Photo by Kalandrakas
The notion of Free is becoming more and more prominent in our economy and in business thinking. More services are becoming free and some things, like information, are starting to be free as a standard. I discussed this phenomenon a while back here on my blog, especially the validity of business models that rely on advertising.
I started thinking about this again after reading Malcolm Gladwell review of Chris Anderson’s new book, “Free: The Future of a Radical Price” and Seth Godin’s take on the two. This is the gist of Godin’s view:
The first argument that makes no sense is, “should we want free to be the future?” Who cares if we want it? It is. The second argument that makes no sense is, “how will this new business model support the world as we know it today?” Who cares if it does? It is. It’s happening. The world will change around it, because the world has no choice. I’m sorry if that’s inconvenient, but it’s true.
While I do agree with Godin that free changes a lot I am not sure that his take is fully accurate. You have to agree with Gladwell’s take on the example of Youtube:
YouTube is a great example of Free, except that Free technology ends up not being Free because of the way consumers respond to Free, fatally compromising YouTube’s ability to make money around Free, and forcing it to retreat from the “abundance thinking” that lies at the heart of Free. Credit Suisse estimates that YouTube will lose close to half a billion dollars this year. If it were a bank, it would be eligible for TARP funds
I was just reading an article for the strategy course I am currently taking at my AGSM MBA and in it the writers describe how E-bay reacted to the public auction initiative that was started by Yahoo!. Yahoo!’s product was free and E-bay originally thought that was going to be a problem. But it turned out, like in the Youtube case, the free attracts, as Anderson and Gladwell call it: “Crap”. If it is free to post an auction, you start auctioning stuff with a possibility to sell that is close to 0. Even though in E-bay, the payment was about 25 cents, this payment still created barriers that made their service better. It turned out, free was the wrong way to go.
So, what is the lesson here? Gladwell says that:
The only iron law here is the one too obvious to write a book about, which is that the digital age has so transformed the ways in which things are made and sold that there are no iron laws.
Godin, says something similar:
In a world of free, everyone can play.
My personal take is that the rules are changing. On one hand, you have to realize that some industries will have to remodel their business to a world of free. Like newspapers, book publishers, and probably even the music industry. On the other hand, you cannot ignore the physiological effect of free (research shows that when people pay for something, they enjoy it more). And you cannot ignore the fact that even if there are things for free in the industry people will still be willing to pay for special, unique and scarce. As Godin puts it:
People will pay for content if it is so unique they can’t get it anywhere else, so fast they benefit from getting it before anyone else, or so related to their tribe that paying for it brings them closer to other people. We’ll always be willing to pay for souvenirs of news, as well, things to go on a shelf or badges of honor to share
This means we should be careful. We should not ignore free. But we should not fall for the trap it represents. Free has advantages and disadvantages. We need to further study how free works because it works for certain industries and it does not for others. One thing we can’t do. We can’t allow the past to control our future. Fighting free, where it is relevant, will not work. Resistance is futile.