Book Review – Free: The Future of a Radical Price

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Free wasn’t what I expected. Its not a manifesto for simply giving everything away. Instead its a broad discussion of the economics of free and the disruptive business models that the Internet has created. As part of this, the book also looks the motivation for people to participate without compensation and behavioural economics, including the inherent conflict this creates for organisations that deal in content and intellectual property (like the media, gaming and music industries).

Free is written by Chris Anderson, editor at Wired Magazine and the author of The Long Tail. Fundamentally, if you accept his arguments, Free comes down to set of business model that depending on your viewpoint either take advantage of the Internet or force you to change how you market your products and services because of it. These are:

  1. Direct Cross-subsidies
  2. Three-party markets
  3. Freemium

On the Internet, the first two models are really an extension of traditional marketing techniques – e.g. advertising on television and radio. However, the popular Freemium model is really one that has come of age in the digital Internet era. The Freemium model is particularly evident in the software industry and can be seen as a distinct variation of the direct cross-subsidy model – instead of a cross-subsidy across products purchased by a customer, a minority of premium customers pay for the majority of free customers. This is not as unfair as it sounds, since the overall scale of the user base actually benefits those premium customers but ensuring a better, well supported and scalable product.

A fourth market is non monetary markets. In a way this is a challenger to all of the above business models, if critical mass is achieved. Wikipedia is the classic example, but Anderson also includes file sharers under this banner. Unfortunately non monetary markets reflect the nature of the beast – Anderson says he doesn’t condone copyright infringement, but that in effect it would appear a non monetary digital market trumps any other kind of digital market. This is very much in the vein of Negroponte’s classic, Being Digital.

The only defence against non monetary markets appears to be related to identifying needs that the market can’t serve, such as convenience. For example, in Anderson’s view paying a small fee for a music track from a site like iTunes is much easier for the vast majority of adult users, who lack both the time and patience to deal with P2P. Alternatively, companies are faced with the choice of adopting this market as part of their business model. For example, make your profit on live events but tap into non monetary markets as a low or no cost way to promote your brand.

In this respect Anderson acknowledges that there is a fundamental different between selling things that are made atoms versus bits in the digital world. This is positioned essentially as the difference between the scarcity of the physical world and the abundance capacity of the digital environment. To be successful we need to reconcile both and the challenge is that we are a point of transition, trying to work what will be free online, what people will pay for online and how to draw a line between that and the physical world where traditional rules still apply.

Personally I thought this was a great book – the ideas above have certainly got me thinking about not only the bigger picture of the impact the Internet is having, but even my business model as a consultant (I’m actually already a participant in the free-based economy). However, I think there are still lots of unanswered questions:

  • How will we manage this transition so that society isn’t too badly affected in the process?
  • Applying the concept of the Long Tail (Anderson’s earlier book), how will people on the tail make a living or will this just create a new kind of digital economic divide?

These aren’t arguments against change, just a statement of the issues and challenges ahead of us.

Also, on the theme of abundance versus scarcity, I would also like to see someone write about the idea of applying the digital abundance idea inside organisations in relation to Enterprise 2.0 (a kind of “Free Enterprise 2.0” – maybe I’ll talk about this in another post one day).

As part of his own promotion of the book, Anderson did release the whole book online so it could be read gratis. Unfortunately that promotional period has expired so you can’t access the free text version of Free on Scribd anymore, but a free audiobook is still available for download.

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