Tuesday, August 4, 2009

A free economy

This week is "Free Week" on This Young Economist. That is, every post this week pertains to the notion of "free." If you haven't caught it, I'm giving away a free lunch for this week's poll. Vote on the poll and sign up for your chance at a free lunch. [link here: if you want to enter, there's a form] If anything else, it will be fun. And yes, I really am giving away $5 (I'll put everyone's entries into a numbered list, and then use Random.org's True Random Number Generator to select the winner). Now, onto today's post.

One of the books on my summer reading list is Chris Anderson's Free. I'm reluctant to endorse the book until I read it for myself, but the concept has some promise.

I first heard about Free through a short Freakonomics post that quipped, "Anderson’s book on the subject, Free: the Future of a Radical Price, goes on sale next week for the decidedly un-radical price of $26.99." This post at Freakonomics linked me to a very negative review of the book by Malcolm Gladwell. Here's the conclusion of his review:

And there’s plenty of other information out there that has chosen to run in the opposite direction from Free. The Times gives away its content on its Web site. But the Wall Street Journal has found that more than a million subscribers are quite happy to pay for the privilege of reading online. Broadcast television—the original practitioner of Free—is struggling. But premium cable, with its stiff monthly charges for specialty content, is doing just fine. Apple may soon make more money selling iPhone downloads (ideas) than it does from the iPhone itself (stuff). The company could one day give away the iPhone to boost downloads; it could give away the downloads to boost iPhone sales; or it could continue to do what it does now, and charge for both. Who knows? The only iron law here is the one too obvious to write a book about, which is that the digital age has so transformed the ways in which things are made and sold that there are no iron laws.
Based on this quote, I had a dismal first impression of Free. The book had to be too simplistic to offer anything useful to learn, but Chris Anderson's marketing got to me. I started noticing other places where Free was being promoted. When viewed in the appropriate light, the Free notion isn't so bad after all.

Namely, I was searching the archives at EconTalk, and I noticed that there was a podcast where Russ Roberts interviewed Chris Anderson on Free. As I have a great deal of respect for the podcasts at EconTalk, I had to listen in. I planned on listening to just the introduction, but I found myself listening to the entire podcast. The topic really had some grab. And, just last week I saw this interview of Chris Anderson on The Colbert Report:


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Chris Anderson
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Anderson is a good salesman for his idea. Furthermore, he's reduced the price of his ideas to free if you're willing to read the book online.

As I gathered from the podcast (and my non-Gladwell readings), the most interesting aspect of Free has nothing to do with iron laws of describing behavior; Rather, Free (as the business model) has everything to do with a strategy that is being used ever more frequently, especially in the online economy. That is, companies like Google and The New York Times are giving away great services at a zero marginal cost to their audience. Then, they turn around and market the fact that they have a large attentive audience.

As the audience, we get a myriad of great products at the cost of viewing a few advertisements along the way. That's awfully close to free, and being so close to free, it's such a great deal that the business model is transforming our world.

So, now you see why the book is on my reading list. It's a compelling idea, but on the other hand, there are points in the argument worth resisting. One thing is for sure: The idea is controversial, but that's more of a reason to read the book than to leave it on the shelf at the bookstore.

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