Thursday, June 19, 2014

Book Review: "Free" by Chris Anderson (2009)

As the costs of digital distribution fall toward zero, how can companies and content creators turn profits? According to the former "WIRED" editor and current drone manufacturer...they can't. 

In "Free: the Future of a Radical Price," Chris Anderson -- the former WIRED EIC -- doesn't take long at all to establish the book's central thesis: that, with the proliferation of the Internet and digital distribution channels, we're now living in an epoch in which a deflationary economy anchored around bits has completely triumphed over the old world order of inflationary economies anchored around atoms -- that being, tangible, real-world goods.

With a net annual deflation rate of about 50 percent, Anderson postulates that all cyberspace goods are destined to halve in price every single year. Citing Monty Python, the decline of transistor prices, early Jell-O advertising gimmicks and the pioneering "freebie" promotions of King Gillette -- who, it is perhaps worth noting, penned a weird-ass urban supremacist manifesto/unrealized "Bioshock" game called "The Human Drift" in 1894 -- Anderson feels that it's only natural that online-centric manufacturers and retailers today would flock towards new wave "freemiums" to sustain their own operations.

Via direct cross-subsidies -- "loss leaders" like popcorn generating revenue in lieu of fundamentally free films and ongoing annuities, like "free" phones with two-year subscriber contracts replacing point-of-sale streams -- Anderson argues that there is already a template readily available for online companies to base their own "free" models upon. In fact, Anderson rattles off several variations for us, including segmented markets -- basically, a "progressive tax" that allows women to get free drinks at clubs and kids to eat free at Sunday buffets -- tiered content (Flickr vs. Flickr Pro is the example he uses in the book) and even emerging "non-monetary markets" like zero-cost "gift economy" distribution networks (read: free Wiki articles) and even "labor exchange" relationships (which Anderson illustrates in the book with the example of porn sites that give you free nudity in exchange for helping them figure out CAPTCHA puzzles.)

Early, early on in "Free," Anderson introduces to something he calls the "Five Percent Rule" -- that being, this idea that just five percent of online service users will offset the business losses of 95 percent of the same online services's users not paying anything at all. And then, he immediately brings up how piracy murder-death-killed the music industry, providing us with the first of many, many in-text contradictions that should make us wonder a plenty about Mr. Anderson's allegedly beneficial "free-to-all" Tao. Furthermore, his citing of negative pricing business models -- like bands playing clubs to perform and gyms in Europe that, as long as you don't miss any weekly visits, have free memberships -- seem more like fanciful asides than genuine advice for start-up operations.

From there, Anderson gives us a history of "free," letting us know, for some reason, that the Catholic Church once condemned interest rates and that the Koran has a decisively anti-usury bent. He goes on for a bit about Paul Ehrlich's wrong-ass predictions, Kroptokin's "Mutual Aid," the Dunbar Number and New York's  Raines Law, before seguing into a passage about ASCAP and BMI and how the Haber-Bosch Process lead to the "Green Revolution" of the 1960s. If you're wondering what this stuff has to do with "freemium" business models -- well, that makes two of us, naturally.

After some shit about "corn economies" and "disposable cultures," he says that America fully embraced the "Law of Conservation of Attractive Profits" sometime in the 1950s, indicating a shift from resource processing to service jobs. Today's "symbolic analysts," he tells us, are nothing more than yesterday's farmers and manufacturers in pursuit of scarcity.

Comparing The Village Voice to The Onion, he describes how free woks as an "evolutionary stable strategy." He later rephrases the statement, with the sardonic aphorism "you can't fall off the floor."

From there, it is aside city for a good fifty pages. We learn about Kopelman's "Penny Gap," The Sample Lab! International Model, a 2007 French union lawsuit against Amazon, Mead's Compound Learning Curve and some dude named John Draper, who is perhaps most notable for having the nickname "Captain Crunch." Then, Anderson makes the somewhat controversial claim that piracy actually creates user dependency, which in turn, lowers adoption costs. Which, fittingly enough, is a great transition point to a conversation about the positive aspects of de-monetization.

The Internet, described by Anderson as a "liquidity machine," allows individuals to make money by shrinking markets. You see, free turns "$1 billion industries" into "$1 million industries" by wealth redistribution, which in turn creates more efficient markets. Of course, with lower entry barriers, he lets us know its pretty goddamn hard to turn a profit under such a system, and that more often than not, the model just results in the rich getting richer, but is still somehow good, I think?

Anderson then rattles off a fairly agreeable list as to why paid content is deader than Elvis, and then gives us a primer on impression models. Interestingly, he uses the video game market as his case study for industries that have "benefit" from freemium models, and praises Derek Webb for his "data-mining" approach to fan outreach. Oh, and he kind of glosses over how selling visitor data to third parties has become something of a monetization model, but SHHH!

With "quasi-currencies" like views and Facebook likes taken into consideration, Anderson said the market for "free" was about $300 billion in 2009 dollars. As such, he said that more and more organizations find themselves competing in non-monetary markets, where "attention" and "reputation" are considered as good as actual revenue. Except, uh, people aren't actually making money off this shit, which is the gigantic elephant turd in the punch bowl Anderson doesn't have the bait and tackle to come out and tell us.

In China and Brazil, he talks about how piracy culture has led to some innovative underground markets -- chiefly, an emerging "fake receipt" economy. And then, he lets us know that the "walls" between editorial and business boards in the journalism industry have been yanked down, and as such, we're all the worse for it.

Giving us some bullshit about "the tragedy of the commons," he tells us that many content creators will now have to look for indirect revenue streams -- like consulting, lecturing and blogs -- to stay afloat financially. Even heavy hitters like Facebook and YouTube have ongoing revenue problems, he said: pretty much putting a big, fat ~ next to his ENTIRE goddamn argument, he lets us know that, in a recession, "free can't be the only model" if organizations want to survive.

Below are Anderson's Ten Principles of Abundance Thinking, with my thoughts in red.

  1. Digital things will ultimately be free. (which means unless you can't eat it or print it out yourself, you're pretty much in a fucked market.)
  2. Products of physical goods make core products free by selling other stuff. (also, you can make more money if you work more than one job, too.)
  3. Selling upgrades to free products can combat piracy. (except for when it doesn't, which is all the fucking time.) 
  4. Free opens the door to charging consumers. (too bad he never explicitly tells us how to make that leap, though) 
  5. You can sell around free services. (which means you're working two jobs, only one of which involves you actually getting paid for something.) 
  6. You HAVE to be "free" before your competitors. (but what happens when ALL of your competitors are giving away stuff for free, though?)
  7. Eventually, you will be competing with free, anyway. (oh, OK. But wait, how am I supposed to be making money off this shit again?)
  8. You need to stop metering things that are too cheap to meter. (which under a free model, is your ENTIRE model.) 
  9. Value will always migrate to the next higher layer when free becomes the norm. (so what's the FUCKING point of even being free to begin with?)
  10. You should always manage for abundance, not scarcity. (translation: learn to deal with being poor.) 

Personally, I prefer Biggie's "Ten Crack Commandments," but I guess there is more sagacity in that top ten than asininity, I will admit. Then again, the fundamental rub with Anderson's entire shtick is that, compared to free, ANY financial gain is automatically profitable, so really -- what's the point with all this, again?

When I picked up "Free," I was expecting a fairly conventional primer on how upstarts could leverage temporarily free, entry-level services into more sustainable revenue models. Instead, what I got was some bullshit about how free boasts visibility and facilitates future user adoption, conveniently leaving out how a service would successfully shift from free to paid models in between. Free, this asshole keeps telling us, will pave the way to truly lucrative business models in the future, but he never even gets anywhere close to establishing a solid system for services to make that very transition. The shit icing on the turd cake was when he used journalism as a case study of sorts; you see, journalists, in the absence of traditional papers, can still make money as consultant editors for non-professional, hyper-local websites, he cheerily tells us. Of course, he never brings up the abject failure of AOL's Patch service, which was more or less that very model.

I'm not sure if I want to call Anderson an opportunist -- or better yet, a piss-poor speculator -- but "Free" is a book that feels far, far removed from reality. Maybe his ideas would gel in very, very small commerce sectors, but the tips and tactics outlined in this book aren't going to save any upstart business from insolvency. Really, the core thesis of "Free" can be summed up as "don't plan on making money, so that if you incidentally make money, it'll be awesome."

That's not a business strategy, Mr. Anderson. Hell, that's not even a halfway viable business ideal. There are some interesting ideas in "Free," but nothing that has any import on today's e-commerce world, I am afraid.

But at the end of the day, I will at least give some of Anderson's theories about "free" products some praise. After all, I picked up my copy of the book -- irony of ironies -- because a local retailer just wanted to get rid of surplus copies on the shelves.

That's right: I didn't pay a single cent for "Free." And to be honest? I still feel like I paid too much for it.


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