The Organ Grinder’s Monkey

Wired’s lastest issue is all about “free”, specifically, FREE, the book by editor Chris Anderson (coming out in 2009) that is bound to get more than a few economists’ knickers in a twist.

I highly recommend that anyone who plans on doing business in the next decade or so go read the article, paying special attention to the scenarios (in gray boxes) and other supplementary resources they’ve decorated the article with (including the video - it’s just a few minutes long and worth the click.)

In the video, Chris Anderson notes:

“The difference between one penny and free is the difference between having to make a conscious decision to purchase a product and to just do it.”

And while that seems to be a subtle difference, when you actually think about it it’s actually quite a significant gap. Crossing that gap requires a decision. And anytime your customer has to make a decision, the answer could always be “no.” Take that decision away, and the answer is almost always “yes.” Now, if the cost of production, distribution and materials is essentially nil, why risk “no” when you could virtually guarantee “yes” by eating that almost non-existent cost?¹

A few quotes from the article:

From the consumer’s perspective, though, there is a huge difference between cheap and free. Give a product away and it can go viral. Charge a single cent for it and you’re in an entirely different business, one of clawing and scratching for every customer. The psychology of “free” is powerful indeed, as any marketer will tell you.

[snip]

Surely economics has something to say about that?

It does. The word is externalities, a concept that holds that money is not the only scarcity in the world. Chief among the others are your time and respect, two factors that we’ve always known about but have only recently been able to measure properly. The “attention economy” and “reputation economy” are too fuzzy to merit an academic department, but there’s something real at the heart of both. Thanks to Google, we now have a handy way to convert from reputation (PageRank) to attention (traffic) to money (ads). Anything you can consistently convert to cash is a form of currency itself, and Google plays the role of central banker for these new economies.

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.

In short, it’s very possible that free will be the basis of trade and commerce for the foreseeable future. And yet, as Anderson points out, all of the biggest vendors of free services - Yahoo, Google, etc - are filthy rich and increasingly raking it in hand over fist. So yes, it’s possible to get rich on free.

But you have to embrace it, rather than fearing and avoiding it, or trying to take it on in baby steps. The first response will simply keep you in the realm of the buying decision (i.e. trying to work around “no”). The second will simply ensure you’re left slugging it out for customers and memespace as those who embrace free wholeheartedly get all the buzz (and all the crowd momentum).

1. In most cases, it’s greed, ego, habit and confusion, in that order. Greed operates at the “Even a penny is better than nothing” level, which is patently untrue anymore. Also, any time you hear any argument against free that includes the term “stakeholder value,” you’re probably looking at greed and, not insignificantly, the primary stakeholder the speaker probably has in mind. Ego is concerned with the “appearance” of giving things away equated with lack of quality, and the “I don’t have to give it away, because I’m so good” argument…again, neither are relevant here. Habit is just that - business as usual making it hard to envision business as it’s becoming and hard to get out of the rut of the way it’s always been done. And confusion is simply a matter of doing what you’ve always done, because it’s easier than figuring out how to make the new ways work. [↩]

Tags: Business, Changing the World, Conversation Economy, Society and Culture //