How can online businesses with digital content survive if “free” is the reigning business model? Chris Anderson, editor-in-chief of Wired, tackles “free” as a business model in his latest book Free: The Future of a Radical Price. (At Amazon, the price is not free, but $16.19. You can really read it online for free at SCRIBD .)
This book is about “selling” digital content, which includes software, information, news, and graphics. The content takes many forms –ebooks, videos, online web pages, webinars, or software applications.
It impacts many businesses, from the publishing industry (newspapers, magazines and books) to intermediaries like insurance agents, car dealors and Realtors to training companies, advertising agencies, and the entertainment world of movies, television, radio and music. It affects experts in many fields, as more basic information is provided online for free.
Why Free is The Price
The book Free explains that the online race to a zero price for digital products is being driven by steep declines in the costs of computing power, digital storage and transmission capacity. Anderson says: ” The trend lines that determine the costs of doing business online all point the same way: to zero. No wonder the prices online all go the same way.”
How To Make Money with Free
Fixed startup costs — to set up and run a website, and create products — are real and not insignificant. But the marginal cost of digital products — the cost of one more copy — approaches zero, he claims. So how do you pay for startup and fixed costs?
Anderson believes that online businesses selling digital products can be viable if they subsidize free products and services with other paid products and/or ads. Or free products with paid upgrades, the freemium model. Maybe the business gives away one product, a lost leader, in order to sell others. Anderson himself gives away his book content in one format (see link above), but charges for speaking and consulting.
He calls for “switching money around from product to product, person to person, between now and later, or nonmonetary markets and back out again.”
What Free Means For Competition
Because online digital products demand attention and time, the proliferation of such products mean more competition for those users’ time. Anderson also forecasts fragmentation of markets and entry by amateurs.
This abundance of alternatives benefits customers, offering more choices and increasing quality. But it makes the business side more challenging. In a review of this book for the New York Times Book Review, Virginia Postrel concludes:
“Free is about a phenomenon in which almost all the new value goes to consumers, not producers. It is false to assume that no price means no value. But it is equally false to argue that value implies profitability.”
The music and newspaper industries can certainly appreciate her conclusion.
The Future of Free
The business advantage of “free” is that, according to Anderson, it “opens doors, reaching new customers. It doesn’t mean you can’t charge some of them[products and services].” In the end, Anderson contends that “Everybody can use a Free business model, but all too typically, only the No. 1 company can get really rich with it.”
How Are You Giving Away Free Products and Services in Your Business?
What’s your business model involving free? Please leave me a comment.
