Wednesday, February 27, 2008

Nobody's Free Until Everybody's Free

Chris Anderson (he of The Long Tail) is popping up all over the Internet again.

When last we left Anderson, he was writing a book on the value of a business model based on free. I posted about Anderson's forthcoming book on June 10, 2007 here.

On Monday, Advertising Age did an interview with Anderson prior to his lengthy cover article in Wired, the online magazine. We'll talk about the interview today and the article tomorrow.

Anderson begins his interview titled "What Are You Worth in a Free Economy?" by talking about what he calls "the three kinds of free."

The first kind of free he describes is the Gillette razor-and-blade model. At the turn of the twentieth century, King Gillette invented the safety razor. While trying to convince people to try his innovation, he gave away thousands of razors. Of course, the razors were useless without the blades, which people then purchased for their new "free" razor. Anderson calls this model the cross-subsidy one, where the manufacturer subsidizes one product in order to build a market for another.

A variation of this model is the media model, the one all of us grew up with. We watch network television for free because the advertisers pay for the programming.

The second model is different in that the cost itself is diminished. It's the model on which Google and Yahoo give users free services to build up their user base. They then make their money by selling ads based on the number of clicks their sites ring up. In his interview, Anderson didn't distinguish this model from the first model clearly enough to satisfy me.

The third model is one Anderson calls the gift model. In this variation, services are donated in exchange for something the donor prizes: being a part of the process, or an increased recognition or reputation. The volunteers at Wikipedia are examples of this model. They are not paid for their work on the online encyclopedia, but they must derive some satisfaction from what they do because they continue to do it.

Anderson spends the second half of the interview talking about the fact that free permits hundreds (or thousands) of niches to spring up. He argues that the real profit is to be made in those niches because that's what truly matters to the consumer.

Perhaps an example would be the forthcoming new model for the Wall Street Journal. Most of the WSJ will be free in the future except for a very expensive service offered to the niche willing to pay for it.

Anderson points to this as an example of the quote by Stewart Brand, the creator of The Whole Earth Catalog. In 1984 at a hackers conference, Brand reportedly said: “Information wants to be expensive, because it is so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time.”

You can read the whole Anderson interview here.

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