Making Money From Free

In case you missed it, there's been a mild spat going on between two heavyweights in cultural thinking. In the blue corner, Chris Anderson is out launching his new book on 'Free' (The Future of A Radical Price) : marginal costs trend to zero in a world of ubiquitous choice and rapid technological advancement; the economics of abundance require fundamentally different thinking; incentives can be nonmonetary (reputation, attention, status). In the red corner, Malcolm Gladwell argues that Anderson takes little account of the actual cost of goods sold (e.g. it costs You Tube a lot to serve up the amount of video content they do), and that we'll still pay through the nose for goods and services we really need.

I saw Chris speak about his book earlier this week (most of what he talked about is included in the original 'Free' article which you can read here). One of the things that he acknowledged right at the beginning of his talk was the degree of suspicion with which concepts surrounding free are greeted. He's certainly not wrong about that. A typical and perhaps natural reaction to concepts involving free is to concentrate on value-destroying aspects. But to paraphrase Kevin Kelly, the internet is a copy machine producing copies of everything with a degree of permanence but without friction or cost to create the super-distribution network that we all know. So this is not new.

So perhaps it is more productive to focus on the value-generative aspects to Chris's argument. Kevin Kelly argues that when copies are super abundant, they become worthless so it is stuff which can't be copied that becomes scarce and valuable. The uncopyable tends towards the intangible (so qualities like trust, for example, are impossible to copy). He goes on to identify eight categories of intangible value that we buy when it could be free. Eight generatives that "demand an understanding of how abundance breeds a sharing mindset, how generosity is a business model, how vital it has become to cultivate and nurture qualities that can't be replicated with a click of the mouse". They are: immediacy, personalisation, interpretation, authenticity, accessibility, embodiment, patronage, and findability.

Chris is not saying that everything should be free (Henry Blodget is wrong), and in that sense, Gladwell and Anderson are (disappointingly) not so far apart. Whilst Gladwell says that the information wants to be free model doesn't work when applied to small, high value markets, Chris argues that "just because products are free doesn't mean that someone, somewhere, isn't making huge gobs of money"  and often that value comes from niche, and the more niche the better.

For what it's worth, I think Chris is right - for niche, read relevance. Relevance comes from time, place and context - delivering the right service or product or message or information or advice at the point in time when people need it most, in the place people need it most, and in the most relevant form and context. If that is a piece of content, or (dareisayit) a piece of advertising, I'm more likely to give it my attention and engage with it. If it is useful or relevant enough, if it gives me status, if I love it enough, if it lowers risk, if it saves me time, then there's a good chance I'm going to pay for it. This, is inherently why content producers need to think of their content in a different way - as a service rather than a product.

As Seth says: "People will pay for content if it is so unique they can't get it anywhere else, so fast they benefit from getting it before anyone else, or so related to their tribe that paying for it brings them closer to other people." 'Free' is a relatively cheap way of getting attention. Attention is a good platform from which to derive value.

Comments

[James Cherkoff]

Freemium - no?

[neilperkin]

Hi James - yes it is (I nearly titled this post freemium). But Anderson's thinking on this seems to be being greeted with much suspicion and misunderstanding. There's a real job here I think in understanding what people will pay for and what they won't - many assumptions on this still work to analogue models

[charlie gower]

The book is quite good so far (half way), teaching me plenty about the historical context of free and radical models.

[neilperkin]

Cripes - half read already - quick off the mark with that one Charlie.

[James Cherkoff]

Gapper and Anderson kicking it around here:

http://blogs.ft.com/gapperblog/

[neilperkin]

Nice one James - thanks for the link

[David Hawksworth]

There was a good debate kicking off in the office today around the 'free'concept. I must admit I have been a bit out of the loop on all the arguments but to me it seems pretty simple. Free is only a business model if it enables profit elsewhere. If this is not possible or someone is doing something that you want to make money out of as a business as a hobby or just for the heck of it then you don't have a business model. The thing that business needs to be wary of is the increased expectation placed on 'free' in the minds of their customers which means they need to be thinking up new models to try and account for this. But ultimately the money to fund it has to come from somewhere and come in somewhere else.

Incidentally we deal with the free concept quite a lot in advertising - communications planning and account planning is basically a free service that is used to sell media buying and content production.

[Rob @ Cynic]

I hate to say it, but I find these sorts of debates intellectual bullshit ...

We all know - and that includes the average man, woman, child and pet hamster - that in commercial business, there is no such thing as free - just the illusion of it - and whilst I accept many industries have to re-design their financial models, at the end of the day, what both of these guys are saying they can achieve, is the same thing ... they just have different ways of getting there.

In other words it's an argument based on 'attraction' not business dynamics.

Possibly. Ha.