Free is the new book by The Long Tail author and editor of Wired magazine, Chris Anderson. Having been an enthusiastic proponent of Long Tail theory I was fortunate to attend the UK book launch last week. Here’s a quick run down of the book.
Free is well researched and reviews some companies over the years that have used Free as a business model or a component of their marketing strategy, Jell-O, Village Voice, Google, Gillette, Yahoo, Facebook, Craigslist and US saloons back in the 1800’s that provided a free lunch if you bought a beer.
The book looks at the economics of free by comparing physical markets (Atoms) to the online digital market (Bits). With physical products, marginal costs rarely fall to zero so free is a marketing strategy used to drive sales that are cross-subsidized from another customer segment. You are probably paying sooner or later. Whereas in competitive markets, like the internet, price falls to marginal cost, therefore Moore’s Law (50% increase in performance and subsequent price declines approx every 18 months) can now be applied to technologies like storage, bandwidth and processing to allow business models based on free to thrive.
A central idea of the book is Google's “max strategy” where Free maximizes distribution and customer reach.
“It’s the best way to reach the biggest possible market and achieve mass adoption” says Anderson.
The obvious problem with a Free business model is monetization, i.e. we’ve got a popular product, a good reputation and all these new customers, now how do we make money from our business? However, most businesses would rather have this issue than having a great product with high margins but no customers and or brand recognition.
The book argues that in the digital world the first to Free gets attention and significant market share. Using the Microsoft struggle with piracy and open source software as an example, sooner or later you’ll compete with a company with a "freemium" business model so you need match the price, adapt your product offering to new segments or offer significant differentiation.
Anderson writes “Those who understand the new Free will command tomorrow’s markets and disrupt today’s”.
He offers several ideas for making money from Free such as offering products or services that allow customers to save time, lower risk, increase status and more premium or complimentary products and services to enhance their experience. But this is really nothing new and something we marketers struggle with each day.
There are some real problems with Free. For instance, the behavioural psychology of when products are provided free, customers tend to be less engaged and have lower commitment levels. Also, if free is not managed it can create abundance and waste that has long term effects on the environment. Devon Dudgeon writes another great review of Free in her Below the Line blog.
Chris gave a short introduction and I received a free copy of course. While I enjoyed reading the book and meeting Chris I didn’t enjoy the read as much as The Long Tail, probably because I paid $24.95 for that one!
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Free: The Future of a Radical Price
