Maybe the two sides differ because of business model, or, perhaps competitive product design strategy . . .
Over the past two weeks there’s been some discussion on Chris Anderson’s book on FREE economics. (I’ve tried to keep up with all the reviews here.) I may be oversimplifying here, but for those of you who have not read as much as I have, I think there are basically two sides to this debate. One side of the argument is - Free can be a disruptive competitive tactic to attract attention and reach scale quickly. The other side of the argument is – Premium Value for a price is more sustainable, competitive, and financially viable.
To be clear, I suspect there is consensus that “sampling” for free is an effective way to introduce a new product on the internet (the “Freemium” model). The debate really is over the how - what to sample and who to target. I think Chris Anderson would argue that the sample should generate as much attention as possible and hope a few will buy (in his case it doesn’t take many $25,000 speaking engagements for an ROI). The other side would argue that it is better to sample just enough to select individuals, aiming for high conversion rates and retention rates. One reason for these different points of view could be business model. In contrast to Chris’s $25,000 speaking engagements, the people on the other side of the debate tend to sell content or software at a lower unit price.
But, beyond business model, I suspect there is a psychological dynamic behind the preference to aim wide or narrow – competitive style.
A recent study reported in the Economist reveals a relationship between competitive performance and number of competitors. When there were more people in the room, SAT scores dropped. The researchers further confirmed this wasn’t due to more distractions from more people in the room. And they found that the more socially aware a person, the more likely they were to perform worse – as if they were more likely to be “assessing the situation and thinking that it is not worth trying too hard.”
So what if competitive style is defined by how you intuitively strategize to lower the number of competitors "in the room." For example, Chris Anderson thinks the best way to reduce competitors is to offer a free sample that will generate as much attention as possible, discouraging competitors because it is not worth it financially to make more noise. The more selective approach is intuitive to those who think the best way to reduce competitors is to aim at a smaller market and differentiate, discouraging competitors by offering more value. The irony is that the latter philosophy is probably the best approach to capitalize on niches in the Long Tail, the other book that Chris Anderson wrote, suggesting he might be wise to collaborate with those debating on the other side.
