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@SXSW: FREE IS JUST ANOTHER WORD FOR…
Long Tail author and Wired editor Chris Anderson’s new book, Free, isn’t out until June, but SXSW attendees got a taste at Anderson’s closing keynote at this year’s interactive conference. By now, many are familiar with the gist of Anderson’s argument, which is that the internet drives the marginal cost of digital goods to zero, which means that the price of these goods also is driven down to zero. “Free is the animal force of digital economics,” Anderson said. Furthermore, he said, “If you have not made your product free, piracy will do it for you.”
However, that doesn’t mean that all is lost for content creators hoping to make a living from their work. Instead, it forces them to think more creatively about just what it is that they are selling and to embrace ways other than the “producer/consumer” model of interacting with their audiences. Anderson brought up an example involving Cantonese pop stars in China, nothing that their latest albums are instantly and widely pirated. “If you are a Canton pop singer these days, you use piracy as a form of marketing and then monetize the ensuing celebrity. Each one of us is creating micro-celebrity and turning that celebrity into cash.”
Anderson explained that “’free’ is the inversion of the ‘free sample’ model. You give away 90, 95% for free in order to sell 5%. If you convert 5% to paid, you can cover your costs, and if you can get to 10% to 15%, you can make money.”
Moderator Guy Kawasaki pointed out that soon VC firms will be deluged with business plans that take the above model as gospel and chart projections based on reaching that 10 or 15%. But, Kawasaki continued, “People misunderstand how hard it is to even get that 5%.”
At this point, discussions of “free” economics turn into discussions about added value, consumer psychology, ethics, and community. All of this is framed, argues Anderson, by the fact that “we have internalized near-zero marginal costs.” In other words, people expect digital goods to be free now (or, perhaps I’ll rephrase it: people expect digital goods to exist in free versions). “In the digital world, no one thinks badly about something because it is free,” he says. “It’s out there for free in one version but then it is out there in a superior version [you pay for]. For some people [the decision to pay] might be conscience, but for most of us it is simple utility or convenience.”
Anderson also talked about needing to build “free” into a business model from the very beginning. “The old version is starting free and then waiting two years [to convert to paid], but then you’ve broken the social contract [with your users],” he said. Things work the other way too. He talked about the Village Voice having appeared to become less valuable when it went free versus The Onion, which started free and has become even more respected and has grown its audience. (Here I’d wonder if the Voice didn’t start to lose its respect when it cut back on investigative journalism and large-scale cultural stories and whether ‘free’ models dis-incentivize traditional media publishers to commission such pieces, but that discussion is for another blog post.)
For filmmakers depressed by all of this, I will point out that one of the questions asked at the Q&A was from someone who wanted to know why there wasn’t one easily searchable site where he could pay for high-quality, HD video. He complained that YouTube was low quality and that he could never find what interested him there. It wasn’t clear whether he had heard of iTunes or other download services, but the question itself was heartening.
Chris Anderson’s Free will be out in June and yes, it will be free — as a PDF on his website. If you’d like to help put food on Anderson’s table, you can be part of his 5 or 10 or 15% and pick it up at a bookstore near you.
For the rest of our SXSW 2009 coverage visit our standalone site here.
