Monday, June 15, 2009

Free: The Future of a Radical Price

For some time I have intended to write a post on the economics of media now that the cost of manufacturing it has gone to nothing. Today I discovered that Chris Anderson, editor of Wired and author of The Long Tail" has written a book on the subject called "Free: The Future of a Radical Price", available in July. I will write a post after reading the book, here is an outline of what I expect it to say.

Firstly, as the TechCrunch post says, "As products go digital, their marginal cost goes to zero." It is now economic to give the product away, and make it up on volume. Closely related is the network effect, the more widespread that some piece of media is, the more "valuable" that it becomes. Barriers to media becoming widespread reduce the likelihood that it is seen or heard. Cost is definitely a barrier.

Moreover, putting a price on your media item creates the opportunity for others to price for free and undercut you. A good example is craigslist. It may not be quite what you think of as media, but craigslist is in the process of decimating the newspaper industry by destroying their market for classified advertisements. Craigslist makes their money by selling access to narrow niche markets, so it seems to fit in perfectly with Anderson's thesis.

In the past I have written about the future of music and how musicians are moving to make their money from performance rather than from record sales. As goes music, so goes all media. My sister is currently writing a book. This last week she told me that she expects to make her living from touring to lecture on the books contents rather than from book sales.


Jim Rea said...

The central question of Free is essentially how are people able to make lots of money charging nothing? “Free is not new, but it is changing.” Overall, I believe that Free does an admirable job of simultaneously admitting that the underlying idea of giving away something to make money somewhere is not new, and demonstrating that the way it is now being done is becoming entirely and unavoidably disruptive.

“All forms of Free boil down to variations of the same thing: shifting money around from product to product, person to person, between now and later, or into nonmonetary markets and back out again.” Free breaks this down to four types: Direct Cross-Subsidies (razors and blades), Three Party Markets (advertising), Freemium (Flickr vs. Flickr Pro) and NonMonetary Markets where participants expect things to be free, like gifts and, largely, music, but often giving something back that can be used to make more money.

The hazards of the change are worth considering. There are examples in the book where free has decimated entire industries. Google gives virtually everything away for free. Not counting, of course, its extraordinarily profitable advertising service. But the flip side is that Google gets extraordinary amounts of information back, to use as it pleases.

And yes, for a short time, the book itself is free at

So how do you make money when what you create is free? You can see how, and a thorough review, at

Richard Taylor said...

Jim has a good review on his site and an explanation that he got an early copy the book for free! I got word today from Amazon that my dead tree copy of the book just shipped.