In my last post, I covered mostly the “Free isn’t perfect” part. So here’s why I think he’s right:
While I think that Anderson overstated the whole “Free as a business model” thing at the expense of what I think are the far more interesting and radical implications of Free, I think he’s dead right about Free. Free is a reality that businesses will need to contend with, and businesses that find ways to use it to their advantage will thrive; while those that refuse to do so will have to face the fact that you compete with zero cost without offering zero cost, you’ll lose every time. Allow me to illustrate with a quotation and a story from my own life:
Talking about a hypothetical glossy monthly magazine, Anderson explains…
It can typically be obtained in several different ways. You can read it online for free, in a somewhat stripped-down form… Or you can just buy one issue of the magazine on the newsstand for, say, $4.95. Or you can subscribe and get a year (twelve issues) for as little as $10, which is 83 cents per issue, delivered right to your door. Where do those three prices– $0, $4.95, and $0.83– come from?
Anderson then explains that the free web service is based on a combo of negligible hosting cost combined with ad revenue. The newsstand price is the cost of printing, plus a dollar or two profit for both the printer and the newsstand. And the subscription price is determined by an odd sort of set of calculations. The magazine is really ad-supported. But the ads are devalued if the publication is free. In addition, readers are less likely to actually get the subscription and read the magazine if the magazine is free. The ten dollars is as close to free as it can be (to get people to subscribe by making the low price an incentive) without making the magazine seem to be worth less to readers and advertisers.
Any company whose product can be delivered digitally will eventually be competing with someone giving it away for free. But if you add the Free model to your stable of strategies, it will work in synergy with the non-free elements of your business. To whit:
A week or two ago I was at Baltimore Penn Station waiting for a train. I went to the newsstand and picked up a copy of Wired. I hadn’t read the magazine in a while, and the cover stories looked interesting. I read it, and it was good. Really good. (Pick up this month’s copy of Wired if you haven’t– the cover article on the new netiquette is worth the cover price.)
Reading Wired reminded me, the next day, that Free should be out by now. I’d been wanting to read it since I’d read Anderson’s first blog post on the topic. So I looked on Amazon. It was thirty bucks, and only available in hardback. I’m a bit strapped for cash, given that summer means no assistantship, etc.
So, given the concept of the book, I wagered I could find the book– somewhere– for free. I found iTunes’s free audiobook deal, and downloaded it, listening to it over the next few days.
While listening to the book, and enjoying and being interested in it, I thought about it and realized that I’d really enjoyed the last issue of Wired, and felt I ought to give Chris Anderson some money for the free book, so I decided to check the subscription price for Wired. Looking on Amazon, I found it was only ten bucks. So I bought a subscription. And while I wasn’t crazy about the book, I figure it deserves a place in my New Media minor field’s reading list, so I’ll be picking up a copy of it one of these days, probably when it becomes available in softcover.
So that’s the story of how a free audiobook hooked me into multiple profit streams for Chris Anderson.
Free seems to be an effective business strategy, at least in his hands.