"Free: The Future of a Radical Price," a new book from Wired Magazine editor Chris Anderson tackles the idea of zero price in the digital age. Anderson wrote "The Long Tail," an era-defining book, and just as that book found both critics and fans, "Free," out today (July 7) is likely to have both as well.
Bestselling author Malcolm Gladwell, author of "The Tipping Point" and other books that explore behavioral economics in layman terms, wrote an extensive, critical review of "Free" in the New Yorker. Gladwell took issue with Anderson's use of YouTube as an example of how a business can survive through free goods. YouTube is a cultural dynamo but has struggled to create a meaningful revenue model because free can invite problems.
When you let people upload and download as many videos as they want, lots of them will take you up on the offer. That's the magic of Free psychology: an estimated seventy-five billion videos will be served up By YouTube this year. Although the magic of Free technology means that the Cost of serving up each video is "close enough to free to round down," "close enough to free" multiplied by seventy-five billion is still a very large number.
Gladwell went on to quote a Credit Suisse estimate of YouTube's annual loss that has been debunked as too severe in some circles. Nevertheless, his main point hits home. Free definitely attracts consumers, but eventually, somebody, at some point has to pay in order for everybody else to enjoy digital goods without paying for them.
Free music services are growing in numbers and are seen by many as the future of music, but digital downloads will be the online cash cow for years to come. Download pricing experiments could unveil more profit than all streaming sites combined. Variable pricing of digital tracks was introduced at retail just a few months ago and Billboard's analysis shows higher prices have thus far worked out well for the hits. Overall, the increased label revenue from tracks with price increases has more than offset the decline in revenue from lower unit sales.
"Free" grew from a February 2008 Wired article and speeches Anderson has given over the last few years. More of Anderson's thoughts on free are in his February 2009 article at the Wall Street Journal. Spotify users can listen now to the audiobook. The service added "Free" and it is Spotify's first audiobook.
The free debate goes well beyond music. Newspapers are struggling to mix their need with advertising with the existence of news aggregators and blogs. A great deal of discussion about free goods and the Internet came about a few weeks ago when Federal Judge Richard Posner wrote that copyright law may need to be expanded to prevent freeriding on the content of professional journalism.
Expanding copyright law to bar online access to copyrighted materials without the copyright holder's consent, or to bar linking to or paraphrasing copyrighted materials without the copyright holder's consent, might be necessary to keep free riding on content financed by online newspapers from so impairing the incentive to create costly news-gathering operations that news services like Reuters and the Associated Press would become the only professional, nongovernmental sources of news and opinion.
As the New York Times' Opinionator blog pointed out, a similar idea was proposed by David (a first amendment lawyer) and Daniel (an economics professor) Marburger.