Transcript Free The Future of a Radical Price Revised

Author: Chris Anderson
Presentation Prepared By:
Tony Cramond, Andrew Misura,
Justin Ruffing, Mona Safar,
Nick Maffei, and Bradley Childs

The Paradox of Free



“People are making lots of money charging
nothing”
The idea of “Free” is not new, but it is
changing
Transition:

Other languages


Two separate words
English:

Two meanings
 Freedom
 “Free” speech
 Zero Price
 “Free” beer

Changed over the last 75 years
Human behavior
 Economic incentives


No longer a gimmick

Computer technology
Becoming software = becoming free
 All industries
 Role of technology

 Broadens markets
 Freedom

“The Three-Party Market”

“Two-Sided Market”

“Freemium”

$36 Million Dollar Industry

People like “Free”
Try it
 High Demand


Prices make us turn away


If you buy $25 worth of goods
shipping is free
France

Shipping 1 franc (23 cents)
 Less “2nd-book“sales

Greed, waste, and gluttony

Piracy
Victimless crime
 Cheaper and Lower quality


Say’s Law
Supply creates its own demand
 “If you make a million transistors the world
will find a use for them”


Still true today
1. Access to computer

Unlimited and total
2. Hands-on imperative

3.
4.
5.
6.
7.
Access = Expansion
Information = free
Mistrust authority
Judgment based on hacking ability
You can create art and beauty on a
computer
Computers change your life

Google

Twenty-First-Century Economic Model
 Offers nearly a hundred products
 Most are free

Revenues
Search results and
advertisements
 $22 billion in 2008


Marketing Strategy
“Would it be cool?”
“Do people want it?”
“Does it use our
technology well?”
 NOT “Will it make
money?”




Advertising Revolution


Radio, Television, Internet
Media Model of Free

A third party (the advertiser) subsidizes content so
that the second party (the listener or viewer) can get
it at no charge

Migration to free
1.
2.
3.
4.
5.
6.
Supply and demand
Loss of physical form
Ease of access
Shift to ad-supported content
Computer industry
Generation free
Videogames

Becoming “Free”

“Atoms to Bits”
Bands



Second Life
Money from
concerts
Free music = more
exposure = more
ticket sales

Not easily measured


Most don’t have dollar values
“Country-sized economy, and not a little
one, either.”

$560 billion globally

Not measured in dollars and cents

Whopper Sacrifice
Like friends but “love” Whoppers
 Facebook Value

 Reputational currency



Price on attention
Internet has enhanced it
Ad-supported free media

$45 billion in revenues
 Radio
 TV

$21-25 billion
 Online

Total revenues for offline and online
 $80-$100 billion


Getting things for free
Impossible to
quantify
 MySpace
 $65 billion estimated
value
 Free bands?

Apple iPod
 $4 billion in annual
sales
 Free music downloads?

$560 billion annually

Ads and Freemium (in the US)
 Approximately $80 billion
 w/Traditional ad-supported media
 $116- $150 billion

Globally
 $300 billion

Labor costs

Internet
 $260 billion annually

Google


Free Google Docs
Facebook

Cheap ad-space
Marketing
•
•
Sounds better
Better for companies
•
•
Consumers don’t use
service
– Gym
– Netflix
– Buffet

Free-riding


Some do the work
Others use it (Free-Riders)

People work for audience

Free works well online

Wikipedia
 Millions of users
 Editors
 Free-Riders

Competitive Market,


Price falls to marginal cost.
Marginal Cost


Price is just above cost of production
Almost no profit

Internet: information is a commodity

Free is inevitable when marginal cost is law

Versioning


Different customers pay different prices
It’s all about marketing


Benefit from network effects.
Popularity

Attracts Programmers
 Make Microsoft programs


More users (compatibility)
Monopolized

Monopoly Rents: Charge more than
production cost

Maslow’s Hierarchy of needs.


People have always been creating and
contributing for free
Professionals and amateurs in competition


Web technology has allowed amateurs the
opportunity to voice themselves
“Enlightened self interest is most powerful
force in humanity” – Adam Smith

Long distance calls


Previously costly: Little time spent on calls
Now free: Older generation continues to spend little
time

Waste is in the eye of the beholder

Youtube videos

More popular than Hollywood films







“There ain’t no such thing as a free lunch”
“The Internet really isn’t free because you are
paying for access”
“No Cost = No Value”
“Free Undermines Innovation”
“Free is breeding a generation that doesn’t
value anything”
“You can’t compete with free”
“Free is only good if someone else is paying for
it”

Free is more appealing

Websites

YouTube and Facebook are struggling
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
If it’s digital, sooner or later it’s going to be free.
Atoms would like to be free, too, but they’re
not so pushy about it.
You can’t stop free.
You CAN make money from free.
Redefine your market.
Round down.
Sooner or later you will compete with free.
Embrace waste.
Free makes other things more valuable
Manage for abundance, not scarcity.