Free: The Future of a Radical Price

Chris Anderson explains why ‘free’ may be the most compelling price of all in today’s market.

The Monty Python comedians were tired of getting ripped off. For three years, YouTubers had been giggling over pirated clips of their work. The Pythons’ response? They set up a YouTube channel to offer higher-quality clips free of charge. In return, they asked viewers to buy their DVDs.  Daft move? Actually, sales of their movies jumped 23,000 percent. 

So begins Chris Anderson’s suave but skin-deep study, Free: The Future of a Radical Price. For anyone trying to make a living in the digital economy, that example is good news. Finally: a plan for profit when the price is zero.  “Sooner or later every company is going to have to figure out how to use Free or compete with Free....” Anderson writes. But don’t give away all that you have just yet. Free is a sales tool, not a source of cash. You still have to sell something.

Actually, free is an old concept in sales. Anderson tags four different ways in which it is used:
•Direct cross-subsidies: Free cellphone with a two-year contract.
•Three-party market: Most radio and TV stations. You don’t pay for them. Ads do.
•Freemium: Free tax-prep software with invitation to buy a premium version.
•Nonmonetary markets: Wikipedia. Real people wrote all those articles, motivated by social capital, not cash.

Why is free a radical price? Chocolate brands give a compelling answer. Which would you pick: a 15-cent Lindt Truffle or a 1-cent Hershey Kiss? In a study, most bought the Lindt. Then each price was cut by a penny. Most wanted a free Kiss. “[T]here is a huge difference between cheap and free,” Anderson notes.

The markets built around free are getting huge ($300 billion globally), he writes, because digital costs trend toward zero. Moore’s law holds that computing power doubles while its price halves every two years. Eventually, you get tterly fast and free. The cost of hosting millions of videos would’ve been unthinkable 10 years ago. Today, bandwidth and storage are cheap enough that YouTube lets you watch clips of ninja cats to your heart’s content. YouTube’s parent company, Google, offers nearly 100 services, from Gmail to Calendar, that improve digital life. Most are free. Yet Google sucks up cash like a toddler drinking juice.

It does this not in spite of free, but because of it. By making its products indispensable, Google delivers eyeballs to advertisers. To become indispensable, Google doesn’t ask, “Will it make money?” It asks “Would it be cool?”

Not many companies can ask such blue-sky questions. While free may be the best way to maximize audience, it doesn’t easily translate into cash. In some cases, prioritizing exposure costs money. Clubs used to pay bands to perform; now, amid a glut of free songs online, it’s often the other way around.

Even YouTube still bleeds cash. At such tremendous scale, costs that are near zero add up. There’s more to the story, but Anderson’s sleuthing is cursory. He runs the numbers on several thriving free-based businesses and even offers 50 examples of free. But since failure is often a better teacher than success, where are the autopsies? The cold water on his fire for free is a mere sprinkling of objections, all of which he answers.

Anderson wrote the book during a personally stressful time and it shows. Instead of deep, objective analysis, readers get fun but forgettable filler material. That’s a shame, because this could’ve been a vital guide to business. Instead, it’s mainly a marketing tool for his speaking gigs, where big bucks buys you “premium” insight.

Critics say some portions were plagiarized. Such a no-no may be fitting for an author who shrugs at piracy. It’s also sloppy. Anderson has apologized and vowed to make amends.
Free may be radical, but it’s still governed by the fact that value is based on utility and scarcity. Where scarcity doesn’t exist, utility is king. So how can newspapers survive in a world of free content? Anderson doesn’t deliver a silver bullet, but thinking through his four types of free might yield creative brainstorms: Could papers give away the news and sell webinars?

Selling “something else” can be frustrating. I recently asked a friend if he made money from his online piano songs. “Nah – those are just for exposure,” he said. “I guess I’m supposed to be selling my fans T-shirts.”
His lamentation reveals a darker side of free: When price isn’t a factor, a few big fish, like Google, flourish; the rest flounder. Piracy, which Anderson sees as a potential blessing, compounds the problem. When illegal downloads undercut song revenue, Sheryl Crow can still sell clothes and concerts. My friend can’t.

Such brutal competition shouldn’t overshadow the spiritual dimension of the technological progress that makes free possible. Anderson touches on it, but the clearer vision comes from George Gilder in his 1990 book, “Microcosm,” where he writes, “The central event of the twentieth century is the overthrow of matter.... The powers of mind are everywhere ascendant over the brutal force of things.”

Josh Burek is the Monitor’s Opinion editor.