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/