Chris Anderson, author of The Long Tail, presents a thoughtful examination of all things free. The history of free is included as well as the present and future of this attention-grabbing price. This is a readable and informative book that I recommend for anyone interested in technology or business.
A Brief History of Free
In the beginning there was flavored gelatin, and it tasted good. Yes that's right, Jell-O. At the end of the nineteenth century the industrial age could produce powdered, flavored gelatin very inexpensively. The problem was that housewives did not know how to use it. Free cookbooks were distributed by door-to-door salesmen and sales of Jell-O quickly took off.
Also about this time King Gillette discovered the power of free. He gave away safety razors to men in order to sell them disposable blades. He also became rich. (It's interesting to note that King Gillette was an anti-capitalist prior to making a fortune with free razors.)
20th Century Free vs. 21st Century Free
Jell-O and Gillette razors are classic examples of free in the twentieth century. The cookbooks and safety razors were 'free' because of cross-subsidy, the later sales of Jell-O and disposable blades paid for the free items. If you are over thirty years old then these cross-subsidies have probably made you cynical about the word 'free.' There's always a 'catch' and 'there's no free lunch.' (The book also goes into the history of the free lunch.) Ah ha! That 'free' credit report or DVD to learn computers or the internet requires a subscription. I knew it!
However if you are under thirty years old and 'free' is online then it is readily accepted. What's more it's expected by the young that things available on the internet are free. They have grown up with companies like Google providing things online for free, truly free, that they expect it and demand it from the internet.
The Future of Free
The bulk of the book is about the Four Models of Free. In addition to Direct Cross Subsidy there are also the Three Party Market, Freemium, and Nonmonetary Market models. The Three Party Market is basically advertising and the Nonmonetary Market model is based on gifts of one sort or another (think Wikipedia).
The author believes that the Freemium model will become more popular in the future. This model provides a free level of service and features but charges for better service and more features. Chris Anderson thinks this is so important that he includes a Freemium Tactics section at the end of the book. He also gives guidelines for converting free users into paying customers.
Triple Convergence and Rounding Down
How can all of these online services be free? Computers are getting faster (according to Moore's Law) while web storage is getting cheaper along with bandwidth. These three combined mean that online costs are falling by 50% each year. It gets to a point where marginal costs are so small that people just round down to zero.
The Penny Gap and Micropayments
The price of even a single penny stops people in their tracks to the extent that free is a much better price. In essence with free people can sample without worry of regret. So forget about charging pennies for something online and the micropayments that would even make that possible.
Competing with Free
If you are in a business that can be digitized then you will have to compete with free sooner or later. The experiences of Yahoo vs. Google mail and Microsoft vs. Linux are detailed. For content producers, like musicians, free content is not the end of the world but they will have to change their business model. Free will be largely used to promote and sell other things.
Newspapers, magazines, television and music have all had to deal with competing with free. What industry is next? Chris Anderson says the video game industry is next and it has already begun. Dungeons and Dragons Online recently came out with a free version. I wonder if OnLive's plan to charge $15 a month is wise?
Radiohead's Use of Free
A few years ago the musical group Radiohead made available their new album, In Rainbows, for free download before the release of the CD. Did they go broke? Far from it. They still sold three million copies and a deluxe box set sold 100,000 units at $80 each. Radiohead made more money before the release of the CD of In Rainbows than they made across all formats from their previous release. Furthermore the concert tour in support of In Rainbows was their biggest to date. Not bad for giving away a free album of music.
Here is what I find interesting about Radiohead's experience with free. They allowed people to pay whatever they thought was appropriate for the album before downloading it (including free), what was the average price people paid? Six dollars. This is lower than the standard ten dollars at the iTunes Music Store. Perhaps Apple and musicians could make more money by reducing the price?
Who knows what free will brings us in the future but with Free: The Future of a Radical Price you can get a pretty good idea where things are heading and how we will get there.
Free: The Future of a Radical Price at Amazon.
(I read this book for free by checking it out of my local library.)
Free: The Future of a Radical Price, free abridged audio book from the publisher (email required).
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I am reading 50 books this year, for the others I have read and what I'm reading now check this out (also at Newsvine).