Chris Anderson on ‘free’

Ben Shepherd writes: Chris Anderson was on BBC World Service’s ‘In Business’ last night talking up his new book and concept around ‘Why free is the future’.

It was kinda interesting in parts but I sometimes wonder how true some it actually is.

You can read the summary and listen to the interview here –

I have great respect for Anderson – he was responsible for the book ‘The Long Tail’ which is a good read. However, it was interesting that in the case of music online the theory was basically disproved late last year – – and still the overwhelming majority of music sales come from the head and the overwhelming majority of the tail receives zero sales.

This isn’t to say that the theory is wrong – music is only one market out of hundreds where the theory has relevance – but Anderson spent a lot of time in the book illustrating the Long Tail theory through music, in particular the services Rhapsody and Pandora. The argument was if you removed cost around production and cost/space required for storage and removed the intricacies of effective distribution then you removed the barriers to choice … which would give consumers seemingly endless choice as the only barrier is the cost and speed of data.

I essentially agree with the concept and think although it seems a little off in regards to music and filmed entertainment, it is right in a lot of areas … especially the media world (which would really piss off a lot of Australian established media companies who don’t really like the fact that choice is now a right not a privalege for consumers).

Anyway – Anderson is now talking about the idea of ‘free’. He has a book out in February so is doing the PR rounds.

“The rise of “freeconomics” is being driven by the underlying technologies that power the Web. Just as Moore’s law dictates that a unit of processing power halves in price every 18 months, the price of bandwidth and storage is dropping even faster. Which is to say, the trend lines that determine the cost of doing business online all point the same way: to zero.” (original Wired article discussing the theory)

Anderson: “Digital economics changes our thinking about this. Everything that Google does is free to the consumer and yet Google is an extremely profitable company. You’ve got open source, you’ve got Wikipedia, you’ve got the blogosphere, Craigslist. You’ve got all these strange free phenomena which have global scale and yet are free to the consumers.”

From the BBC article: This new model still uses cross-subsidies – the idea that someone is paying – but in this case, Mr Anderson says, it’s not you.

In the digital world, a very few paying customers can subsidise everybody else.

“The new form of cross-subsidy is one where a tiny minority of people who really appreciate the product, really get value from it, can subsidise everybody else, because the underlying cost of doing things online, in digital, is so low that you can give away 90% of it for free.”

In the interview Anderson cites 2 main things – Flickr and World of Warcraft.

Thing is, no one really knows whether Flickr is standalone profitable … yes, WOW is profitable but it has a ridiculously loyal and sizeable base of players.

Anderson talks about airlines potentially offering free flights (ex taxes etc) and then using the relationship this brings to make money in other ways – advertising, premium services, subsidies from tourism boards. He talks about ‘someone else aside you paying’ but never really said who this would be.

I wonder how this model can work in the media world. Anderson talked about advertising potentially not fuelling the concept of free content moving forward … but my question is this … could a site like The Age work on this model? Or gmail? Or ninemsn? Or inthemix? Or Business Spectator? Could they offer premium content at a cost? One of the only groups doing this now is Crikey.

Sure, the costs of producing content for the web isn’t the same as for print or TV … but it’s not exactly peanuts either.

So can Freemium work? Or is it a theory illustrated by select examples?

Case in point. There is a restaurant here in Melbourne called ‘Lentil As Anything’ … menu items have no prices … you just pay what you deem is fair. It works well … doesn’t appear to be rorted by tightwads and the owner is a pretty rich guy. Does this mean this model is the future? That instead of telling people what to pay they tell you? And that this creates a consumer focussed experience as ultimately it’s the consumer that is leading the relationship?

Digital media wise does this mean soon ad serving will be free and the ad servers will make their money selling the data they receive through serving all these ads to all these consumers and logging all these behaviours? Will media buying be free and funded by strategy and non media initiatives? Will advertising be free – and the publishers and networks become content creators for brands?

I am sure there are loads of sycophants who will blindly follow whatever they’re told to think by the likes of Anderson, Seth Godin, Gladwell, whatever blogger etc and back it up with concepts/ideas that ultimately aren’t their own … but what I’m interested in is what YOU think about it. Does it make sense?

Me – I don’t know either way. I am sure in some instances it can work and others it probably can’t. I am aware the web has placed an expectation on some users that everything must be free. And I also agree that moving forward we will find that things that are over abundant will be either free or very cheap and things that are scarce will be more expensive than ever. Anderson even mentioned that in the interview – saying his broader thoughts would be given away (ie on the web) but a one to one audience with him or anything scarce  (ie consulting, speaking) would be more expensive.

Thoughts anyone? Is there a viable market for freemium?

Liam Walsh writes: What complete nonsense. ‘Digital’ is not a standalone industry, nor is it a stand alone economy. Some things are free to the consumer but not many.

It will sell a book as it is an interesting idea.

The cute throwaway around the fact he is selling a book which contradicts his theory of free is the proof in point.

This literature is tabloid business writing.


5 responses to “Chris Anderson on ‘free’

  1. Pingback: Ben Shepherd: Chris Anderson on ‘free’ // talking digital | the importance of ideas...

  2. The thing about understanding ‘freeconomics’ is what should and shouldn’t be free and how you can still make profits while giving things away.

    The theory says that items with a recognised (or created) scarcity are items you can for. Things like concert tickets and band shirts fit very well into this category. The same with limited edition prints for art/books etc.

    Free on the other hand could be downloadable music – Radiohead showed you can do this for a large act while there have been a number of small artists put up entire albums for download to entice fans into coming to live shows. When people go to live shows they are more likely to buy merchandise which often has large mark-ups – its a win for everyone.

    I don’t know how you can use World of Warcraft as an example – you pay for the game at the beginning then pay a monthly fee. Either way, it’s a very fine line to get ‘free’ right, but if you can, there is definitely a place for it.

  3. talkingdigital

    it’s weird as most times the model is referred to in a music sense it’s with MASSIVE artists that have had over 5-10 years on major labels being marketed heavily.

    could a band start from scratch and achieve similar takeup to what radiohead or NIN had? if radiohead weren’t on EMI for so long would they have the blanket awareness it requires to do something like this?

    my friend produces music and dj’s a lot here and abroad. he could technically give his music away … but would it increase his DJ fee … doubtful … or would he sell more DVDs or get more gigs … again doubtful.

    some baltimore/hipster djs are seeing this happen – making bootlegs and edits and building up names via blogs … then touring off the back of blogworth … but it’s still incredibly niche.

  4. I understand the links to music being most prevalent, due to media coverage the Radiohead example gets thrown around a lot. Girl Talk is another dj who offered up his latest CD for free, and from what I hear is doing incredibly well off the back of it.

    Maybe you give away the singles then charge for the album? I’m sure there are many ways to do it.

    As for a completely unrelated example, there is a textbook company in the US who are giving away all of their textbooks for free. Here’s the article: It’s an interesting read, and proves that for some industries it can work.

  5. talkingdigital

    good points james … although with Girl Talk the real reason he offered the cd for free is he hasn’t cleared any of the samples on it … hence would never be allowed to sell it for money. (wouldn’t want to after dj revolution was jailed for doing similar mix/mash’s with hip hop and not getting clearance.

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