…and it could be yours, absolutely free!
“Free,” the latest book by Chris Anderson, author of “The Long Tail” and editor-in-chief of Wired magazine, illustrates how the 21st century’s digital economy of ones and zeros is increasingly moving towards a pricing model where everything is (or should be), essentially, free (Anderson, 2009). Another way of putting it is thus: whereas the marginal cost of reproducing intangible digital goods made of bits instead of atoms is practically zero, whereas Moore’s law and other concepts dictate that the cost of processors, bandwidth, and storage are marching towards nil, and whereas less typical motives for doing business like gaining reputation and raising social capital are on the rise, the very notion that one should pay for digital goods and services is pretty much dead at the door. Anecdotally, for a US economy that is for all intents and purposes steeped in never-ending debt, built on the foundations of imaginary money no less, the irony is not lost upon myself that we really ought not to be paying for anything anyways! Nonetheless, money is scarce, but the resource of intellectual property is endless. “Free” addresses what to do about this, and how real money can be made by giving everything away.
But wait…
In the interest of confessing that I whole-heartedly believe in this gospel of Free, I will offer the counterpoint before moving on. Indeed, not everyone agrees with Anderson. Like who? Malcolm Gladwell for one, who interestingly enough in a February 2004 TED talk illustrated an idea that fits perfectly with Anderson’s previous long tail concept (the skinny end of the distribution graph where companies like Amazon make a collective killing selling small amounts of less popular items; see The Long Tail at Wikipedia for more (The Long Tail, 2009)), discussing in this TED talk how businesses have learned that providing choice, variability, and specialization invariably will lead to greater profit, succeeding in a novel concept: giving consumers what they really want (Gladwell, 2004). Why would Gladwell disagree with Anderson when it comes to “Free”, then? In his review of the book in The New Yorker, Gladwell concedes that Anderson offers a lot of reassuring answers to intellectual content producers who are seeing the digital age destroy their profits through things like piracy and shifting mediums, but contends that Anderson’s solutions hold little weight. These solutions, the gist of which I will get in to later, Gladwell asserts, seem unnecessary or redundant. For example, why pay for the special service of finding someone to write when you can simply pay someone to write (Gladwell, 2009)?
There’s more!
Gladwell may be wise to question Anderson’s solutions, but time will ultimately have to determine who is right. Businesses need new economic models now. It is fascinating that the fears surrounding economic change seen in the digital age appear to echo fears being trumpeted in other areas, such as those witnessed in debates currently raging in politics and the social world. For instance, the right tends to question the need for change, such as they have in watching the potential implementation of a new health care system unfold, and so they are doing everything they can to fight it. Likewise, incumbent industries, or “old media”, like the recording industry or newspaper industry, have done or are doing the same – putting up a fight against changes in the way their content is consumed by the masses. Even a software publishing giant like Microsoft, as Anderson points out in “Free”, has attempted to fight change in the midst of disruptive innovations like open source software (Anderson, 2009). Change is inevitable, but adaptation is unavoidable.
Supplies are limited!
Perhaps some insight for fearful incumbents can be gained from Anderson’s discussion of the way society tends to ignore abundance and focus on scarcity as changes occur over time. In a brief economic history laid out early in the book, Anderson spells out how people tend to fear the loss of certain resources and expect that as they become scarce prices and demand for these commodities will increase. However, what Anderson illustrates is that once a resource becomes limited, people shift their focus towards alternative resources and the prices and demand for the depleted resources actually drop (Anderson, 2004). Consider how oil prices have dropped in recent years as people have begun shifting towards alternative energy sources. Mapping this framework on to the commodities of intellectual industries, incumbents need to understand that the demand has shifted to where the abundance of their resource can be acquired, which is through marginal reproduction of assets in the digital space. Incumbents are ignoring the reservoir of abundance and are not looking for ways to make money in this new landscape, focusing on the depleted interest in older resources, a classic societal trend, or so it would appear.
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What are these new models, the ones Gladwell might not like very well? In general, Anderson looks to Gladwell’s specialization and variability concept and his own long tail for answers. The, as Anderson calls it, “superabundance” of easily reproduced resources has created a wealth of information. And, like Anderson points out, described already by Herbert Simon, a wealth of information creates a poverty of attention (Anderson, 2009). One size does not fit all, as Anderson says, which further complicates the matter – choice is seemingly endless. Anderson also states that as people get older they tend to have less time and more money. What this all spells out, according to Anderson, is that people will continue to expect free content because it costs nothing to reproduce, but people will, in the interest of convenience, pay for specialized service and ancillary product which will make consumption almost as easy a choice as taking a free product, too. Freemium models, where a minority of users pay for specialized product and everyone else still gets the normal good while profit from the minority covers them all, are most indicative of this. So, yes, there is a catch, but it is not a very bad one because freemium customers fund the masses while receiving added value for so doing. Everyone wins.
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Free is inevitable. I embrace it already and look forward to more of it. However, even I know it is not truly free in that the abundance of some provides for the advancement of many. This is a model already seen in representative democracies which function on taxation to operate, as Anderson notes in his book. Like those right-wing politicos that are fearful of losing resources to social change, if they understood that they only need to shift their attention to new resources they would have nothing to fear. Anderson’s “Free” succinctly illustrates how incumbent players moving (or being thrust) in to the digital space can learn from successful companies like Google and Yahoo!, both of which have made their millions by giving away their products while using alternative methods of cashing in on the value created by so doing (e.g., targeted advertising, to name Google’s primary model as one such method). Those industries that are succumbing to network effects need to look for new ways of doing business right now, starting with giving away their primary products for free. If they don’t, someone else will.
References
Anderson, C. (2009). Free, the future of a radical price. New York: Hyperion.
Gladwell, M. (2009, July 6). Priced to sell: Is free the future?. The New Yorker. 80.
Gladwell, M. (2004, February). Malcolm Gladwell on spaghetti sauce [Video File]. On TED: Talks. Video posted September 2006. Retrieved 25 October 2009, from http://www.ted.com/talks/malcolm_gladwell_on_spaghetti_sauce.html
The Long Tail. (2009, October 24). In Wikipedia, The Free Encyclopedia. Retrieved 25 October 2009, from http://en.wikipedia.org/wiki/The_Long_Tail
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Tags: chris anderson, economics, free, long tail, malcolm gladwell, net economics, piracy