Chris Anderson, author and editor-in-chief of WIRED magazine, wants to set the record straight. His book, “FREE: The Future of a Radical Price,” does not suggest that all manufactured goods will eventually be given away for free. The true premise of Anderson’s book is the increase in free items online due to the low cost associated with digital products. Companies can release products and services for free without fear that people will be looking for a catch or a hidden price.
Smart Business spoke with Anderson about the evolution of free, its impact on customers and why companies cannot avoid competing with it.
In discussing the psychology of “FREE,” you wrote, “A free bagel is probably stale, but free ketchup in a restaurant is fine.” Is there a way for companies to positively transition a pay product to free?
Take something like The Village Voice newspaper. It was once a paid weekly, then went free. People said, ‘That’s when the Voice stopped being good when it went free.’ That’s actually very arguable, and you could say that the Voice went free to save itself rather than continue its decline in the old model. People do have a tendency to take things that were once pay and are now free and assume that there’s been a quality decline. The best way to make a product free is to invent a new product that doesn’t carry with it the baggage of the pricing expectation of the old product.
If you look at companies that have introduced free, such as airlines, you have companies like RyanAir and EasyJet and others that have brought out flights that are close to free. The way they’ve done it is by redefining the business they’re in. They’re not in the airline business. They’re in this broad suite of travel, whether they’re doing hotels and rental cars and getting a subsidy from the destination or they charge a lot for baggage so they’re actually in the cargo business. They just broadly redefined the business they’re in so they could make one thing free that others were charging for while making money from other things.
You point out that, sooner or later, every company will compete with free. How do you explain that to people who have yet to be affected by free?
This has to do with the fundamental economic principles of atoms and bits. Once upon a time, my tax accountant, my stockbroker and my travel agent were people. Now, they’re software, and they’re free. As things become software, they tend to become free, not that they’re entirely free.
When I said that every business is going to be competing with free, what I meant was that every business has a digital aspect and every business has the potential to turn certain aspects into digital. And if you don’t do it, somebody else will. You’re either going to use free [products or services] to market a paid product or you’re going to compete with someone who’s doing that.
Was this part of what led to the decision to make segments of your book available at no charge?
We wanted to walk the talk. We made the whole book available for no charge in different time windows. The idea was to use the bits to get the broadest sampling and awareness so people could get a sense of what I was saying but still continue with a premium version. The hardcover is the premium version of the book. In the first six weeks of the book’s release, it was downloaded more than 500,000 times in various forms and it also became a New York Times best-seller in its physical form. The use of free to market an idea, then have an upgrade to a premium format that’s paid, is something that not only can be applied to any business, but we attempted to apply to our own.
FREE: The Future of a Radical Price
By Chris Anderson
Hyperion ©2009, 274 pages, $26.99
Special audio conference offer
Chris Anderson will be appearing on the next edition of Soundview Live, a free interactive Web event exclusively for subscribers of Soundview Executive Book Summaries. The event will take place on Jan. 13, 2010. For more information, visit www.summary.com/Soundview-Live.