Thursday, September 1, 2011

Will Everything be Free? – My Review of Free


So, I’m on a roll now. As promised I would share my review of several books. This is the next one: Free by Chris Anderson. An article in Wired about Free triggered me to read this book. Free is a big deal nowadays. Many products and services are offered for free. And people are making lots of money charging nothing. “Not nothing for everything, but nothing for enough…” (p. 3)

Free has always been around a long time, but it’s changing. The internet seems to be doing something interesting to what we pay for things. “Somewhere in the transition from atoms to bits, a phenomenon that we thought we understood was transformed. “Free” became Free.” (p. 4) This book is about this phenomenon.

Chapter 1-3 dive into the fascinating history of free. And the different kinds of free: direct cross-subsidies, three-party market, freemium and nonmonetary markets. (p. 23) Free started out as a marketing method. Now free is an entirely new economic model. (p. 12) The old free was based on the economics of atoms, now it’s based on bits. When something becomes software it inevitably becomes free, in costs and often in price as well.

Interestingly Anderson shows how humans are wired for scarcity. We focus on the things that are scarce, e.g. time and money. While there’s abundance of lots of resources now. We have to get used to that. And work with abundance. “When abundance drives the costs of something to the floor, value shifts to adjacent levels…” (p. 52, 131) And: “… the highest profit margins are usually found where gray matter has been added to things.” (p. 54, also refer to ch. 13 and 15) So knowledge is added, ideas are shared. Why are ideas so interesting and important in this context? Let me share two interesting quotes from the book:

Ideas are the ultimate abundance commodity, which propagates at zero marginal costs. Once created, ideas want to spread far and wide, enriching everything they touch. (p. 83)

Information is how money flows; aside from the cash in your wallet, that’s what money is – just bits. Information is how we communicate, as every call is turned into data the moment the words leave our lips.” (p. 92) “Information wants to be free.” (p. 95, ch. 6) This means: “Commodity information (everybody gets the same version) wants to be free. Customized information (you get something unique and meaningful to you) wants to be expensive. (…) Abundant information wants to be free. Scarce information wants to be expensive. (p. 97)
So, information is abundant now. Where’s the value now? Anderson quotes Herbert Simon on this:
In an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention. (p. 180, relate to this blogpost for more about information and attention.)
The rise of “freeconomics” is being driven by the underlying technologies of the digital age. Computer processing power halves in price every two years, the price of bandwidth and storage is dropping even faster. The internet combines all three. (p. 13, also refer to ch. 5) Google is mentioned as a company that makes more money as the costs of information falls. (p. 125)

Chapter 4 is about the psychology of free. It’s about the excitement we experience when something is free. But free also makes us think the quality must me less than with a paid product/service. And do you care about something you get for free?

What are the free rules? The ten underlying principles of free or abundance thinking are (p. 241):
  1. If it’s digital, sooner or later it’s going to be free.
  2. Atoms would like to be free, too, but they’re not so pushy about it.
  3. You can’t stop Free.
  4. You can make money from Free.
  5. Redefine your market.
  6. Round down.
  7. Sooner or later you will compete with Free.
  8. Embrace waste.
  9. Free makes other things more valuable.
  10. Manage for abundance, not scarcity. 
I enjoyed reading this book. The visual examples of free throughout the book explaining how free is/can be applied in different markets are insightful.

I’m not an economist. I read these books because they take me to the edge, challenging me to think and reassess what I’m doing. A big question for me and my work is: How far does free go for a consultant? For instance, I love to share what I know about certain topics. I’d happily go to a company, share my knowledge and leave without asking money for my vision/advice. When do you stop giving/sharing for free? I’d love to hear your thoughts.

Bonus: I’ve collected some links about ‘free’ here. Hope this helps.
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