the long tail doesn't seem supported by reality. Chris himself makes some very good points in response, noting that some of this depends very much on where you "draw the line" between the hits and the tail. Since there's a sort of "fat middle," small changes in where you draw the line of what counts in which category can have a big impact. Chris makes a compelling argument that Elberse chose to draw the line in the wrong spot. He uses the inventory of various brick-and-mortar stores to determine where the line should be drawn, rather than at the somewhat arbitrary 10% and 1% lines that Elberse used.

However, I'd like to argue from a different angle as to why the HBR piece is missing the point. I don't think that anyone ever said that you completely ignore the hits. Perhaps it's a problem of the name "the long tail" but it starts to make people focus all the way at the end of the tail -- the part that is the least profitable. It's the point where only one copy of something is sold every so often. The companies that suddenly announced they were going to focus on the long tail seemed to think that you focus only on that tip at the end. That was not the point at all. You don't ignore the hits -- you just recognize that with infinite shelf space, you can now supply much more beyond the hits -- and that aggregate amount can add up to a substantial sum that no store with limited shelf-space can match. So, Elberse is completely correct in suggesting that companies don't just focus on the tail end of the tail -- but anyone who did so in the first place was misinterpreting the point of the long tail concept.

Even more to the point is that the concept of the long tail changes the shape of the market. When shelf space was limited, it made it that much more difficult to even get a creative work produced at all. You had to be able to convince someone that your work would make it into the "hits" category, and then get them to finance the creation of the work. And, anything that didn't actually become a hit fell off the chart completely. You basically had a bimodal distribution of content: the hits that sold, and the crap that didn't and was no longer available. But there was a hidden third category that most people didn't think of: the stuff that didn't get created at all because it wouldn't sell enough alone to justify it.

Yet, with the combination of cheaper tools for content creation, combined with cheaper distribution tools and infinite shelf space, that third "hidden" category started to exist in the open, where it was invisible before. And, on top of that, many of the works that fell into the "crap" end of the old model, could migrate into the long tail and make enough sales to be decent. But the point remains that it spread out the distribution, made it possible for much more content to both be created and sold -- and there are plenty of companies capitalizing on that. That doesn't mean that the hits go away or that the long tail concept doesn't make sense. It just means that you don't focus on the long tail by only focusing on the crap end of the long tail -- but on the entire distribution.

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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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Kevin Kelly's Eight Key Scarcities

from the business-models-for-the-next-century dept

One of the coolest things in writing out my own economic theories on new business models has been seeing some other, much smarter, folks coming up with similar thoughts at the same time. Chris Anderson, editor-in-chief of Wired Magazine and the author of "The Long Tail" is working on a book about "free." He'll be showing how it's not such a crazy idea to price things at free -- and it's actually been done for ages. It should go well with the books on the number zero that inspired some of my thinking. Chris and I have had a few talks about these theories, and I can think of no one better suited to chronicle the history of "free" as it fits into the economic realm. On top of that, it appears that former Wired editor-in-chief Kevin Kelly is now working on another book that touches on the space, and he revealed some of the thinking behind it last week, noting:

"When copies are super abundant, they become worthless. When copies are super abundant, stuff which can't be copied becomes scarce and valuable. When copies are free, you need to sell things which can not be copied."

Hopefully that sounds familiar, just much more eloquently stated than I could put it. While I noted that, even beyond tangible goods, there are always scarcities associated with digital goods, Kelly has put together a fantastic list of eight categories of scarce goods associated with digital goods, noting that each one is "better than free." It's a list worth memorizing, because combinations of those eight things represent the key to a bunch of new business models: Immediacy, Personalization, Interpretation, Authenticity, Accessibility, Embodiment, Patronage and Findability.

It's fantastic to see these ideas getting more and more serious study -- and it also highlights how ideas and concepts spread. All three of us (and quite a few others as well) all came to these ideas through a combination of factors -- mostly independently, I'd imagine. Some interacting with each other. Some through interacting with others. I know that much of my thinking was driven by certain professors I worked with and other books that I read -- combining the different ideas I learned about into this understanding.

If you truly believed in the importance of artificial scarcity, we would all be hoarding our ideas or keeping them secret. Yet that would limit all of us. Seeing Chris and Kevin independently writing and speaking eloquently on these topics helps me both better understand the concepts myself, while also giving me an opportunity to build on their works, to incorporate their thoughts into my own writings, and to hopefully take those thoughts (combined with my own) into new and different areas as well. I can't see how anyone could consider the idea of building on someone else's thoughts "stealing." It appears to be a lot more like "learning" to me. It's the same thing that I see happening here every day as well. While there continue to be people who challenge us in the comments (often helping me to better understand my own arguments as well), I'm also constantly amazed at others who take my own arguments in the comments and make them better. We're all building on the work done by each other, making all of us better off in the long run. It's really quite an eye-opening experience.

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