Posted on 05/05/2008 9:08:49 AM PDT by USFRIENDINVICTORIA
If "free" is what you want - and who doesn't? - "free" is what you're going to get.
So says Chris Anderson, editor-in chief of Wired magazine and, according to Time magazine, one of the world's Top 100 influencers.
Speaking to The Globe and Mail from his office in San Francisco, the author of The Long Tail, who pseudonymously curates Wikipedia entries in his spare time, explains how "free" has emerged as the new economic model.
Let's start with the term "freeconomics." What is it and how do you define it?
It's a little bit cheeky, I know. It's a rip-off, of course, of Steven Levitt. It's a bit of a joke. ... There are three kinds of free in the world. There's the model that's 100 years old and that's, you know, razors and blades, cross subsidies. You get the razor for free and you pay for the blades. Today we see that in everything. You get your cellphone for free but you pay for the minutes ... that's the old model of free. Then there's the model that emerged in the sort of middle of the 20th century. This is the media model ... where the consumer doesn't pay but a third party - in this case, the advertiser - pays for access to the consumer. ... What's happened online is that the media model has been extended to all sorts of things that aren't traditional media, with Google being the best example ... anything you can subsidize with advertising becomes a third-party pay, so that it's free to the consumer. But there's a third form of free, which is the fascinating one that's really just now coming of age ... where really nobody pays ... One of the unique things about Internet economics is that, unlike traditional economics, where the raw materials and the labour and the power is not zero, online all the inputs - the bandwidth, the storage, the processing - are all super cheap and getting cheaper every year. We've never seen an economy like this.
So just to be clear, what you're really saying is the foundation of this new model lies in bandwidth, storage, processing power, all on their way to being, to use your term, too cheap to meter or too cheap to matter economically.
Precisely. And then you revert to classic economics. You learn this in the first week of economics, but you never really pay attention to it ... In a competitive market the price falls to the marginal cost. ... You never think of the marginal cost falling to zero because, in most markets, it doesn't fall to zero, but online the marginal cost - that is, the cost to serve a web page or a software [application] - to a consumer is falling to zero. Today it may be one cent. Tomorrow it will be a tenth of a cent. The next day it may be a hundredth of a cent. ...
The marginal cost falls to zero so the price falls to zero.
This isn't really a matter of choice or a matter of innovation. It's sort of like the laws of physics.
So free becomes inevitable then?
Free becomes inevitable ... The question is not, could it be free. The question is, how soon must it become free, because if we don't make it free somebody else will.
Money has to change hands somewhere along the line, does it not? The content has to be monetized?
It does not, it does not. ... There is a world out there that doesn't involve money at all. Wikipedia is an encyclopedia where no money changes hands. The blogosphere is largely a publishing media enterprise where no money changes hands. ... If you're a business and you're in the encyclopedia business, you're competing with Wikipedia and it's not because Wikipedia has some business model you can emulate. Wikipedia has no business model. They've just demonetized the industry. There it is.
Are you saying that any industry that can be digitalized can necessarily be demonetized?
When I say demonetized there are two aspects. One is demonetized from a consumer perspective. In other words, you don't pay. The other is demonetized in that no one makes any money anywhere. It will depend from industry to industry. In the case of encyclopedias, we're probably going to demonetize that industry. ... There are other industries where you're not demonetizing it. What you're doing is saying web mail is free to consumers now. The really, really active web mail users who want special features ... really almost become price insensitive - they're wedded to full functionality web mail. In that case, you can charge that 1 per cent, or 0.1 per cent, quite a lot of money.
This is the so-called "freemium"?
This is the freemium model. It's the inversion of the typical free sample. In the free samples, we think of perfume or little bits of muffin from Starbucks. ... You give away 1 per cent to sell 99 per cent. ... The nice thing about digital services is because the underlying product doesn't cost anything, you can give away 99 per cent to sell 1 per cent. Today you see more and more businesses built around freemium. That's the Flickrs, the web mails. Because the underlying product is so cheap to offer, you can subsidize the 99 per cent with the 1 per cent.
You've used the word "subsidize," so therefore the 1 per cent has to exist in order for the 99 per cent to be subsidized.
In that particular instance. Or if it's advertising supported, then the advertisers have to exist to support the consumers. That model does still exist in terms of the advertising industry. Google, etc. ... Google is a very profitable company that makes billions by not charging consumers.
I guess I'm curious about what the future of that is.
What's the future of advertising? Is it possible for advertising to be free to the advertiser? Absolutely. I just think we won't call it advertising. ... I'm a geek, as you might have guessed. I have a lot of geeky interests. I subscribe to blogs of engineers about various topics of interest. Those engineers work for companies. Those blogs are about their companies' products. ... Is it advertising? It's certainly not described as advertising. It isn't paid for. It doesn't come from the marketing department, and yet it may have the effect of advertising in the sense that it communicates information about a product to an interested consumer.
I think what you've just described kind of frightens me a bit. The notion that something becomes so intellectually embedded that you don't necessarily know what it is you're getting in terms of advertising integrity or its obverse, editorial integrity.
You've now hit an issue that only comes up when I'm talking to media people. I'm a media person, so I have a lot of sympathy. This whole thing about Chinese walls and church and state and ad versus edit and editorial independence, this is something that the generation that has grown up on Google just doesn't care about.
You've written a new book on the concept of free. Is it finished? Does it have a subtitle?
It's not finished and it doesn't have a subtitle.
Will it be free?
Yeah, of course. How could it be otherwise?
Are there going to be ads embedded in the book?
Ah! So how is it going to be free? Let's start with the digital forms. So the audio book, that's an MP3. That's going to be free. There's the e-book. That's a digital file that's going to be free. There's the web book on the website, page per view, that's going to be ad supported and free. And then there's the physical form of the book. ... One that's going to be sponsored with ads and you get that for free. ... Then there will be the traditional form without ads for which we will charge you $24.95.
The ones with the ads: How is that physically going to appear to me?
Probably ads on the inside front cover and the inside back cover and a couple in the centre.
Will cars be free?
Cars will be free. There's a chapter in my book about a car company in Israel called Better Place, an electric car company. The car is free and you pay for the electricity.
At the end of the day, will everything be free?
I think a surprising number of things will be free in a version.
So that really does take us into the arena of a whole new economic model.
It's partly a new economic model and it's partly the psychology of free. It's partly recognizing that zero point zero has a special place in our psychology. It gets our attention.
No it's just more of the same as we have heard from what is basically a Marxist movement on the Internet.
They argue that things should be free, and that people should donate their time to creating things for free in order to make it impossible to make money off of doing them.
I have no problem with people donating their time, effort, and even money to projects like Wikipedia. However, they aren't produced without cost. They might be free to the user, but someone is still paying for the bandwidth, and people are still donating their time to provide the content. It doesn't matter if you donate time or money or something else, the project is still being run by donations.
Obviously everything can't be done through such a model or no-one earns a living, that is unless you have some entity like a Communist government step in and determine how much to pay people for their efforts.
If you undermine the profitability of doing things by subsidizing it, you can even create a monopoly to some extent. If you can gain enough market share, and have control, or at least strong influence over the content of a popular "free" site you have a lot of control over what content people receive. As you can guess that has a lot of appeal to certain people, and they can find a lot of "useful idiots" to provide the free labor as long as they present their message right.
So far, such efforts have had limited success because there has remained reasonable competition, and enough skepticism of such projects to maintain a market for competition.
That won't keep them from preaching their populist message of how things should be free and of the evils of capitalism.
yes, and You get what you paid for.
There is always some cost. In the case of Linux, while it is monetarily free, it would cost the average user time to climb the learning curve, and cost of equipment. There is (or was) a cost of some kind for development, in terms of time and resources, to somebody. The end user may not be the one who pays, but it is paid by someone.
Where “network effects” are present; there are actually astoundingly high economic rents. Network effects create de-facto monopolies. Microsoft Windows, Google, etc. — all have rates of return that old-fashioned robber barons could only dream about. Network effects make competition difficult — but, perhaps one day, even Microsoft will be giving away its OS. Google is already using the 3rd party pays (advertisers) model, and the free-perfume sample model (e.g. free regular Google Earth, and the paid premium version).
You make some good points.
I’m sure that Anderson has a lot of very lucrative lines of income & is being very well remunerated for his efforts in writing about “free” stuff. His competitive advantage seems to be the way he packages the old ideas — IOW, he has a way with words.
You're technically correct, but I was discussing this in the context of cost-benefit analysis. Yes, you can be "tricky" with Windows, but it's hard, so usually it's strongly preferable to simply move on to another task or find a different way to solve your problem. It's a lot easier to think of clever, subtle manipulations for Linux systems than it is for Windows. Therefore, Linux strongly encourages you to waste your time trying to think of such tricks and then show off how clever you are to all your Usenet friends.
Say that there's a log file where we need to find application errors. It's large; perhaps 70MB. What do Windows users do? Open the file and then hit Ctrl-F to search it. What does a Linux user do? Grep. One is much faster than the other.
You've never used Windows PowerShell, have you?
Besides, if you really want, you can always install Cygwin or some other POSIX shell on your Windows box. I've got it on mine. I occasionally use it for ipconfig stuff, but only because I work for a company that makes packet-routing software and therefore sometimes have to make my network stack do some somewhat unusual things.
Go learn HCI and they will tell you every time that command languages are the most powerful interfaces, but the learning curve is often too steep.
Which HCI book are you talking about, exactly? I happen to do some HCI work professionally, and I can't think of the last time I or anybody else in the industry actually advocated a command-line interface for any product design - even hotkeys are regarded as a sort of obnoxious legacy.
The problems with command-line interfaces go far beyond a simple learning curve. On a fundamental level, the very idea of a command-line interface is an attempt to offload all responsibility away from the system designer and onto the user. Giving a user a command-line interface to your product is little better than giving them the schematics of their CPU and telling them, "Here, with these you'll be able to figure out how to use this machine. Don't come crying to us for help because everything you need is in there. It's not our fault if you're not smart enough to understand it." It's an insult to the user on a very basic level. I don't know what you're reading that makes you believe that HCI professionals consider command-line interfaces "powerful", but if "power" is measured in reducing the amount of thought and effort that the intended user has to exert in order to accomplish a task, command-line interfaces have no credibility.
Interesting ideas, but the interview wasn’t too coherent.
I do think more and more basic or entry-level products might become free. Like software, there will be charges to upgrade.
If someone were able to live without upgrades most of the time for most things, imagine how much free stuff and services could be had!
That’s why advertisers hate DVR’s-—viewers simply record their shows and then fast-forward through the ads.
Your comment reminds me of an article I read on FR a month or so ago.
It had to do with First Class on airlines. Basically, someone proposed to make airlines more profitable, get rid of First Class, put in more “economy” seats and run more passengers that way.
But, IIRC, the airline industry said that just one paying First Class customer per flight usually made the entire flight profitable. The people who paid to fly First Class simply wanted the better experience and could and would pay for it. Profits from First Class passengers were then used to make coach more affordable, thus increasing the occupancy rate in Economy too.
The bottom line was that without First Class, it would be a lot more expensive to fly in Economy.
But if you are interested in such things you should look up "RepRap". It's a project to help spread Replicating Rapid prototyping machines. Basically 3D printers where you get one for free and use it to create 2 or more and give them away for free.
Wow — the singularity!
It would be like having Shmoos — the self-sacrificing little blobs that appeared in the Lil’ Abner comic strips from time-to-time. They provided people everything they wanted for free — and thus caused everyone to stop working and led to the break-down of society.
I don't remember the FR discussion — but, you reminded me of all-first-class airlines. They have all first-class — with lie-flat beds — and are cheaper than first class on an ordinary flight. The reason they are able to undercut the first-class prices of regular airlines is that airlines have milked first-class so much, to cross-subsidize the economy seats (which would be where you'd find me all scrunched up).
Here's an article on the subject:
http://www.aviation.com/firstclass/070712_allpremiumclassairlines.html
Hey, econjack - are you a Sowell fan?
I love his way of looking at incentives in every issue and showing how perverse incentives lead to bad outcomes for most folks.
That idiot singing about pirate clothes tells us credit reports are free.
“Requires enrollment in TripleAdvantage”
Exactly.
Cheap =/= Free
Yep, glad you'd heard of that. And thanks for the tidbit on Lil'Abner. I've heard of Lil'Abner but never heard of the Shmoos.
Right now I'm reading Accelerando by Charles Stross which deals with the concept of manufacturing costs going to zero and the economics that go with it. He calls it Economics 2.0.
Personally I don't think the economics of RepRap will work nearly as well as thinking of the 3D printers like you would breeding pairs of pure bred dogs. By a couple of printers make two more and sell them. With the idea that the person buying them will make more to sell. I think that would work better economically speaking. Also, RepRap is geared to evolve to better printers as time goes by.
Not necessarily marxist/communist - just efficient impementation of supply and demand. So long as all payment is voluntary, it’s capitalism; if you can get costs so low that you only need a tiny percentage of customers to pay, and giving stuff away for free to the rest will statistically maintain that tiny percentage who pay, it works.
Upshot though is that at the end of the day, I need to buy dinner - and atoms ain’t free. Man cannot live on bytes alone.
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