There really is such a thing as a free lunch! The information really does want to be free! Chris Anderson claims that ‘free’ can mean something is not paid for or is unrestricted; and his book has a similarly two-sided character. It’s a pragmatic guide on how to extract business revenue when the effective market price for a digital product is zero, alongside announcing the business model for a 21st century of digital abundance is Free (with an upper-case F).
Anderson, Editor-in-Chief of Wired magazine, says that free as a price reflects the close-to-zero costs of reproducing digital products online. Whilst maintaining internet companies and infrastructure is a cost, spread over the web’s vast usership this is ‘too cheap to meter’. Technical advances lower costs constantly. Since young people have grown up with free digital reproduction, they are reluctant to pay. Free increasingly has a cultural and psychological advantage over paying, he argues.
Anderson employs an historical overview that characterises free as a sort of force of gravity to which all prices are attracted. Building on The Long Tail, he theorises the relationships between different versions of products and prices and concludes it often pays to give things away.
Only a tiny proportion of people who use cheaply produced and free products need pay for a premium version for the whole enterprise to be successful. Google’s may not be a replicable model for most businesses, but the way it gathers ad revenue by click spurs it to give away more products and services to encourage further use. This is a good example of how free services can generate income indirectly. While the cost of ‘bits’ is close to zero, ‘atoms’ can only become very cheap, but these too might be given away if the free price attracts customers to a related commercial endeavour, says Anderson.
The Pirate Party has just been founded here in Britain, but Anderson reports on very different public resolutions to music industry problems elsewhere. Chinese and Brazilian music business relies on distributing songs free online or cheaply by CD, the talent expecting to monetise their work by usual methods. File-sharing in the piracy economy of China, Anderson argues, drives its music industry. The talent’s management look out for them ‘360’ whilst taking a cut from appearance and merchandising income. Music files and cheap CDs are distributed to encourage interest.
Prince and Radiohead proved that giving albums away could lead to more sales, even in the west. With a recession on, the urge to compete with free prices for basic products and charge for related products will become stronger. Anderson’s enthusiasm for free is intriguing in some respects. He litters the book with plans and examples of free possibilities such as air flights, cars and even profitable shops where all the goods are free.
Anderson mainly concentrates on the wired, western developed nations and the free media and games we use online and on mobile devices. Young people are ‘digital natives’ who see the essential difference in the digital world, understanding that digital reproduction is virtually costless and enhancing artists’ reputations through sharing their work. Anderson believes this attitude will just have to be accepted.
Free says the free exchanges people make online are non-monetary markets that effectively trade in the currencies of attention time and reputation. These currencies are sought by the volunteers who add to Wikipedia or carry out other unpaid projects online. The growth of user generated content means businesses that relied on monopolistic access to some kinds of information will be in trouble, especially media industries.
Many online businesses offering free services are struggling to make money. Yet Facebook and YouTube must face up to their challenges and opportunities, says Free. Investors should be confident they can convert the provision of a free product into revenue; they just have to figure out how.
I have struggled to see why this Free is different from the past promotions using free goods Anderson surveys. I must be old. Except with the obvious exception of Google, giving away products has to be a risky way to make money. The reproduction costs of a song or anything that can be digitalised are very, very low, I can understand. But the cost of production, making the original thing we use copies of, whether whether it’s media or a prescription drug, is still high. The pharmaceutical industry or Hollywood cannot afford to give most of their stuff away, regardless of how cheap the copies of the original are. There’s a chain of value and labour expended on the original product, be it a film or a molecule, which has to be recovered or compensated. Anderson suggests that where it is too difficult to compete with free versions of a product, industries will simply have to change the way they make money from what they do.
Basic assumptions about the laws of value, labour and supply and demand seem to be questioned by the real-life sale of esoteric services such as estate agencies on Second Life and “gold” in massive multiplayer games. To his credit, Anderson attempts to explain apparently odd monetary and nonmonetary exchanges without inventing economic concepts, but his approach doesn’t indicate what the future of free as a price really is. The finance that starts start-ups requires a return at some time in the future. On a practical level, Free advises companies to be imaginative about revenue streams and not to be afraid to give away more.
Anderson analyses Steven Brand’s famous quote that “information wants to be free”, reminding the reader that Brand also said that another kind of information wants to be expensive, and that there is a contradiction between the two. Anderson nonetheless seems to treat every kind of digital information as of the former, free kind. He both insists on a differentiation of the functions of information carried by “bits” and their potential to be valuable or free to the user, but asserts also that value can be measured in nonmonetary units of attention and reputation. He integrates different kinds of value as if reputation and attention, measured by clicks and eyeballs, should be converted into money indirectly.
The successful internet business models illustrate his theory better, but Free just jettisons old media industries and their professionals that cannot compete with free pricing. If professionals are being replaced by amateurs doing lower quality jobs because of the internet, as Free suggests, then there is a contradiction. If that freely gathered content can be directly compared in the same market with expensively produced content directly, it is because the same thing has been made more cheaply.
Anderson says his kids once preferred to expend their two hours of permitted weekend screen time on watching scenes from Star Wars enacted by Lego characters made by children on YouTube. They didn’t want to watch the original film. The Anderson kids made a choice between different free products on YouTube. Their dad draws conclusions from their preferences that suggest he regards all digital content as basically similar. But you really can’t make Star Wars at home so it cannot be directly compared with YouTube content. The relative success of different products in a market is a preference that may or may not be based on the price. On YouTube, you essentially have a non-market of free things to watch and the act of viewing doesn’t finance what is viewed. Films actually are a market and their product, although it can equally be considered information, is very different from the amateur video on YouTube. Stars Wars the movie lacks the cute humour of Lego characters. A little plastic Darth Vader lacks dramatic menace.
For example, Anderson rightly thinks that most newspapers will be forced to reorganise their business models, just as record labels will have to. He imagines journalists would be lower paid editor/coaches of citizen journalists, paid to teach people how to produce free journalism for them selves and their communities. It’s not clear who would pay journalists to teach people to produce this free, local content. That is the dilemma already facing newspapers restated. As the Editor-in-Chief of Wired, he employs journalists to write his magazine, so Anderson must distinguish between the information they produce and what he crowd sources. The content of Wired magazine couldn’t be rustled up online by volunteers. It contains information that wants to be expensive because professionals write most of it.
There are exciting businesses that make money indirectly from providing free services or content in a new way. Google has monetised its newly formed, free and therefore non-market relationship with its users through advertising. A non-market of free services has effectively created new markets in advertising and in other industries, such as the consultancy industry on how to improve Google ratings. These new markets don’t feature much free as a price. The many examples notwithstanding, Free implies that the internet could drive down all prices, not just those it digitally creates or those of old school media industries such as libraries, newspapers and TV stations.
I’m no economist, but I think money is exchangeable for anything else, including attention and reputation, and it really is the equivalent of value and the substance of price. If something is genuinely free, surely, it hasn’t got a price. The low costs of some digital products reflect very efficient production and distribution that rides virtually free on the internet. Google took a lot of time and specialist labour to build as a search engine before it diversified and could carry the advertising that made it profitable. When we talk of attention time as a value, we are talking about the visibility of, or engagement with, a product expended by people in their spare time. If people contribute to online projects that are then monetised, they have performed voluntary labour. The motivations of reputation and attention are there, but are harnessed to particular projects, not a general exchange of time.
Free is worth reading for its general take on the difficulties of today’s internet economy and for its upbeat recommendations and examples. The strongest point made is that the cheapness of reproducing and distributing things on the internet will have a big effect on the culture of creating them. I just don’t buy “Free” as the radical price of the future, though. The internet companies used as examples are all changing very quickly, their users doing things their product designers had not foreseen. The internet and its possibilities are exciting, but Free’s cheerleading enthusiasm for particular possibilities risks inflating internet business practices to social revolution while rounding down everything else to cheap information, badly produced by amateurs.
