Chris Anderson's FREE

UPDATED ON December 6, 2009.  Scroll down to the bottom for most recent addition

Chris Anderson's book, Free: The Future of Radical Price, has generated debate. This post tracks the reviews as well as blog posts plus my comments, in consecutive order . . . 

In ADAGE, on June 29, 2009, Henry Blodget, "former" internet analyst, writes about Malcolm Gladwell's cogent review in the New Yorker magazine. Specifically, he relates Gladwell's point that Anderson's FREE rationale that digital technology reduces Cost of Goods Sold.  As Gladwell points out, digital technology does nothing to reduce the original production and marketing costs. And he shares Gladwell's point that not all content is the same.  Some may meant to be free and some is high value.  Blodget agrees with Gladwell's point that FREE, in general, is not a sustainable model.  Here's our comment found after the article here http://adage.com/digital/article?article_id=137642 :

Gladwell is dead on. When consumer researchers declare that consumers expect the content to be free, they gloss over the fact that they also think they are paying too much for the technology to access the content.

Consumers will pay a lot more for quality content than they will ever pay for the utility of a wireless connection. When the industry figures out how to market and sell content to the person who will pay a premium for it, there will be plenty of money for both the content owner and the technology provider to share. This is the Kindle business model.

Although I think Anderson's conclusion is flawed, there is something to learn from his free sampling examples.

The parellel Anderson draws between free samples to start a habit of buying the product and giving away entertainment to sell an advertiser's product is weak.

But, in my experience, "free sampling" is a very effective tactic to sell premium content. BUT ONLY WHEN OTHER FACTORS ARE IN PLACE. It works best when the "sampled" video highlights are distributed on other contextually relevant sites, when the highlights are in real time, when the premium product has interactivity and other features that go beyond a passive, traditional tv experience, and when I use selling tactics to convert the curious to buy instead of hoping.

Seth Godin started a debate on Anderson's book featuring many blog entries, including from Gladwell and Mark Cuban, as well as other thoughtful bloggers. http://www.squidoo.com/the-free-debate

Cuban's blog, http://blogmaverick.com/2009/06/30/free-vs-freely-distributed/#postcomment, argues that free isn't really free since consumers are paying for distribution of the content via cable, isps, wireless.  This seems like an obvious point, but it is significant I think that it isn't.  It is significant that the industry doesn't think from the consumer's point of view.  The consumer doesn't see content as free at all.  Here is my comment#56.  Importantly, the conclusion that I look forward when we get past the debate of whether paid content will exist or not.  I does exist and we need to debate how to improve on it:

Mark,
Agreed – free isn’t free at all. People pay a lot for access to content. I think Kindle is the new model. The connectivity/distribution is included in the price for the content. There is plenty of room for everyone to make money with this model. People will pay more for the content than they will pay for a commodity like connectivity/distribution. I understand that this business model will require a transformation in relationships and skill sets. Publishers and Programmers have never had to market to consumers before – they relied on distributors to do that. But the advantages to publishers and programmers of having a long-term, interactive relationship with consumers are many – starting with less hope and more sure things. The advantage to distributors is already proven by premium cable channels- whose subscription levels continue to grow to new all time highs, even during the economic meltdown in 4th qtr 2008.

I can’t wait until everyone gets past debating free vs paid. There will be both. The exciting unexplored frontier is what is worth paying for . . . how market efficiently . . . how high can profit margins go?

Also featured on Godin's debate is an entry on June 30 by blogger Guy Le Charles Gonzalez,  responding to Godin's disagreement with Gladwell's review of Anderson http://loudpoet.com/2009/06/30/the-limitations-of-free-godin-vs-gladwell/.  He writes of his disappointment in Godin's weak defense of Anderson in light of Gladwell's "must read review".  I share his disappointment that thought leaders are not focused on improving value . . .

Guy, I, too, am disappointed. The communication industry needs thought leaders who are interested in improving value. Mass media has responded to increased competition for audience by seeking the lowest common denominator. As Leo Burnett said - 'anyone can get your attention by walking in a room with a sock in their mouth.' The idea that new technology should be used to perpetuate the race to the bottom is just saying what so many hope is still true - "you don't have to give up on 'lightening in a bottle.'"

The truth is there are more profitable possibilities. Subscriptions to premium channels grew to new record highs in 4th quarter 2008 while consumers were finally informed of the economic collapse that had been threatening for over a year. Consumers will pay for value. They know you get what you pay for.

Contrary to Anderson's opinion that the Monty Python example demonstrates the power of free, I think it demonstrates that there is an opportunity to drive up the sales of a "Long Tail" brand to #2 sales on Amazon by reaching out to your fans. Sure they got a list of fans from YouTube. But there's lots of ways to engage fans to give you their names. Free is by no means the only or the best way.

Financial Times writer John Gapper also finds flaws in Anderson's arguments, on July 2, 2009: “The obvious criticism of Mr Anderson's work is that, as Mandy Rice-Davies said of Lord Astor's denial of an affair with her: ‘Well, he would say that, wouldn't he?’  Wired is a West Coast magazine, grounded in Silicon Valley's software culture, where companies such as Apple profit from the free availability of  ‘content’ that runs on their far-from-free hardware.”   Gapper sees two flaws in Anderson's argument.  First, that the low cost of distributing digital information does not, in reality, foster competition, one player tends to dominate.  Second, he agrees with Gladwell that Anderson ignores all the Cost of Goods Sold.  We sent a letter to the editor (below).  Here's the link to the article: http://www.ft.com/cms/s/0/350370f2-66a0-11de-a034-00144feabdc0.html 
         

          July 4, 2009

To the Editor:

John Gapper’s review, “Free does not live up . . .,” of Chris Anderson’s Book, Free: The Future of Radical Price misses two flaws in Chris Anderson’s theory.

Gapper nails two critical flaws: 1)Anderson’s conflict of interest.  Gapper points out that we shouldn’t be surprised that the editor of the “Silicon Valley” trade magazine, Wired, would promote the idea of giving away free media industry content so the software, hardware, and connectivity utilities profit.  2)Gapper echoes Gladwell’s criticism that Anderson does not account for the fact that, although distribution costs are lower on the internet, original production and marketing costs do not change appreciably.  In fact, transforming a “passive” experience to an “interactive” experience has new costs never contemplated before.

The missing third flaw is that Anderson relates Gillette giving away its razors to sell its blades to company A giving away company B’s product for free.  This just is not a sustainable business model. 

The fourth flaw is Anderson’s assumption, not surprisingly, that the internet’s market potential is defined by the demand for software, hardware, and connectivity.  Admittedly during this juvenile market stage, consumers pay a huge premium for new possibilities.  Once “new and improved” no longer affects a meaningful difference in consumers’ lives, these benefits will be taken for granted.  The first to plan for the maturing market, not surprisingly, is AMAZON with KINDLE.  Sure hardware sales are driving the business now.  Long-term, profit will come from selling content and AMAZON’s knowledge of how to market content effectively, especially to the Long Tail.

Katherine Warman Kern COMRADITY

On July 8th, the Wall Street Journal published a book review by Jeremy Philips, a SVP at NewsCorp (the owner of the WSJ), entitled: To Rake It In, Give It Away.  Can a business thrive that doesn't charge for most of its goods and services?  My comment reflects on Mr Philips reference to an Anderson quote about how easy it is to compete with "Free:"

Mr. Philips says: "As Mr. Anderson says: 'It's not hard to compete with Free: simply offer something better or at least different.' People will pay for digital products and services that are genuinely distinctive and sought after."

Agreed. But the challenge is knowing how much more is required to command a premium and how to market efficiently in a marketplace of abundant choices.

Freemium is a good start. But in the "Post Mass Marketing Era" it takes more than "getting attention." Targeting prospects who are willing to pay for more is key. We know from experience that prospects attracted only by "Free" will not be up-sold or cross-sold. The free offer has to be an appetizer that makes one hungry for more. Converting curiosity to trial requires a system that anticipates consumer response and instant gratification. Capitalizing on consumer response to time up-selling and cross-selling opportunities requires a balance of technology and human intuition.

The return on this investment is sustainable profitability, not "lightening in a bottle."

This is an exciting time.

http://online.wsj.com/article/SB124701229573408977.html#articleTabs=comments#comment290852

On July 9th, Publishers Weekly, writes about the debate Anderson's book has ignited in "Free-For-All: Anderson, 'Free' Book, Sparks a Backlash Online and Among Battered Media Industry.  In the article, the writer quotes Anderson's reaction to the backlash:  "What I didn’t anticipate was how angry media people are right now. I should have anticipated it. I am in that industry. I may have a somewhat rosy-tinted view of journalists as being largely drawn by intellectual curiosity, but they are also people, and they are people in the midst of a once- in-a-lifetime industry collapse. How the media industry has to reform is not yet clear. I don’t have answers for them.”

Here's my comment and the link to the article http://www.publishersweekly.com/article/CA6670080.html?rssid=192:

So Chris, if you didn't mean "Free" then why call the book "Free"?

I suspect that the visceral reaction is a frustration that they still haven't articulated. Everyone talks about being frustrated because they spend so much to create quality content and no one seems to be willing to pay more for it than the unprofessional content.

But the reality is that people ARE PAYING. They pay for the utility of connecting to the internet. Just like they pay for the utility of connecting via cable.

The industry has relied on the "distributors" (cable companies and now isps) to sell and collect the money.

So far, the industry has discovered one way to sell content - spark a reaction: e.g., scandal rich news coverage, extreme opinioned commentators, and entitling a book "Free."

Leo Burnett said - (paraphrasing) 'anyone can get your attention by walking in a room with a sock in his mouth'

The result is a short term bump but not an enduring, profitable business.

New Media pundits who argue that the low cost of distributing content goes straight to the bottom line, fail to recognize the need to invest in marketing to stand out, merit a premium, and form an enduring relationship in a market of abundant choice.

The longer we keep talking about how cheap the internet is, the longer we will continue the race to the bottom instead of capitalizing on the possibilities of new technology to create new value and grow the economy.

On July 14, 2009, Seobooks.com entered the free debate, http://www.seobook.com/free with a funny headline: Can Hyperbole Generate $50,000 Corporate Speaking Engagements?  He brings up great points, particularly:"Users" vs. Valued Customers (I observed this when we gave away tickets to games and they bought no hotdogs and beer!  But when we added value to the normal ticket price with VIP packages, they spent even more), The Hidden Costs of Free, How Free "Commoditizes" a market (I witnessed this in the late 1980's when Fortune 50 companies, like P&G shifted dollars into discounting over product improvement).  We responded as follows:

The communication industry needs thought leaders to debate ways to improve value. In the past mass media has responded to increased competition for audience by resorting to the lowest common denominator - a significant "hidden cost" of free.

Chris Anderson wrote "Free" because it is what he thinks the industry wants to hear. "Free" worked when the networks had a captive audience, distribution was free (over the air), and the producers took risks to deliver quality content - they aired programming like M.A.S.H. during the Vietnam War and All in the Family during the Civil Rights Movement. Today, consumers pay for distribution (cable, internet, wireless)in order to access more choice. One way to compete in this market is to reduce production costs and use shock, awe, and free to attract audience. The other way is to develop and sell premium products. There are hidden costs to the former and predictable costs to the latter.

The high cost way is delivering a better return today. Subscriptions to premium channels grew to new record highs in 4th quarter 2008 even while consumers were finally informed of the economic collapse that had been threatening for over a year. Consumers will pay for value. They know you get what you pay for.

Anderson says the Free theory is inspired by the Monty Python example in the preface. An alternative implication is that there is an opportunity to drive up the sales of a "Long Tail" brand to #2 sales on Amazon by marketing directly to their fans. The fact that they got a list of fans from those who accessed their content for free on YouTube is a strategy for getting a mailing list. The costs are hidden. Who knows what they spent in legal cost to get that list from YouTube and what about lost sales. There are many other ways to connect with fans with more predictable costs and outcomes.

On July 15, Bill Gurley enters the FREE debate http://abovethecrowd.com/2009/07/15/bill-gurley-on-the-free-business-model/ essentially crediting Free with being a disruptive marketing strategy for an entrepreneur.  I'm not sure I get why a Venture guy would invest in a plan that intentionally loses money in order to be disruptive.   I'd invest my money in adding value to the consumer that the competition doesn't.  In the media business that's not too hard to do vs. the market leaders because they are still pretty much relying on momentum (although I believe this window of opportunity is shrinking because they are getting more innovative).  Here's my response to Bill: 

Yes, if someone can do what you do for free, you have a problem. But the solution is not a self-destructive price-dropping tactic. Offer more value – be more service-oriented – make your price worth it. And I don’t mean create the perception that you offer more value.

I also agree with the comment above that there is no “free.” Someone is paying for it, for example advertisers. Do consumers intuit that they pay in the form of higher prices for advertised products or what about the cable, internet, and wireless fees? The answer is yes. These complex financial relationships make media more difficult to control and manage. Selling a premium media property to consumers is a much simpler.

This Free debate just doesn’t address the problem the industry needs to solve to restore profitability: create value for the customer.

On July 16, 2009, Stan Schroeder, of Mashable.com, writes "You Think 'Free' is About the Price? It's not."  Stan points out with the rest of the "value" oriented critics of "Free" that discounting often happens because the product can't merit a higher price.  On the internet, for example, the user experience to access something for free can be so time-consuming and clumsy, that a competitor offering "instant gratification" can charge for the same product.  (This includes making the purchase process a one click step).    Here's my comment:

How refreshing talking about the possibilities to create value other than price!

On July 17, 2009, the Economist reviews Free and calls it "Nice but Tricky".  He says the book is not as "illuminating" as the Long Tail was about new business models made possible by the internet.  In fact, he points out: "'Free' lacks an elegant underlying explanation for why some of these new models work and others do not."    The writer summarizes all the ways Free isn't really Free.  In other words, there are three ways "Free" can generate cash to work: cross-subsidies, ad supported, freemium.   He also points to the fourth so-called business model - non-monetary - e.g. Wikipedia and open source software.  Although he never points out directly that these do look tricky - my gut instinct is that there must be some way they are capitalizing on the information they are collecting from their users.  The writer feels that Anderson never really backs up the idea that "Free" is more than a marketing ploy: "But he never quite stands this up. Indeed, he concludes the book with a confession that Free 'has to be matched with Paid'.  Beyond the old-fashioned cross-subsidies and free samples, some companies seem to have found new ways to make Free work, but there are not many of them, and the sustainability of others is unclear. "  In the end he never really explains what he thinks is tricky about "Free" except that he finds it difficult to generalize from the examples Anderson gives.  Here's my comment:

You'd think that media thought leaders would be proposing ways to compete for growing consumer media and entertainment spending (e.g., premium cable subscriptions and profits reached all time highs in 4th qtr 2008 at the peak of this economic crisis.). Especially digital media thought leaders, since digital media has new possibilities to add value, to get better acquainted with prospects, and to emulate face-to-face selling. And especially the author of the Long Tail.

But no. Instead of proposing ways to profit from meeting the needs of the underserved and building a base of customers you value and who value you, Mr. Anderson promotes tactics to attract as many individuals to "use" you as possible. Because when you let them "use" you, it is legitimate to monetize the information you gather from them, cross-sell other products to them, upsell them on the product or service that really delivers the benefits you promised for free in the first place, and charge hidden fees. Free isn't really Free Anderson points out.

Tricky is a better word for it. Although I am trying to finish the book, it is just painful to read about all the ways some have profited by trickery in the past and others will continue to in the future. Especially when consumers spend more and more each year for technology to access alternatives to the past! Instead of giving them what they are clearly willing to pay a premium for, we are talking about continuing the trickery on multiple platforms!

The New York Times summarizes The Fight Over ‘Free

it covers the legal debate about copyrights, setting up the announcement by the AP that is is approaching the problem with a new digital wrapper,  and hopes the Aspen Institute next week will figure it all out #aif09.  Here's my comment:

Two things would make aggregators and news sources happy collaborators. 1) Everyone charges for access to full content. 2) There is a universal barter transaction system to credit and debit “cut and pasters” and “link beneficiaries.”

Under this scenario the brand who earns the most trust makes the most money. To win the trust - make your subscriber look smart when they say they learned something from you. Here’s why Murdoch’s shift to paid, AP digital wrapper et al are game-changing: http://twurl.nl/iwsyf7

As far as the Anderson Free thing - I think we are giving him way too much attention. This guy is grasping for another platform to get engagements from large media corporations. They didn’t like Long Tail (which was brilliant). Before the economic collapse they were looking for ways to defend the status quo - FRee/ad supported model.

Hopefully, now they are thinking about how to improve the marketplace.

Jack Roberts offers a comprehensive review in Bad Idea Magazine.  "Anderson appears uninterested in exploring the juicier political implications of his economic theories, presumably because it might make his business and tech industry clients uncomfortable."  

Frankly in our opinion, Anderson fails to explore the "juicier" implications of just about any example he gives for the inevitability of the "Free" economy.  Here's what we added in our comment on Jack Robert's post:

A jello cookbook which educates prospects about the value of a premium product (paying for a product that one could make onesself from ingredients in the pantry was at the time a huge premium to pay) is entirely different than giving away cheap silverware to get people to buy a newspaper. The former is and educational marketing tool to equate the a premium price with the value to the consumer, effectively contributing to the future vitality of the product. The latter is a cheap bribe to keep paying for a product that is losing circulation. It does nothing to add value to the vitality of the business. Which is the bottomline here: As long as internet technology is used to lower costs, we haven’t really changed the game. Technology could be used to add value people will pay for. Our thoughts on this here: http://bit.ly/8nN7h7

Calling g-mail free is just naive. Is there any doubt that everyone is aware of the implicit “there’s no such thing as a free lunch” contract? Specifically, gmail users are trading access to their email data and behavior for the gmail service. This value relationship is inherently vulnerable to being thrown off balance. Specifically, because there is the risk of backlash when the press reveals how much profit Google makes using that data. And, more importantly, someday a competitor will find a way to use that data to benefit the individual, offering a superior, premium solution that adds more value to personal communications instead of sucking value out of them.