Freeconomics part 2
I started reading posts by Chris Anderson on his blog for his last book, The Long Tail, which now has a blog category about FREE which will later be a book.
To really get in the mood, I started working on this post on my laptop using the free WiFi in a Panera Bread bakery-cafe. So, they got some money from me because I bought a soup, salad & coffee, but I could have gotten away with just the coffee, maybe even without buying anything.
That brings me to the Economics 101 that I'm getting from all this reading. If things have been given away for free for a long time, what's so new that Anderson will be able to write a book about it? The old model is called cross-subsidies. Whether it's the free razor or free printer, the cost to the consumer shifts from that product to another - blades and ink & toner.
The new model depends on the cost of a product having fallen so close to zero that it can be given away and the company makes its money on something else. If you can give away the news articles and make money on the ads because you eliminated the printing costs, then you're there. Give away the WiFi and rely on the purchases that the customer makes in food. (Which is why I'm really angry at hotels that got a few hundred dollars from me and still want to charge me for the Internet. Aaarghh!)
Anderson's blog led me to "How To Make Money Around Free Content" and a related wiki at mediabusinessmodels.com.
The link that held my interest led me to Kevin Kelly. The name sounded familiar. Turns out he wrote one of the books that the Wachowski brothers (writers/directors of the The Matrix), required the principal actors in the film to read before they started shooting the film. That book is Kelly’s 1995 Out of Control: The New Biology of Machines, Social Systems, and the Economic World.
Kevin Kelly is not only a fellow Jersey boy, but the founding executive editor of Wired magazine, and a former editor/publisher of the Whole Earth Catalog. He's also a writer, photographer, conservationist, student of (Asian) cultures and expert in digital culture.
Interesting guy. Check out the video of his talk at TED on "How does technology evolve? Like we did." which looks at interesting questions like: What does technology want?
He likes tech, though he gave it all up at one point and rode a bike across the United States, and has a blog called Cool Tools that looks at tech stuff.
So where's the free? Well, you can get his latest book True Films written in 2007 from Amazon - but there's also a free, ad-supported PDF version (201 pages, 7.2 MB) that's even mirrored here and here.
In writing about his 1999 book, New Rules For The New Economy: 10 Radical Strategies for a Connected World, on one of his blogs he said:
"Nearly 10 years ago I had written a chapter in my thin New Rules for the New Economy book that focused on the role of the free and the economics of plentitude. I called that chapter Follow the Free. Almost nothing I have written has been as misunderstood as this short chapter. I've not had a Q+A session since then without this question coming up: You say we should embrace the free. How can everything be free?"
The new economy he describes has three characteristics. After reading The World is Flat and other books, his ideas sound similar. The new economy is global, favors intangible things like ideas, information, and relationships, and it very much interlinked. Remember, Kelly wrote his book in 1999.
Anderson takes off from a lot of the ideas here. For example, Kelly suggests that a company's goods become more valuable as their price moves closer "to free." His network economy sells technologies cheaply because that increases supply, which triggers demand for services that use these technologies, and it is from those services that the company will profit.
The book is not easy reading for me. (I got a free public library copy, of course.) But the big ideas make sense.
You can watch a short video of Chris Anderson giving the 3 minute version of the idea behind FREE. Some topics that are sure to be addressed:
The difference between cheap and free and the "penny gap" where zero is one market and ANY other price is another market.
The "gift economy" of advertisement-free places like Wikipedia that has changed the encyclopedia/reference book market or Craig's List which has shattered the newspaper classified ads. Is it even an economy?
When last year, it was announced that Yahoo Mail (a free webmail service) would provide unlimited storage. In 2002, the premium version of Yahoo Mail was $29.99 a year for 25 MB of storage. The turning point may have been when in 2004 Google offered 1 GB of free storage. At that point, the price of storage dipped below the revenue they were each getting per user.
Freemiums - a term coined by venture capitalist Fred Wilson. It's the basis of the subscription model for media & the web where there are varying tiers of content from free to premium (as in, free Flickr & the $25-a-year Flickr Pro).
Chris Anderson ends his article with this thought experiment: "In 1954, at the dawn of nuclear power, Lewis Strauss, head of the Atomic Energy Commission, promised that we were entering an age when electricity would be "too cheap to meter." Needless to say, that didn't happen, mostly because the risks of nuclear energy hugely increased its costs. But what if he'd been right? What if electricity had in fact become virtually free?"
We would have made everything electric. Electric cars, electric heat only. Why use fossil fuels? There goes OPEC. The global warming issue changes. Perhaps some warfare would have been prevented.
It didn't happen with energy, but it might happen with digital technologies that are moving towards free.
Anderson closes with a thought I had a few years ago and have been asking my own sons: "...a generation raised on the free Web is coming of age, and they will find entirely new ways to embrace waste, transforming the world in the process. Because free is what you want and free, increasingly, is what you're going to get."
MORE KELLY... You can read most of his books online free -(if you can read books online; I can't seem to do it.
Check out Out of Control and his other writing.
I thought I was spreading myself thin, but Kevin Kelly writes on at least 9 blogs listed on his site, here with is descriptions:
Cool Tools One new tool recommendation per day
Current Trends One new cultural and technological trend per day
Street Use Visual glimpses of how people actually use technology
True Films Rave reviews of great documentaries and non-fiction films
The Quantified Self Self-monitoring methods for self-knowledge
Asia Grace My on-going love affair with Asia
Geek Dad Summaries of projects completed by nerdy dads
Long Views Reports on efforts to encourage long-term thinking
Kevin Kelly Personal doings that only my mom cares about
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