Chris Anderson on the Future of Free

Chris Anderson speaks about his latest book Free: The Future of A Radical Price:

“What it says is that anything that becomes digital will become free — not to say that everything online will be free, but that everything will be available in a free version, so that fundamentally, you’re either going to be competing with free or you’re going to be making a product free and selling something else, because the marginal cost for these products is the same for everybody — which is to say zero.”

Anderson sees many areas of digital content as obeying this law, including music, video, and video games (the big three “shiny disc” industries), news, books, and e-mail. Under Anderson’s model, people will continue to pay good money to save time (that is, those who have more money than time will), lower their risk (such as paying to assure that their Second Life land will still be there, or that their operating system will be supported), because they love something (such as buying virtual items in free videogames), or to increase their status in a community.

I think the topic of digital economics is very interesting and I looked at it in depth earlier in my 8 funding models to support digital goods creation post.

I agree with him about paying to save time (as I wrote long time ago that time is more valuable than money in the attention economy) but that opens up a big loophole where people will still use iTunes, Netflix and Amazon to purchase media because it is a lot faster to use them than trying to find a free version somewhere. You can also use this to justify in game purchases (saves time buying things rather than earning them) and software (better to pay for standard one everyone knows, than the new one you would have to learn).

I am not so sure about his other three reasons. I think the Second Life and virtual item purchases show that in a closed system you can still charge for digital goods, as you have complete control of who can get what and how (iPhone apps being another example). And paying for support is not really a digital good as you are paying for someone's time.

Anderson comes up with the following rules for media companies trying to figure out how to make money online:

1. The best model is a mix of free and paid
2. You can’t charge for an exclusive that will be repeated elsewhere,
3. Don’t charge for the most popular content on your site,
4. Content behind a pay wall should appeal to niches, the narrower the niche the better

This is somewhat counterintuitive because it means media sites that want to charge for content should charge for their niche stuff instead of their most popular content. But that is exactly the right way to look at it if you want to maximize your advertising revenues. Let the popular content be paid for by advertising, and the niche, exclusive content can be sold to fewer people at a higher price. Anderson, whose last book was the Long Tail, predicts in media: “The head of the curve will be free and the tail of the curve will be paid.”

Interesting take on giving the head away for free and charging for the tail (hmm, that sounds dirty). The hardcore fans, those with a great interest and those that need the information for work will be willing to pay for additional content that is very specific and isn't commonly available (I am thinking of music artists' blogs, ESPN's insider and WSJ content).

I also think you could charge for earlier access. Give those that subscribe access to content hours or days before you release it for free. Let them see the exclusive material before everyone else gets it.

I think this analysis also misses the fact that the free market might not be the best way to support digital content production. Funding from government, donations and having content created by volunteers might be the better way to go in many cases.

via Wired and TechCrunch