Saturday, September 22, 2007

Free

Chris Anderson, author of The Long Tail and editor of Wired, is working on a new book, "FREE". Intriguing title ... here are a few subtitles Anderson is toying with:

1) FREE: The story of a radical price (zero)

2) FREE: How $0.00 changed the world

3) FREE: How companies get rich by charging nothing

4) FREE: The economics of abundance and the marketplace without money

5) FREE: The past and future of a radical price.

It's easy to give something away for free. It's more difficult to do so while delivering "gotta have" value. And -- here's the grand test for companies, particularly social and business networks and other Web 2.0 plays -- transitioning a community of value-receiving participants who pay nothing to a group that will pay something is the trick. Think of all the start-out-for-free online communities that, when shifting gears from free to paid, carcassed on the roadside.

One of my Venture Lab comrades works at LinkedIn. I'm a fan of the professional networking site -- though I've yet to scratch the surface of its utility -- and an even bigger proponent of my colleague. He's a star. When he started at LinkedIn a few years ago, I queried: What are you trying to accomplish? His answer: Figure out how to make money. (Quite contiguous, eh, with the purpose of a corporation.)

Theretofore, LinkedIn had no revenue (advertising, subscription, etc.); thereon, they've become profitable through premium services, which provide improved search and contact options for recruiters, investment professionals, entrepreneurs, analysts, market researchers, sales people and business development professionals. Simplified: Those who garner the most value are paying to participate (they can afford to and would be foolish not to), while the rest of us benefit through the virtues of the network.

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Post-script (1/5/08): Anderson delivered a healthy, 45-minute or so keynote at Nokia World 2007, Free: The Past and Future of a Radical Price. He's siring a terrific, eye-opening, pragmatic thesis, building on The Tail. Invest the time ... it's well worth it (and it is free!).

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Post-script (04 Feb 08): Seth Godin relays an insightful, contrarian-to-free piece authored by Kevin Kelly. It elaborates eight ways two make something worth charging for (read the post for the full monty): immediacy, personalization, interpretation, authenticity, accessibility, embodiment, patronage and findability.

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Post-script (25 Feb 08): Anderson enlivens the discussion with a lengthy, gotta-read post in his Wired blog, Free! Why $0.00 Is the Future of Business. Here are the first two graphs:

At the age of 40, King Gillette was a frustrated inventor, a bitter anticapitalist, and a salesman of cork-lined bottle caps. It was 1895, and despite ideas, energy, and wealthy parents, he had little to show for his work. He blamed the evils of market competition. Indeed, the previous year he had published a book, The Human Drift, which argued that all industry should be taken over by a single corporation owned by the public and that millions of Americans should live in a giant city called Metropolis powered by Niagara Falls. His boss at the bottle cap company, meanwhile, had just one piece of advice: Invent something people use and throw away.

One day, while he was shaving with a straight razor that was so worn it could no longer be sharpened, the idea came to him. What if the blade could be made of a thin metal strip? Rather than spending time maintaining the blades, men could simply discard them when they became dull. A few years of metallurgy experimentation later, the disposable-blade safety razor was born. But it didn't take off immediately. In its first year, 1903, Gillette sold a total of 51 razors and 168 blades. Over the next two decades, he tried every marketing gimmick he could think of. He put his own face on the package, making him both legendary and, some people believed, fictional. He sold millions of razors to the Army at a steep discount, hoping the habits soldiers developed at war would carry over to peacetime. He sold razors in bulk to banks so they could give them away with new deposits ("shave and save" campaigns). Razors were bundled with everything from Wrigley's gum to packets of coffee, tea, spices, and marshmallows. The freebies helped to sell those products, but the tactic helped Gillette even more. By giving away the razors, which were useless by themselves, he was creating demand for disposable blades. A few billion blades later, this business model is now the foundation of entire industries: Give away the cell phone, sell the monthly plan; make the videogame console cheap and sell expensive games; install fancy coffeemakers in offices at no charge so you can sell managers expensive coffee sachets.

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Post-script (17 Mar 08): A thought-provoking slice from Anderson's new book ...

There is, presumably, a limited supply of reputation and attention in the world at any point in time. These are the new scarcities — and the world of free exists mostly to acquire these valuable assets for the sake of a business model to be identified later. Free shifts the economy from a focus on only that which can be quantified in dollars and cents to a more realistic accounting of all the things we truly value today.

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