Free: The Future of a Radical Price, by Chris Anderson (Hyperion, 288 pp., $26.99)
Here, in a nutshell, is the puzzle of the digital economy: you are not paying to read this book review.
It took me time to write it, and City Journal is paying me for that time and paying to maintain a website; yet you expect to read it for free. And while the Manhattan Institute, City Journal’s publisher, is a nonprofit, you probably aren’t paying to read what I and others write at the websites of for-profit concerns, either. Indeed, the expectation of a free product goes even deeper. People who would never swipe a magazine from a newsstand when the proprietor wasn’t looking will cut and paste entire articles and run them on their own websites. In some cases this is illegal, but it’s easy enough to do that it happens all the time. So what does this modern expectation of so much free information mean for businesses and the economy as a whole?
That’s the central question of Chris Anderson’s latest tome, Free: The Future of a Radical Price. Anderson, the editor-in-chief of Wired, notes that online, “pretty much everything is given away for free in some version with the hopes of selling something else—or, even more frequently, with no expectation of pay at all.” Yet one look at Google reveals that “people are making lots of money charging nothing.”
This paradox requires us to rethink some basic rules of the dismal science of economics, which is generally defined as the study of choices under conditions of scarcity. Anderson argues that we are now dealing with two different economies: the atom economy and the bits economy. In the atom economy, goods and services are scarce and are priced accordingly. But the bits economy possesses “an extraordinary new ability to lower the costs of goods and services close to zero.” While printing and distributing 1 million copies of a magazine costs a lot more than printing and distributing 1,000 copies, giving 1 million people access to an article online doesn’t cost much more than giving 1,000 people the same access, because the marginal costs of digital distribution are incredibly low. Shelf space is unlimited. Price recedes from the equation, to the point where Google, a company with a market cap of close to $150 billion, charges nothing for its primary search product.
The problem is that those of us who work in the bits economy still need to pay our bills in the atom economy, where our landlords and grocers expect to be paid in cash, not in “eyeballs” or reputation. What’s most interesting about Free is Anderson’s musings on how to make money when most people don’t expect to pay for things. The bulk of his book deals with these scenarios and suggests how they might carry over into the atom economy as well. For instance, you can offer a free or below-cost product and then sell additional services, as Ryanair does with its $20 tickets and $30 bag-checking fees, or as Comcast does by giving away digital video recorders but charging a subscription fee to use them. You can offer a premium version of a free product, as Club Penguin, the kids’ game, does by charging $6 a month to upgrade your igloo, a fee that about 25 percent of users pay. Anderson likes the method of locating something scarce that people will pay for right next to something available in abundance. He ran an experiment this summer offering a digital copy of his new book online for no charge—“but if you want me to fly to your city and prepare a custom talk on Free as it applies to your business, I’ll be happy to, but you’re going to have to pay me for my (scarce) time. I’ve got a lot of kids and college isn’t getting any cheaper.”
Free is a fascinating book, and Anderson is an engaging writer. After a while, the reader does tire of reading about Google, which Anderson seems to think so perfectly sums up the new economy that he devotes copious real estate to quotations from CEO Eric Schmidt. And one should keep in mind that while Anderson seems to be doing well giving speeches at around $50,000 a pop, Wired has lost 50 percent of its ad pages this year. Its parent company, Condé Nast, has engaged the consulting firm McKinsey for a major restructuring, in part because it really is hard to make money in media when so much content is available free online. Anderson doesn’t have any particularly solid ideas for reversing this state of affairs, which is disappointing. He does note that the “free” economy tends to produce a winner-take-all skew, leading to one dominant player in many industries. Even if such an outcome is inevitable, it doesn’t make it socially desirable, particularly in fields like media, which benefit from a diversity of voices.
Nonetheless, Anderson’s ability to present economic concepts in understandable language keeps you turning pages. You almost don’t mind, after a while, that he continually capitalizes “Free” in order to emphasize that his is a concept book. You probably will mind paying $26.99 for something that keeps preaching about how information wants to be free. But even now that the free digital-copy experiment has ended, you can still download the abridged audio book, gratis. At least Anderson is willing to bet on his thesis, a vote of confidence that makes the reader more likely to take him seriously.