“Free” is Here to Stay

Chris Anderson’s book Free: The Future of a Radical Price, is an excellent compilation of evidence and examples persuading us to buy into the concept that Free is here to stay. But with so much technological change, we don’t need much convincing that another dramatic shift is upon us. One way Americans deal with scarcity is uncovered in the ironic determination to eradicate starvation decades ago; now today’s generation is combating obesity. This ironic relationship defines the path for his book, detailing how the future of business will make money around the notion of Free. According to Anderson this isn’t a fad, these new models like “freemium” are here to stay.

As a customer, there is a huge difference between what is free and what is cheap. Citing Dan Ariely, professor at Duke University, he highlights “zero is not just another price, it turns out, zero is an emotional hot button,” (p 63). The concept of Free is important because the majority of company’s today strive in an environment where raising demand for one thing, is gained by giving a complimentary item away for free. This is showcased in the story of Gillette razors.

The meat of Anderson’s book sits on the concept of Moore’s Law, which concludes the cost of technology is cut in half every few years and even quicker at times. With costs like this, companies are able to shift business models by focusing on making profit through programs like Google’s Adsense or thrive off the premium service subscribers from sites like Flickr or Amazon. Anderson provides a lot of evidence to back up his hypothesis with case studies from Microsoft, Craigslist and the Chinese music market, as well an easy to understand account of economics.

Taking a look at the freemium model, one of the categories Anderson describes as the most popular web business model, raises two questions. One, he mentions that people don’t often value items they get for free as much as things they pay for. But we see in his analysis of loyalty to social networking sites like Facebook that users would actually convert to paying customers because they value the network of friends so much. In this case, I would argue the value is not monetary; it is the gravity of the network. It is hard to mimic the success of services that have gained popularity from viral marketing due to taking advantage the notion on Free.

Two, looking at the ratio of free users to customers who have premium services, I question how this switch takes place, and if this concept of having the top 5% carrying the rest was reached through trial and error. Anderson cites Jonathan Handel and his reasons why Free will stick around, one being that people believe everything should be free (regarding media). Long term, this notion of Free changes businesses dramatically, but are economists wondering what will happen if those free products or services escalate?

Anderson talks in length about scarcity, and we see with Moore’s Law that storage and bandwidth is getting cheaper, thus the reaction for companies to increase their free offerings without losing money. We could say that customers create content at a specific rate (and that rate likely won’t increase on an individual level due to time constraints) that will not keep up with the exponential amount that technology costs decrease. Will fewer customers upgrade to premium services because they’ll never reach a ceiling? What will that model look like? Or is it safe to assume that if customers are given more space on Flickr, they will fill it? Or more game time, they will play it? This brings into question how big the free economy is, but it is not just a numbers game.

Contradictory to the idea of scarcity is music. There are so many different ways to access music without legally purchasing it that a “piracy paradox” has emerged in China. This is a refreshing look at piracy and an excellent addition to the discussion of Free. “Piracy is a form of zero-cost marketing, which brings their work to the largest possible audience,” (p 200). This hits on the idea of “max strategy” which uses Free to reach the biggest audience, even if all avenues don’t make money. It would be nice to see this strategy being used in the United States, although dealing with inflated egos might be the first hurdle to cross.

Still skeptical about this Free idea? The conclusion of the book serves up a nice array of objections to this model, as well a precise rebuttal from Anderson. Overall this book is a must read for any entrepreneurs struggling with their current business model, and students in programs like the Masters of Communication in Digital Media. The Internet has become a whirlwind of links, brilliant ideas, and scams that are sometimes hard to breakdown; Anderson does a great job painting a clear picture. With everyone having Internet access and the cost to create so low, it’s nice to have a book to put things into perspective by easily explaining why you can make money by giving things away for Free.


5 thoughts on ““Free” is Here to Stay

  1. Hi Michelle,
    I like your book review. Free is here to stay, true.
    I also doubt Anderson’s statement about Facebook. I’m wondering how many people will pay for Facebook? People’s network on Facebook is valuable, indeed. If people need to pay for that, will people search other alternatives? Before Facebook, people can keep in touch with friends via e-mail, mobile phones and IM. I doubt that how many people will be willing to pay for keeping in touch with friends? Therefore, making profits in social networking sites is challenging. I also expect Anderson to argue more about it.
    Thanks. 🙂

  2. I wonder if people really expect all media to “free”, or if they just expect content that has always been free to remain free. For example, piracy in the United States isn’t nearly as prevalent as it is in China. This could be a great combination of things. One being that people in the US have become used to paying for music here. We have been doing so for ages, while piracy of music in China has run rampant for years. There may also be a disconnect, depending on the content that is being pirated in China. Are the movies and music primarily being pirated that which is produced in the US, or local film and music? Feeling distanced from the individual producing the things one is stealing may make the act feel easier to do. It would be interesting to see the locational data of the content being pirated.

  3. I agree that it would be interesting to see the location data. One thing I remember from some discussion is that US celebrities are idolized here with their expansive mansions and 20 cars, but China celebrities live more realistic lives…so the argument about pirating because you are so removed from the artist doesn’t hold up with my weak statement. 🙂

    But in another sense in the US, I feel we can say “screw Jay-Z” (or whoever) because they have millions and millions, they won’t miss the profit from one album. But piracy does inflate popularity as well.

  4. Anderson does a nice job throughout the book explaining why Free is here to stay. Not until the end of the book, however, do we get a clear a sense of how the other side might see things. Anderson does give a few objections, as you say, and fires back with his thoughts on the concept. But he could have done more to show what keeps Free down in certain situations.

    I agree with your line about Facebook users valuing the “network” more than money. Many online users value their social networks and friends more than they value a few dollars here and there. Anderson’s take on this is to suggest that “freemium” models make up for the fixed costs and that targeting ads to Google users, for example, is a great way to take advantage of Free. However, it’s still interesting to note that Facebook doesn’t make any money.

    Facebook ads are effective, but they’re largely inefficient. I would have been interested to hear Anderson’s take on what Facebook could do in the future to turn a profit? Charging for access is going to be difficult, as users have grown accustomed to Facebook as a “free” service. But there’s so much traffic on that site that there has to be a way for the free economy to take advantage of such a large audience.

    Anderson does a great job of showing how and why Free can make money. He doesn’t do a thorough enough job, however, explaining why it wouldn’t work. To gain a complete perspective on the ideas presented in the book, I think we needed a few more examples of this.

  5. Pingback: Book Reviews – Free « Economics of Digital Communication

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