Tag Archives: Chris Anderson

Absolutely, Positively Free…If You Think You can Afford It

Consider Ellen Ruppel Shell’s “Cheap,” Chris Anderson’s “Free” and the story of the one-cent Hershey’s Kiss. This story appears in both books, but the versions are different. Both come from the same source, but these two authors can’t even agree on what to call him. He is Daniel Ariely to Ms. Shell, Dan Ariely to Mr. Anderson, and the author of “Predictably Irrational” to both of them.

Mr. Ariely did an experiment that used chocolate to dramatize the difference that a small shift in pricing could make. According to “Cheap” he offered his subjects a choice between the 1-cent Kiss and a 26-cent Ferrero Rocher hazelnut. At those prices the test subjects were divided 40 percent to 40 percent, with 20 percent opting for neither. Then the prices came down by one penny each, and 90 percent of the subjects took the free chocolate. Only 10 percent chose the higher-priced brand.

Off we go to “Free,” playing fast and loose with different facts and telling the story in somewhat zingier fashion. “Note: behavioral economists have limited budgets and limited time,” writes Mr. Anderson, the editor of Wired magazine and author of “The Long Tail.” “So a lot of their experiments involve a folding table, candy and random college students.”

In its “Free” version the non-Kiss candy is a Lindt truffle initially priced at 15 cents while the Kiss cost a penny; 73 percent of subjects chose the truffle and 27 percent picked the Kiss, with nobody abstaining. Then the prices were lowered by 1 cent each, and 69 percent of the subjects chose the free Kiss. Mr. Anderson doesn’t bother to account for the rest of the sample group, but he does use a quotation from Mr. Ariely to bolster the case that his “Free” makes: “Zero is not just another price, it turns out. Zero is an emotional hot button — a source of irrational excitement.”

Irrational is an apt word, what with the above-mentioned discrepancies. But what’s the upshot of either version of the experiment? And which book can be trusted? Bear in mind that Mr. Anderson has lately been called to task for making uncredited use of free Wikipedia material. But also realize that “Cheap” refers to the Ponzi scheme of the disgraced financier “Michael” Madoff and includes the following thought, which Ms. Shell means to apply to discount shopping: “Actually being eaten by a saber-toothed tiger was not what got early man running; it was the dread of being eaten by that tiger.”

So neither author is entirely to be trusted. Neither was well-advised to use that chocolate story. And neither has written a book that is as sharp as its one-word catchy title. Ms. Shell’s “Cheap” touches very predictable bases in describing and lambasting discount culture (or as she would rather label it, Discount Nation). She parses the obvious and addresses her book to consumers, often drawing upon personal experience to tell them more than they need to know. (Her 3-for-$15 underwear from Target shreds in the dryer.)

Ms. Shell also relies so tediously on quotations from academic experts that she needs to bring a professor of marketing to a Nevada outlet mall to tell her that its bargains are phony. Surprise: The mall’s excitement is not as galvanizing as a saber-toothed tiger would be.

Ms. Shell deals with the mundanity of shopping from the consumer’s point of view. Mr. Anderson peers into the future and aims his arguments at the business world. Here is what he means by “Free”: If you want to know what he really thinks, you’re going to have to pay for more than his book. He acknowledges that he is giving his book away online, as well as selling it at the not-free price of $26.99, so he can be hired for much more lucrative speaking and consulting jobs.

“I’ve got a lot of kids, and college isn’t getting any cheaper,” he writes. He is sufficiently crass, reckless and lazy to have had someone else read the science-fiction books he uses to illustrate the perils of scarcity and abundance.

Still, Mr. Anderson has come up with a lively conversation piece. Even when the particulars of his argument are easily assailable, the gist is clear: Now that a cornucopia of Internet material has been made available without fee, and in some cases without scruples, the smart business must find ways to adapt to that new reality. “The way to compete with Free is to move past the abundance to find the adjacent scarcity,” he writes. And “Free” is full of specific examples of how to do just that.

But after beating the drum for giveaways throughout most of his book, Mr. Anderson eventually acknowledges that his idea is in fact not viable. Such are the perils of his sloppily constructed sweeping argument. No, he doesn’t envision an economy based entirely on giveaways. “Free may be the best price, but it can’t be the only one,” he says. He advocates the balancing of differently priced versions for different markets, acknowledging that this tricky balance is not easily achieved.

Mr. Anderson sees that consumers think not only about money but also about intangibles like convenience, access, quality and time. Ms. Shell’s intangibles are different; she argues that moral accountability and responsibility are often sacrificed for the sake of cheap pricing. But her self-righteousness can backfire.

At the end of a chapter largely devoted to the horrors of Asian shrimp farming, she describes being in a Red Lobster restaurant with friends and being enlightened enough to eschew cheap shrimp in favor of chicken. Yet cheap chicken-farming isn’t any less ghastly. It just doesn’t happen to be addressed by this book.

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Free: ($0.00) The Future of a Radical Price

Free: ($0.00) The Future of a Radical Price

What You Pay For

Fifteen years ago — before Google or Wikipedia or blogging or Craigs­list or podcasts or YouTube — the technology investor and pundit Esther Dyson wrote an article analyzing the business of “creative content” in a future where the Internet made distribution essentially free. “Creators will have to fight to attract attention and get paid,” she predicted. Enforcing copyrights won’t be enough, because creators “will operate in an increasingly competitive marketplace where much of the intellectual property is distributed free and suppliers explode in number. . . . The problem for owners of content is that they will be competing with free or almost-free content.”

That future is today, and it is the subject of “Free: The Future of a Radical Price,” by Chris Anderson, the editor in chief of Wired and the author of “The Long Tail.” Despite its subtitle, the book is less about the future than the present and recent past, which Anderson surveys in a cheerful, can-do voice. “People are making lots of money charging nothing,” he writes. “Not nothing for everything, but nothing for enough that we have essentially created an economy as big as a good-sized country around the price of $0.00.”

Driving the trend are the steeply declining prices of three essential technologies: computing power, digital storage and transmission capacity. Reproducing and delivering digital content — words, music, software, pictures, video — has now fulfilled the prophecy once made about electricity. It has become too cheap to meter. “Whatever it costs YouTube to stream a video today will cost half as much in a year,” Anderson writes. “The trend lines that determine the cost of doing business online all point the same way: to zero. No wonder the prices online all go the same way.”

More precisely, the marginal cost of digital products, or the cost of delivering one additional copy, is approaching zero. The fixed cost of producing the first copy, however, may be as high as ever. All those servers and transmission lines, as cheap as they may be per gigabyte, require large initial investments. The articles still have to be written, the songs recorded, the movies made. The crucial business question, then, is how you cover those fixed costs. As many an airline bankruptcy demonstrates, it can be extremely hard to survive in a business with high fixed costs, low marginal costs and relatively easy entry. As long as serving one new customer costs next to nothing, the competition to attract as many customers as possible will drive prices toward zero. And zero doesn’t pay the bills.

The answer, Anderson argues, lies in cross-subsidies: “shifting money around from product to product, person to person, between now and later, or into non­monetary markets and back out again.” Most obviously, online advertisers can subsidize content by paying for eyeballs or, in some cases, for detailed information on potential consumers. Less familiar is the “freemium” strategy, in which a site like Flickr offers one package of services free but charges for an ad-free package with more features, allowing a small fraction of users to subsidize the rest.

Often, however, the cross-subsidy is a way to sell one product by giving away another. Monty Python created a YouTube channel with their most popular skits in hopes of enticing fans to buy their DVDs. Their shows and movies soon hit Amazon’s best-seller list, with increased sales of 23,000 percent. “Free worked, and worked brilliantly,” Anderson writes.

This technique is as old as the supermarket loss leader or TVs in sports bars. Unlike cartons of milk or six-packs of soda, however, once digital content exists, it costs nothing to hand out to a near-infinite number of customers — no limit of one per household. The Internet, meanwhile, is one huge sports bar, with Google selling most of the beer by collecting infinitesimal amounts (via advertising) across billions and billions of searches and page views. Obscured by the breezy tone of “Free” is a sobering message. “Everybody can use a Free business model,” Anderson admits, “but all too typically only the No. 1 company can get really rich with it.”

Unlike tangible commodities like T-shirts or plastics, most digital content doesn’t generate much new demand as its price falls toward zero. Even with no admission fee, videos, blog posts and online games soak up users’ time, and time has a hard limit. So as the supply of cheap content expands, it can’t simply fill ever-growing closets (or garbage dumps). Instead, the competition for time and attention becomes ever fiercer, and the market ever more fragmented. Any given producer will find profits elusive, especially since it’s so easy for amateurs to enter the market.

Faced with collapsing business models, today’s journalists-in-denial rail against Anderson’s message. Free contentcannot be the future, they say, because content is valuable. Fixed costs must be covered. We have bills to pay. The problem, they argue, is that we’re giving our work away.

As Anderson himself says, “I’ve got a lot of kids and college isn’t getting any cheaper.” His own strategy, one outlined by Dyson way back when, is to charge little or nothing for his writing and use it to generate lucrative speaking gigs. “You can read a copy of this book online (abundant, commodity information) for free,” he writes (not noting that the free offer expires shortly after the printed book’s publication), “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.”

The book is certainly good advertising. “Free” is a successful business speech between two covers, pleasant, upbeat and full of anecdotes and bullet points. It doesn’t bother with footnotes, something that got Anderson in trouble when Waldo Jaquith of The Virginia Quarterly Review caught him lifting passages from Wikipedia and other sources. (Anderson has apologized for the “screw-up.”) It’s stimulating but not uncomfortably challenging. “You can make money from Free,” Anderson assures readers. “People will pay to save time. People will pay to lower risk. People will pay for things they love. . . . Free opens doors, reaching new consumers. It doesn’t mean you can’t charge some of them.” (Hire him and he’ll tell you how, sort of.)

But what about the competition? What about the time-saving, risk-lowering, beloved alternatives somebody else is offering free? Opponents of the free-content argument too often reject the idea that free content is the future simply because they don’t want it to be true. Even Anderson himself equivocates, flinching at the implications of almost limitless competition.

After all, the last thing a business author wants to suggest is that we’re entering a new age of amateurism. But there are hints throughout the book that the future of this radical price is to be found in the past, when satisfying work was what one did on the income provided by less satisfying toil, or by investments, patronage or marriage. “Doing things we like without pay often makes us happier than the work we do for a salary,” Anderson writes, adding, “No wonder the Web exploded, driven by volunteer labor — it made people happy to be creative, to contribute, to have an impact and to be recognized as expert in something.”

“No man but a blockhead ever wrote except for money,” Samuel Johnson said, and that attitude has had a good two-­century run. But the Web is full of blockheads, whether they’re rate-busting amateurs or professionals trawling for speaking gigs. All this free stuff raises the real standard of living, by making it ever easier for people to find entertainment, information and communication that pleases them.

Business strategy, however, seeks not only to create but to capture value. 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.

Free: The Future of a Radical Price,” by Chris Anderson~ Hardback Book

Virginia Postrel is the author of “The Substance of Style” and the editor in chief of DeepGlamour.net.

From The New York Times:  http://tr.im/rZHk

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Please Watch This Body Brilliance Movie:


Alan Davidson is the founder of ThroughYourBody.com and the author Body Brilliance: Mastering Your Five Vital Intelligences, the #1 bestselling Health & Wellness book and winner of two National Book-of-the-Year awards.

Alan is also the author of the Free report “Body Breakthroughs for Life Breakthroughs: How to Peak Your Physical, Emotional, Mental, Moral, and Spiritual IQs for a Sensational Life” available at www.throughyourbody.com

Love Your Way,

www.ThroughYourBody.com

1103 Peveto St.
Houston, TX 77019
713-942-0923