Book Review – Free, by Chris Anderson

It’s been said that the best things in life are free. Chris Anderson sings this tune in his book “Free: The Future of a Radical Price,” saying that not only is “free” great for consumers, but a necessity for business in the digital era.

As the editor of Wired magazine, Anderson has had a front-row seat for the technological revolution of the last couple decades. His 2006 book, “The Long Tail,” surmised that digital technology was toppling standard business convention. Specifically, because of high costs of marketing and distribution, brick and mortar companies have relied on selling massive quantities of a few hot products. But thanks to digital tools, these marginal costs are significantly lowered, allowing companies to sell smaller amounts of many different items and still make money.

“Free” is a continuation of Anderson’s general themes of “Long Tail”: the positive economic effects of digital technology on society and business. Here he argues that offering stuff for free is a savvy and inevitable move.

Anderson understands that his thesis runs counter to traditional economic theories. “It doesn’t take a PhD to understand why Free works so well online,” he writes. “You just have to ignore the first ten chapters or so of your economics textbook.” He seems to relish his role as a rabble-rouser, and heaps praise on successful practitioners of “free,” from Gillette to Google.

The economics of production have indeed been turned upside down by digital media. At the heart of this transformation is the sharply decreasing price of technology: processing power, storage and bandwidth. As a result, the marginal costs of copying, sharing and distributing are next to nothing.

Thus, he reasons, these low marginal costs, combined with the psychological appeal of a zero price point, make “free” a winning proposition. In turn, Anderson argues, businesses that learn to accept and maximize “free” are going to find success. The book goes on to lay out the ways this is being practiced, and cites cases where companies are using “free” as part of their business models.

So far advertising is the most prominent method of monetization. There’s a lot of free information on the Internet these days, content that attracts viewers with specific interests and needs. And advertisers are paying to reach these coveted audiences. Besides the standard display ads to which we’re accustomed, many creative approaches to online advertising have taken hold: pay-per-click text ads, affiliate ads, site sponsorships, paid listings in search results, and more. Google is the leader in translating its page views to cash; its services and products are offered gratis, and the money comes from advertising.

“Freemium” is another popular model, in which some content is free, but there are charges to access enhanced information and services. Several online publications, including The Wall Street Journal, Congressional Quarterly and Consumer Reports, and niche sports sites such as Rivals.com, are successful with this hybrid approach; free content generates interest, but if you want the really good stuff you’ll need to pay. Flickr and Craigslist give away services, but charge fees for what they deem premium services.

Anderson doesn’t limit himself to information products in explaining why Free is so dynamic. He points out that Zappo’s and Amazon use the power of free shipping to encourage purchases, and studies have shown it works.

What becomes obvious while reading the book, though, is that these common approaches to monetization aren’t really all that unique. Advertising revenue subsidizing free content has long been the strategy of publications, radio and network television; bring in as many people as possible, and charge high ad rates. Freemium, too, is merely a derivative of subscription publications and cable television. And using “free” as an enticement to buy a product is a time-worn strategy.

And while the book celebrates “free,” others curse it. In particular established media companies have struggled in the online era. They’ve offered their content for free, but the ad dollars haven’t proven to be particularly lucrative. Classified advertising, a cash cow for newspapers for decades, has become a skinny source of revenue as those dollars have fled to free online classifieds sites. Meanwhile, the one product you would think the media should be able to convert to cash, content, instead is being poached and monetized by Google and other aggregators. Media companies are actually failing, in part, because of their embrace of “free,” and the book doesn’t reconcile that conflict.

So as the book claims that there’s a lot of money to be made by charging nothing, this isn’t necessarily proving to be the case. And “Free,” while making its points, doesn’t really address where the money is going to come from over the long haul either. When it comes down to it, Facebook, YouTube and others mentioned in the book aren’t yet making a whole lot of money on their free offerings. Anderson concedes as much in the pages of “Free,” noting that while anybody can incorporate it, “typically only the number one company can get really rich with it.” Google is proving to be that exception, a company that is raking in big bucks in the era of free. But Google’s CEO Eric Schmidt is also quoted in the book, expressing concerns about the free model on the larger marketplace; free does work fine for his company, “and not well enough for everyone else.” That said, considering Google’s remarkable innovation and products, one might even question whether free is the reason Google is succeeding.

The book is at its best in providing historical context to “free,” and tying it gracefully to the present. And it does an excellent job explaining the basics of “free,” and demonstrating how prevalent it truly is today. However, unlike its cover claims, it doesn’t really examine the future of “free.” Free offerings may still be an interwoven element of our digital economy going forward; but without insight into its future I’m not convinced “free” will be the backbone Anderson believes.

Anderson, Chris.  Free:  The Future Price of a Radical Price.  New York:  Hyperion, 2009.