BTRIPP (btripp) wrote,

"Free" ... tasting of reality

I feel a need to apologize up front on this review … I try, I really do, to get around to reviewing books when they're still fresh in my mind, but I think this is the third attempt I've made, going back at least a month, to get this reviewed (I noticed that it's right there in the to-be-reviewed pile sitting next to my netbook in a pic accompanying a Swarm check in from August 8th) and my brain has “moved on”, leaving me to pick through impressions and little slips of paper bookmarking bits here. Sorry about that.

Anyway, this was a delightful surprise to have found at the dollar store a while back … I know I've discussed that channel ad nauseam, but I'm still thrilled to find something like Chris Anderson's Free: The Future of a Radical Price at a price like that ($1 … not quite “free”, but close enough for my budget). If you don't know Anderson off the top of your head, he's the long-time Editor-in-Chief at Wired magazine, and the fellow who brought the world the highly influential concept of “the long tail” in his book by that name. In here, he is (obviously) looking at the trends to more and more free products and services, and how they fit into society in general, and how they can be sustained.

He starts by digging a bit into marketing history, first looking at Jell-O at the turn of the last century. In this case, to introduce a new sort of product, which was having no success getting into the groceries of the time, the company developed free cookbooks that its salesmen would go door-to-door giving away, and following up with the grocers suggesting that there was likely to be a demand manifesting in the near future for the product. In two years it went from negligible sales to a million dollars of product (huge for 1904) and in the next 25 years they distributed a quarter billion cookbooks in support of the packaged gelatin product. Next he considers the Gillette razor story … in this case the blade maker didn't actually give away the razors – but they sold them to 3rd parties at such a low price that they (banks, etc.) could give them as freebies. And, of course, the razor without the blades was pretty useless, and men discovered that the disposable blades were a great convenience vs. keeping a traditional shaving blade sharp.

He also looks at the psychology of “free” … one of the reasons that “micropayment” systems have not been the success that one might suspect they could be is that ANY payment triggers a mental “red flag”, referred to in the literature as mental transaction costs … even if something is being charged as minimal a fee as a penny, it requires “the mental energy of deciding if the whole thing is worth {it}” … so while these systems “minimize the economic choice of choices, they still have all the cognitive costs”
So charging a price, any price, creates mental barrier that most people won't bother crossing. Free, in contrast, speeds right past that decision, increasing the number of people who will try something.
… or as NYU lecturer Clay Shirky notes: “anyone offering content for free gains an advantage that can't be beaten, only matched”. “Free” takes the whole “is it worth it” questions off the table, perhaps even at a sub-conscious level.
Give a product away and it can go viral. Charge a single cent for it and you're in an entirely different business, one of clawing and scratching for every customer.
Anderson takes a spin through Moore's Law, and Mead's Law, and Alan Kay, who at Xerox's PARC in the 70's created the GUI that launched both the Macintosh and Windows (when first Apple and then IBM, respectively, stole the concept), on the concept that “a technologist's job is not to figure out what technology is good for … instead it is to make technology so cheap, easy to use, and ubiquitous that anybody can use it”. Things were heading towards a state where they were “too cheap to matter”.

He then looks at Microsoft (which managed to keep its OS not free), and Yahoo & Google's search and email tussles, and then peeks in at YouTube and the issue of “bandwidth” (once metered by ISPs – for the young'uns out there). He then circles back around to tangible vs. intangible product with a look at the encyclopedia market. In 1991 Britannica was the leader of a $1.2 billion dollar industry, with annual sales in the neighborhood of $650 million of $1,000+ per set encyclopedias. In 1993 Mircosoft introduced Encarta for $99 … and by 1996 both the encyclopedia market as a whole, and Britannica's chunk of it had been halved (Microsoft had about $100 million of a $600 million category at that point). Of course, improvements in on-line connectivity and the arrival of Wikipedia put the final nails in that coffin, and by 2009 Microsoft had given up on Encarta … with what had been a billion dollar plus industry reduced to a free web service.

The author introduces the economics term “network effects” to explain how this happens:
In traditional markets, if there are three competitors, the number one company will get 60 percent share, number two will get 30 percent, and number three will get 5 percent. But in markets dominated by network effects, it can be closer to 95 percent, 5 percent, and 0 percent.
He follows with the example of how Craigslist, with its very modest beginnings, ended up gutting the newspaper industry, as the free listings and wide audience of the web vehicle easily became more appealing than paying the rates of the former cash-cow of print classified ads.

Free eventually gets around to looking at the economics of these realities, from the theories of a 19th century economist, whose “Bertrand Competition” implies that “In a competitive market, price falls to the marginal cost.”, this being a price just above the cost of production (which if you're talking something like MS Office, is the cost of a couple of CDs), to the reality that “every abundance creates a new scarcity”, and in the world of nearly limitless information, “a wealth of information creates a poverty of attention”. This leads into a look at Maslow's “pyramid of needs” and Adam Smith's “the science of choice under scarcity”.

Towards the end of the book, it moves into a number of “lists”, from a chapter where Anderson address a dozen or so “common complaints” about free models, to “Free Rules: The Ten Principles of Abundance Thinking” (the first of which is “If it's digital, sooner or later it's going to be free.”), to a chapter on “Freemium Tactics”, and “Fifty Business Models Built on Free”.

Even though this has been out for five years, I never got the sense of this being “dated”, as it looks at the whole “Free” question from a standpoint that's fairly evergreen, using examples that have largely played out to a point where they're not in flux, and basing most of its arguments on long-standing economic theory. I thought it was a fascinating read, and if you're into marketing, economics, web stuff, and related areas, I'm pretty sure you'll find a lot of useful info in this. This original hardcover edition appears to be out of print, but Amazon has two “bargain” editions – hardcover and paperback – which are very reasonably priced. The new/used vendors, however, do have it, as low as a penny for a “like new” copy, so if this sounds interesting, you don't have a big barrier to picking it up!

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