Tuesday, July 07, 2009

“This is what Free does: It turns billion-dollar industries into million-dollar industries”

Chris Anderson’s book Free, all about how the digital world is fundamentally changing economics. In the pre-publicity for the book I’d assumed that Anderson’s line would be all “Free is great, la la la”, but actually, as the quote above shows (from page 131), it’s a very considered book on what is happening to the world of business in the light of digitalisation.

It’s all about how with digital media the marginal cost of things based on ‘bits’ (cost of duplication & delivery) is nearly zero, whereas with traditional media, including newspapers the average costs are still high, and are harder to offset. Obviously digital businesses still have to pay fixed costs - cost of creation, fixed costs like rents etc – but to reduce the average costs based on these companies need to increase their user base, so pursue aggressive expansion models.

The great thing is that Anderson speaks from experience (he’s Editor-in-Chief of Wired), so is affected in everyday life by what is happening, and is not whole-heartedly a cheerleader. For example he acknowledges that many businesses have not found revenues let alone profits yet, and that YouTube is massively subsidised by Google.

Another major theme is the availability of so much free content in the form of willing amateur bloggers and so on. To be fair this isn’t a new phenomenon – it always existed in academic publishing, and letters pages to specialist magazines (look at an issue of Salmon and Trout if you don’t believe me), but digital technology makes this so much easier and more popular.

He also addresses critics in the book, taking arguments made by other commentators (e.g. Paul Ellis, Andrew Keen, Sheryl Crow (yes, that one) and Hank Williams (no, not that one)), and carefully showing how they are wrong. He’s even giving the book away free online, for a limited period here.

I also attended a (free) event for the book in London last week, where Anderson was supported on a panel by thelondonpaper (losses of £12.9m in 2008) and Spotify (revenue of 14p per user per month), which sums up the difficulties in Free – it’s really hard to make much money out of it. While the book does suggest strategies for moving to free, it offers it more as a modern economic necessity, rather than a foolproof business plan.

I’m also really interested in business models like BandZoogle, which offer a paid version of free (in their case paid for sites for bands fed up with the free MySpace offering), and I think that this may be worthy of more investigation for entrepreneurs – find something which is free and annoying or time consuming, and start a paid version.

Buy the book!

PS - I feel sorry for musicians though. Over the past 40 years we’ve seen lots of musicians (OK, the tiny minority) become very well paid, to such a degree that in the 70s it seemed like even the bass player could buy a castle somewhere and develop an active interest in motorsport, but it now looks like song-writers and musicians are increasingly looking at a low-pay future.

When Anderson talks about musicians giving music away, but making money from selling merchandise and having fun, I’m reminded of all the stories of the great Mississippi blues players, who lived out their old age in poverty, or the great, seminal reggae stars who you can find in similar poverty in Jamaica (apparently when he was researching the book Bass Culture writer Lloyd Bradley found that he could find many of his heroes listed in the phone book), and feeling very bitter about their exploitation. I fear that this is likely to the future for many of the people currently using the ‘free’ methods of promotion and distribution in the book – unless they turn their online expertise into another opportunity, and start working in social media…

PPS - Ironically, the Free live event was partly sponsored by MediaWeek, who have just rescinded my free controlled subscription, and want me to pay to receive their magazine.

See also - my review of Here Comes Everybody by Clay Shirky

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