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Free International Edition: The Future of a Radical Price

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The best things in life are free, or so the old saying goes. These days, however, it seems that more and more companies and retailers are trying to get us something for free, and it is becoming increasingly doubtful that all of those freebies are the best that life can offer. Nonetheless, all this free stuff has certainly contributed to making many aspects of our daily lives simpler and more convenient, especially when it comes to those parts of our lives that we spend in digital world.

The raise of free predates computers, and it has a venerable history in the annals of marketing. Chris Anderson, the editor in chief of the "Wired Magazine" and the author of insightful "Long tail," narrates the greatest highlights of the history giving products for free. He also explains the rationale behind how the prices get set in a free market, and the reason why in the absence of almost any production costs we can expect products to eventually end up free. The reason that there is a proliferation of free nowadays has everything to do with the fact that the cost of creating and moving bits of information around is essentially zero.

Anderson spends an entire chapter defending the free model against its many critics. He takes every common objection to free that has been heard in recent years and provides a cogent and well-informed refutation. How convincing his arguments are, however, may depend on your own attitude and point of view.

At the end of the book there is a list of fifty different business models where products or services are given out for free. This is a useful list for anyone considering a cutting-edge modern business, and for the rest of us it gives us an opportunity to take a look at what kinds of things can be obtained for free these days.

Overall, this is an interesting book that takes a look at modern economy form a very unique angle. Only the time will tell if the paradigms used in this analysis will survive the test of time or are they just the latest fad.

Chris Anderson is one of the most astute observers of the tech scene today. His previous book, "The Long Tail", adroitly explained the power of online distribution and how the absence of physical inventory requirements fundamentally alters the way we shop for products. His latest book, "Free: The Future of Radical Price" argues that an economy based on information and digital content will inevitably push costs to zero.

Anderson spends roughly half of the book describing the various meanings of the term 'free', and its chequered past. I could have done without the exposition, and found myself rushing to get to the meat of the book-- those places where Anderson describes different pricing schemes that incorporate elements of free products or services into their overall revenue model. Google, Netflix, and Facebook all receive due attention here, and Anderson is at his best when he describes the rising phenomenon of 'the reputation economy'.

I find Anderson's argument for the inevitability of free digital content somewhat overstated. While he acknowledges that 'free' pricing often amounts to little more than gimmickry, he seems quick to convince the reader that this is not the case with online goods and services. At least one of his examples-- Zecco, the online stock trading platform --recently abandoned its free trading system and has begun to charge for trades like every other platform, perhaps a tacit acknowledgement that free may not be all it is cracked up to be.

The heart of Anderson's argument is that falling processing, bandwidth, and storage costs for digital content are driving the marginal cost of delivering digital services to zero. Companies, therefore, are able to offer such products at effectively zero prices in order to capture that most elusive of goals: customer attention. This, however, ignores the economic idea that just because the cost of delivering a service is zero, one should not necessarily charge zero prices. Anderson argues that in a perfectly competitive world, if one actor does not reduce prices to match costs, it will be rendered obsolete by others who will do so to steal share. But do we live in a perfectly competitive society? Are there not still significant barriers to entry which prevent the lowest-priced entrant from stealing share from incumbent interests?

Anderson's work is, as always, a treat to read. I recommend this title, although I continue to have misgivings about the author's central argument.

I like reading Chris Anderson works and I have read his Long Tail. The book Free answered my curiosity on why software / intellectual economy needs to make free up their properties and make part of their selling products as Free. Chris quite clearly explains how Free can help maximizing the reach and how marketers are using and benefitting. At the end Chris Mentions on how different business models work in this new Free Economy. Not every much details with stats like the LongTail but a very good read for those who are curious on how ( and why ) Free works in the Internet Era.

Overall, it's somewhat useful, hardly new, and difficult to generalize.

Anderson begins with short stories about how Monty Python greatly increased DVD sales by giving away shows on U-Tube (I can't figure out why this worked), jello sales took off only when recipes were given away free, and Gillete boosted sales by "giving away" the razor (similarly, H-P and its printers vs. ink). He then uses a supposedly Ryanair "free" pricing example that simply uses a number of since infamous other charges (eg. credit card, baggage checking, water - some of which have successfully been challenged in court) to make up the difference, proving nothing. Next comes an "example" of a bet between Paul Ehrich/Julian Simon on whether commodity prices would rise in the 1980s - they didn't, but since have risen considerably - regardless, I have no idea what that example proved either.

Yes, Google search is a block-buster application, in part because it's free to the searcher, but how do you build a general business model from that? (It's not even a novel pricing structure - eg. commercial radio and TV broadcasts, "starter" software and Internet access that entices potential users, magazine subscriptions sold at a discount from newstand prices, free "get rich quick" seminars that aim to sell a longer version have been around for years. Worse yet, the "free" (discounted) magazine and newspaper model is rapidly collapsing, thanks to advertisers moving to the Internet.)

Build a quality newspaper organization (eg. the NYT, Washington Post) and then give its content away on-line? It's not working, and we're in increasing danger of poor journalism driving out the good. What about Amazon's "free-shipping" for orders over $25? That's about as "free" as a no-down, liar-loan mortgage - everyone knows the hidden costs involved. Yes, distribution costs are going down, but that isn't keeping book distributors from RAISING prices for e-books. (Point: Economics tells us to price according to VALUE and incremental net profit - NOT pure marginal costs as Anderson seems to think, even if they are zero.)

Anderson touts the steep decline in transistor costs as additional support for whatever he's trying to prove - Intel will sell you two billion transistors for eleven hundred dollars--meaning that the cost of a single transistor is now about .000055 cents. So what! It costs Intel $1+ billion to build/update a fab plant - they're supposed to give the transistors away? Just what is Anderson's point?

Anderson is reportedly following his own insight by giving away the book in England with the hope that it leads to more speaking engagements. Again, however, economists would support that ONLY if the net revenue doing such was GREATER than charging for the book and speeches.

Somehow "Free" gets over to the billion-dollar+ valuation of the social-networking site "Facebook," purportedly demonstrating the value of giving their services away for free. On the other hand, I'm more inclined to see it a repeat example of dot.com mania in the late 1990s when anything Internet attracted huge valuations.

Interesting Sideline - The "Virginia Quarterly Review" 6/23/09) recently published several examples of verbatim content in "Free" taken from various Wikipedia articles. It also promises a review of the book in its Fall issue - that ought to be interesting.

Finally, many of today's societal problems are caused by "free" pricing of important externalities. Added smog, global warming, balance of payments, highway construction, obesity, and defense costs are examples vs. too-low gasoline taxes.