Chris Anderson’s long-awaited follow-up to the Long Tail has just hit bookshelves. Entitled Free: The Future of a Radical Price the book argues that abundance is causing prices to fall effectively to zero. Here the psychological advantage of giving something away for free actually benefits the producer – through wide-spread take-up that can lead to other revenue opportunities.
It is a fascinating, and highly contentious, thesis. Malcom Gladwell, writing in the New Yorker, dismisses the arguments. For instance, he points out that Lewis Strauss’ prediction that electricity would be free (derived from nuclear power) failed to come true due to the massive infrastructure costs of the electricity grid that required continual fees to finance. Similarly, Youtube might be successful by providing videos for free without interruptive advertising, but it is losing a lot of money.
These are sound criticisms, but there is an additional one of the Pandora’s box. If I give something away for free in order to gain revenues from new streams (e.g. giving CDs away for free and making money from tours and t-shirts), how long before these alternative sources also see their price depress to zero. Does this trend continue until we reach something that is inherently scarce?
Possibly, but nothing is scarcer than our time, yet as Chris Anderson points out, we will choose to spend our time doing something that is free.
Anderson’s reply to Gladwell was largely unhelpful. While he correctly observes that the review itself is given away free on the New Yorker website, his implication that Gladwell’s position of defending the status quo is driven by his vested interested in being a journalist is unfair.
The example of GeekDad is also misjudged. He makes money on this through advertising around an amateur community – it has been very successful and the community leader now has a book deal. People may indeed engage for “fun” or in the hope of jump-starting a writing career, but then there is no traction or quality control – I don’t believe the argument that a passionate amateur is better than a paid professional. Sometimes, maybe, but not always.
Furthermore, what happens when the talented amateurs get their book deals? They become too busy to participate, so the untalented amateurs take over. It’s a bit like a the toilet circuit in the music industry – an occasional rough gem among a lot of dross. The only difference is that ad impression revenue is more stable than door receipts.
In a comment to the post, Anderson points out that the book centres on the freemium model – it would have been better if his initial response had focused on this as it is a nice business model (though again I am sceptical of its long-term viability).
It has thus far worked for companies like Flickr as passionate photographers need more storage space than the basic account offers [updated for attempted grammar correction], and the built-in community aspects of the site have created traction. But, as bandwidth charges decrease, other services (e.g. Facebook) offer unlimited storage. Flickr only retains revenues due to the time cost of transferring photos and restarting a community. Is this sustainable indefinitely? I don’t think so.
Elsewhere, the local coffee shop occasionally gives away free tasters – but only as marketing; not as a continual persuasion tool to get me to upgrade to a full cup.
Would I give my work (research) away on the freemium model? Occasionally, I would. But only because the losses accrued from giving something away up front can be written off to PR/marketing.
This isn’t sustainable because there isn’t a continual influx of new clients – the benefits of giving reports or data away diminish each time. One could argue that information is free and opinion is scarce – and that I could give data away for free but charge for a report. In this sense, it is why newspapers are increasingly reliant on columnists.
But again, this is only valuable on occasion – at least in research. News may be free in the sense that affected parties can spread the information widely without cost. But research – the collection and collation of facts, opinions or attitudes – costs money. An entire population isn’t going to magnanimously upload all the required information without monetary or social recompense.
How about your industry? Could you survive by giving away your core product/service for free, and offer a premium version (or a diversification) to make up the difference?
I’m sceptical, but am by no means unconvinced.
PS Chris Anderson is speaking at the RSA tonight. I can’t go as I’m at Bon Iver but I look forward to hearing the response
Image credit: http://www.flickr.com/photos/iirraa/
Filed under: business | Tagged: chris anderson, free, freemium, malcolm gladwell, new yorker |
Curiously Persistent 
The Anderson response did seem surprisingly weak – I mean. presumably from GLADWELL’s perspective his review was paid content!
I think unpicking the different motivations and strategies behind the idea of “free” is a lot more useful than getting evangelical about it: I can understand it as a high-risk move in response to a collapsed scarcity, not as a one-size-fits-all solution.
As for “would I give MY services away for free?” – yeah, some of them! I do a lot of my work in public, while on salaried time – the particular gamble in my case being that I get useful info and experience to take back behind the payment curtain, in exchange for the thoughts I’m giving away.
As for my writing, I have almost certainly not monetized it remotely as much as I might have done. (No ads on Freaky Trigger, for instance). But w/evs, ads are horrible.
The joys of being a social media expert! 😉 If you have a job that is “scholarly”, then giving away services for free is quid pro quo – a good exception to the rule…
As for FT, an argument in my head that I can’t really articulate (and is partially a separate point) is something about the difference between paid for media and free. With paid-for, there is an obligation for continuance and scheduling – you could shut FT down tomorrow on a whim if you wanted to and the contributors would be forced to go elsewhere to publish their work/get PR/engage in their hobby…
Cheers
Simon
It really does depend on the product. Cory Doctorow is a published author who has some very compelling arguments on this subject.
if you’re interested you can see them at his website craphound.com.
Neil Gaiman is another author with some great thoughts on the topic.
I decided to give my new book The Gold Apples away for free on my website. it’s more important to have people read it than it is to make money at this point in time for me.
I hope you continue to cover this topic as you learn more.
Terry Schott
Thanks Terry – good point about Cory Doctorow. I haven’t yet read any of his books, but am familiar with some of his arguments around copyright, free and whuffie.
But as you say, at this point for you it is about gaining an audience. It is effectively the same as my argument for research – you write off the cost to marketing and look to leverage publicity with a book deal/research contract
(Apologies if I incorrectly presumed your motives, but that was the inference I made from your comment)
Best
Simon
Re your ‘Pandora’s box’ comment, I think there’s an important distinction to be made between online information-based stuff and other products/services. Anderson’s argument as I understand it is based largely on how economics has been affected by the internet because of the limitless scaling that it allows. Concert tickets and T-shirts *are* scarce in comparison to an infinitely copy-able MP3 file, for example. Being in the crowd at a gig is not something you can download or share on BitTorrent (not for now at least). So I suspect that events and unique, bespoke services will increasingly be where the money is made.
Hi Robert. That is a great point about events. T-shirts can be replicated and recreated, but that sense of place/time is something that will always be scarce (perhaps this is why Malcolm Gladwell charges more for tickets to one of his talks than for the books he is promoting??)
Cheers
Simon
[…] Would you give your services away for free? (curiouslypersistent.wordpress.com) […]
I’d offer a corollary to your question, “would you offer your services/product for free even if you thought someone would pay for it?” The answer to this is almost assuredly no and to me, it underscores why most newspaper publishers don’t try and charge for their online offering. They are scared to death, probably with good reason, that their audience would go away. They are locked into a death spiral of more and more pages of content (the “long tail”) to create virtual real estate for ads.
In other words, the “free” model tends to come about not through strategy, business planning or desire but as a default position in the face of low/no demand.
Interesting point Kevin – it remains to be seen whether Rupert Murdoch is able to close Pandora’s Box.
By the way, I annotated over here the points Kevin Kelly makes in the ways one can justify charging for a good.
Most of our tracks are released under a creative commons license.
We are an independent record label not a big bad corporation out to sue you for file sharing, we WANT you to spread our music around.
With such an overcrowded market place giving away your music is essential in my opinion. The biggest problem for emerging indie artists today is obscurity, not piracy. To find out more listen to The Antiqcool Podcast .
http://antiqcool.podbean.com/2010/01/22/the-antiqcool-podcast-episode-1-how-can-you-be-a-part-of-our-success/