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RSSIronically, Anderson sort of acknowledged his own sensational headliner concept of "free-is-the-future-of-business." He did so by referencing economic "externalities" -- a concept that money is not the only scarcity. While costs of technologies or information may be moving toward free, the scarcities of reputation and attention are very real. These new scarcities result amidst an abundance of so-called or nearly free information, products or services. Contrary to the free headline, Anderson suggested: "Free shifts the economy from a focus on only that which can be quantified in dollars and cents to a more realistic accounting of all the things we truly value today."
Exactly. And Forrester CEO George Colony deconstructed the problem with free in a recent response on his blog. Colony countered with four limits of advertising, but they're really limits of the entire media model that premises Andersen's free argument.
1. First, there's the value of time. Free means sacrificing your time so you can battle your way, with a machete, out of thick forests of mental traps and distractions.
2. Then there's cognitive pollution. Free and the ensuing entrapments -- often advertising -- seldom bring serious learning, teaching or valuable advice. Overexposure to ad impressions or other extraneous activity dulls and distracts the mind. That's not a preferable mental state in an information economy.
3. Consider objectivity. Eventual indirect monetization, which free ultimately can't escape, taints impartiality. That also clouds accountability.
4. Form usually follows ads, not function. I would expand that to say that product execution usually follows money first, then function. The master agenda of free is to manufacture something that can eventually be sold through indirect media-monetization tactics, not necessarily perform to the highest level of core product functionality for a direct price.
I'm not trying to fight free, nor am I denying that eroding technology and information costs are disrupting economics and pricing as we know them. And despite earlier comments about the consequences of overexposure to advertising, I'm a huge believer in effective and respectful advertising. However, so-called free comes with a price.
Which explains Colony's conclusions: First, many will accept the sacrifices inherent with free content or product -- Andersen's argument. However, if free really proliferates, it's likely there will be a dividing countermovement of people who want things not free. Instead, they'll want things when they want it, and with no compromise attached.
Second, if the Web grows in importance and becomes even more the backbone of critical information and services, the baggage associated with free will not always be welcomed. Colony points to Wall Street trading systems, and first-responder communications systems. These services need to do what they need best, with no ads, no indirect monetization schemes or other compromise -- only the best product with a straightforward price and high accountability.
No doubt, information abundance and hyper competition will drive down costs. Festered by our short attention-spans, consumer tendencies and low monetary friction, the lure of free will grow. But let's be clear: free from direct dollar cost is misleading. When you account for all the things that truly matter, there's just no such thing as free. Any proliferation of free will drive consciousness of that fact.
Finally, will Anderson's upcoming book, "FREE," be just that -- free?
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Another interesting question is whether this model would give rise to a two tier information society wherein those who can afford it get access to their required information unencumbered while those who must pay with their attention are required to spend 20% of their time paying attention to ads. (Especially if there is a way to measure engagement so that the advertisers can ensure that they are interacting).
Sure, the web publisher has to finance server costs and bandwidth issues... that much is obvious and we're all aware of it. But what's the cost to the consumer -- "consumer" here in the literal sense, leeching off of the creative instincts / business models / hard work of individuals and organizations who might be entirely unaware of the illegal activity?
But I suppose if you want to get picky, costs to the browser could include limited pop-ups, occasionally restricted access, time out of the day, and the cable bill...
A few years back, Chris Anderson, wrote 'The Long Tail.' The article was the forerunner to the book that became a best-seller, and now savvy marketing people use the term "the long tail" almost daily.
'The Long Tail' describes the online niche strategy and success of certain businesses (amazon.com, etc.) and talks about how distribution and inventory costs of those business allow them to realize significant profit out of selling small volumes of hard-to-find items to many customers, instead of only selling large volumes of a reduced number of popular items.
Five years ago, I wrote an article in the newsletter titled 'Strategic Alliances: The Next Phase.' From that article, the following:
"If ever there was a time for the music industry to seek symbiotic relationships, it's now. The formation of these partnerships is becoming a key component in all corporate thinking and has been talked about recently in leading business publications. This from BUSINESS WEEK: "...companies should expand beyond their existing resources through licensing arrangements, strategic alliances, and supplier relationships." From FORTUNE: "Alliances have become an integral part of contemporary strategic thinking."
There is no such thing as having too many customers and no business is safe from shifting trends and changes in the marketplace today as consumers have more choices than ever where to spend their disposable income...The most beneficial type of partnering companies can engage in, is partnering with other companies that can provide compelling benefits for their customers. If used properly, the partnerships can be used to gain customers, protect them from predation by competitors, and protect profit margins. Of course opening the doors to create such alliances means "thinking outside of the box" more than ever. But the rewards can be extraordinary...Strategic partnerships are fueling the growth of the world's most successful companies as the demand to deliver new products at lower prices increases. Such alliances also allow companies to enter new markets and expose products they otherwise wouldn't do on their own.
I could probably go on and on here about the potential explosion the industry will see when such alliances are established. There's no reason why labels can't start mapping out a brighter future now to bring music to an even bigger audience than ever before."
Chris Anderson has written another great article, 'Why $0.00 Is The Future Of Business', in advance of his next book, FREE, which will be published in 2009 by Hyperion.
Possibilities as described in the article: Scenario 1-Low-cost digital distribution will make the summer blockbuster free. Theaters will make their money from concessions - and by selling the premium moviegoing experience at a high price. Scenario 2: Ads on the subway? That's so 20th century. By sponsoring the whole line and making trips free, the local merchants association brings grateful commuters to neighborhood shops. Scenario 3: It's a free second-gen Wiii! But only if you buy the deluxe version of 'Rock Band.'
Strategic alliances and partnerships possibly fueling future growth for successful companies.
This is an incredible article that will likely shakes the windows and rattle the walls in a whole bunch of corporate places and it's a must read. It presents, in great detail, all the opportunities waiting for those who will see what "free" really can mean in regards to expanding business when "out of the box" thinking goes to the next level.
It's a must read...I highly recommend it.
Steve Meyer President/CEO - Smart Marketing Consulting Services Publisher - DISC&DAT - A New Media Newsletter For The Music Industry Available at: www.freewebs.com/stevemeyer Editor, Digital Technology: www.allaccess.com Las Vegas, NV
There is an article about valuating CraigsList here - http://www.alleyinsider.com/2008/4/craigslist_valuation_80_million_in_2008_revenue_worth_5_billion. Estimated 2008 revenues of $81 million and profits of $25 million indicates that they are charging for something.
Anderson talked about the cost of Wired subscriptions in an interview. They charge $10 to make it valuable in people's minds, no other reason. Their business model and bottom line would be pretty much unaffected if they charged $.01.
First off, even with subscription models, there was still alot of advertising going on. C'mon, it's not like ads started magically appearing on the NY Times.
The subscription cost generally is equivalent to the cost of the hard copy distribution. Now that hard copy distribution is going down the tubes, and it's just on the internet, all you are paying is for your servers.
This created an inequality in the marketplace that allowed non-premium online news services to gain traction. Now the newspapers are catching up.
I also don't think that one model is inherently better than the other. Good content + Good distribution + Large Market + Responsible monetization plan = Lot's of Money :)
That could be through a free but with ads plan, a free + but with upsell to product / premium service, paid subscription etc. It really depends on what makes better business sense.
However, with all of the content that is being created online, I do believe you are right that there will be a backlash against some of the "free content". However, assuming that the quality of writing that newspapers produce remains the same, it will prove a boon to the newspaper's, who will still be (hopefully) producing quality content.
Whaddya think Max?
Actually, the cover illustration shows $0.00 -- so not "free" in some abstract, philosophical or macro-economic sense, but what one person pays another.
And Chris very clearly lays out the economic/business basis for the various "free" business models. Cross-subsidization (cellphone below cost, pay by the minute), teaser for the full-price version (the book), advertising, etc.
I like the fact that it was the CEO of Forrester Research, which gives away very little, that complained about the concept.
Chris's argument is certainly not that every single product or service or good (nature, air) will be free of any cost however measured -- so all those counter-arguments are targeting straw men. If you want to challenge Chris's argument, tell me how the parabolic decline in cost of memory and bandwidth is NOT going to result in lower PRICES for goods and services that depend on those two factors for their current PRICES.
As a book publisher specializing in electronic fiction, I've wrestled with pricing models for years. I truly believe that an affordable but non-zero (non-free) price offers both customers and authors a more fair shake. There seems to be a notion that authors will keep writing no matter whether they're paid. I believe that the long-shot chance of breaking out inspires many of us. If we knew our book didn't have a chance, we'd spend our time doing something with more immediate payback.
Rob Preece Publisher, www.BooksForABuck.com
And these things will remain free despite the legions of marketers that are hard at work at figuring out how to sell people on improved versions of simple and beautiful basics. ;)
It's a FREE classified ads service that most you already know. And I do mean free. Free to post ads, much cheaper than the nespaper, although some of them have moved to a "sell anything under $50" for free, largely in response to craigslist.org
Where is the the hidden price? Sorry, can't find it. Nope, looks totally free to me!