Last week during the South by Southwest festival in Austin, the editor-in-chief of Wired, Chris Anderson, author of the Long Tail concept, presented the theses of his next book “Free,” which will be published in the United States on July 6th from Hyperion. It pushes reasoning about the free economic model to the extreme. At a time when France is riled up by the absurd debate over the Hadopi law, we ought to better understand how others are thinking.
Anderson asserts that with the internet, a new kind of non-paying model has developed (from music to software to online games). A concept of Free based on almost nonexistent reproduction costs due to digitization and on the intensity of competition. According to Anderson, “If you don’t make your product free, piracy will do it for you.”
Furthermore, the internet tends to favor the economy of one’s own personal knowledge, the kind we see flourishing on Wikipedia. But, he adds, this doesn’t involve only the internet: products and services around us are becoming less and less expensive, most notably due to deflation and pressure from China. The Free model is, according to Anderson, globally inexorable; to the point that “One day or another, business will have to give away the majority of their products.” All of which calls for a new form of economy. And yet, he notes, “I was blown away to see that there was no Free economic model.” It is interesting to take a look at what he proposes:
- First and foremost is advertising, the first model of Free, used for a century for radio, with that of the collective contribution, under the form of royalties or worldwide licensing.
- Then, the “freemium” model which consists of distributing the free version of a product to the larger public, coupled with a more evolved paying version for a niche market. Flickr thereby offers a paying upgrade model. Anderson also cites online games (Club Penguin, Neopets, Second Life and other role-playing games like Maple Story) which offer a tiny portion of their games for paid access. “If 5% of players agree to pay, this assures the profitability of the product,” and “beyond this ratio, it’s pure profit.”
- Another economic model, that of cross-subsidies, which consists of offering a product for free to provoke the consumer to buy another one: a telephone and some free communication in exchange for a subscription; a razor in exchange for blades. Tomorrow, perhaps, we will receive computers for free and pay for the software, tech support, internet subscriptions or online games.
- Finally, he asserts, “Use piracy as a form of marketing” to monetize the popularity of other products. Anderson gives the example of the music industry, where artists can monetize their popularity, thanks to appearances in ad spots, in films or in concerts. This model, for him, will apply to film and many other sectors, including literature.
He is resolved to offer his book for free, “not the paper version but the digital version,” convinced that more than 5% of the digital readers will want to pay to buy the paper book, revenue which will be augmented by earnings from conferences. It’s obviously a whole different model of the book economy than today’s. Which will lead to having to protect bookstores if they are necessary for this sort of reading.
And more generally, let us think back to the equilibrium of a large number of sectors, which will have to mix free and paid ancillary products. They will also have to avoid free products becoming nothing but a scam in which you would have to pay much more for the accompanying product than the free product would supposedly be worth. As is often the case with so-called “free” credit.
Anderson is right to predict this future. And to force those who ignore the evidence to starting thinking. The cleverest among them are already in the process of adapting. Certain major groups which protest against the free model today may be the first to profit from it.
Obviously, this model will not be synoptic: the price of drinking, eating, commuting and paying rent will be higher and higher due to the growing scarcity of water, farmland, energy, and urban space. Said differently, and it is undoubtedly one of the trends of the future: it will soon be much more expensive to be poor than to be rich.