Chris Anderson and the Radical Future of ‘Free’
Chris Anderson’s eyebrows are perhaps his most dominant feature; dark, smudgy lines that cut across a fleshy, bald apricot of a head. For the staff working at Wired magazine’s San Francisco office, the eyebrows act as the primary barometer of their editor-in-chief’s approval. Pique the British expat’s interest and those dark brows scuttle up his forehead faster than a Googlebot; suggest an idea that’s self-evident or half-baked, however, and they race south, his eyes narrowing in boredom.
As the editorial captain of Wired magazine, Conde Nast’s future-tech Bible, Anderson professes to behaving “like a complete fascist” towards his small corps of twenty-something staffers. Such totalitarian affectations are, of course, par in the U.S. magazine world, where successful editors are expected to cultivate an autocratic celebrity persona in the Simon Cowell mould: one part Elton John to two parts Lope de Aguirre. In most cases, the peacock plumage masks a deficiency of talent, but not so with Anderson, whose editorial chops are undisputed: Wired has won a series of National Magazine awards recognising its grabby design and editorial, and has an enviable national profile that defies its circulation figures.
Internationally though, it’s through his moonlighting gig as a ‘Big Idea’ authorial guru that Anderson is becoming best known. His 2006 book The Long Tail explained the economic miracle of Amazon.com, illustrating how a company could make more money selling niche products than mass products via the Internet, where shelf space is theoretically infinite. It catapulted him into an A-list of bestselling pop-theorists with Malcolm Gladwell and Thomas Friedman, and led to lucrative gigs on the business conference circuit: he currently delivers around 50 speeches a year at £20,000-£30,000 a pop.
In his new book, Free: The Future of a Radical Price, Anderson takes this idea even further, arguing that the near-zero ‘marginal costs’ of digital distribution – caused by the exponential decrease in the cost of computer processing power, hard drive storage and bandwidth – have created a new marketplace, where free pricing is practically a force of economic gravity. As Google, the poster child of the ‘free’ movement, has disrupted the conventional ad-funded media business model, so the digital economics of ‘bits’ is disrupting other industries in the ‘atom economy’, and Anderson argues that “every industry is either going to have to become free or compete with free” in the future.
“I didn’t invent this, I’m not predicting or projecting,” he says, with typically crisp enunciation. “I’m just looking at the data, and the data says in a world where inputs fall in price, price will fall. That economic model is just the law of physics, and the business models built around that are going to change dramatically.”
Many critics, including his fellow pop-theorist Gladwell in The New Yorker, disagreed with Anderson’s counter-intuition, with some of the more smart aleck pundits snickering that his evangelism for all things free hadn’t prevented his publisher from slapping a hefty RRP on the hardcover at Barnes and Noble (Anderson has pointed out that he did freely distribute digital and audiobook editions).
Anderson was subjected to more justifiable criticism, however, when the literary journal Virginia Quarterly Review accused him of plagiarising passages of Free direct from Wikipedia without attribution. Responding rapidly, he owned up to failing to cite long passages taken from the online encyclopedia in the advance proof, and explained that pressures to meet publishing deadlines had led to his failure to conduct “write-throughs” of text written by Wikipedians, in which he would have rewritten their entries using different word choices. It was a shaky defense, especially from someone with such a lofty editorial reputation, and many blog commenters took Anderson to task for what they considered, at best, sloppy practise and at worst literary fraud, plain and simple (Anderson later defended himself against the plagiarism charge, telling a reporter in a televised CNN interview, “We live in a remix age…”).
Viewed in retrospect it’s understandable – although not entirely excusable – that Anderson cut corners writing the book, as his resources appear to have been thinly spread at the time. Apart from the editorial duties at Wired, there were conference speeches and travel, the research and writing work for a 75,000 word manuscript, and also commitments to his startup companies BookTour, an author appearance calendar website, and DIY Drones, a remotely operated aircraft community site – and all this at a time when he was bringing up a young family and also suffering from Lyme disease.
It would be a shame if the Wikipedia scandal were to overshadow the ideas set forward in Free, which are genuinely provocative in challenging our inherent distrust of the concept of ‘free’ itself, or what Anderson characterises as ‘twentieth century free’. Anderson cites two pioneering examples of this hundred year old marketing gimmick in Jell-O’s free distribution of gelatin recipe books to promote a novel dessert product and King Gillette’s bundling of free razors with packets of gum and marshmallows, in order to stimulate demand for disposable razor blades. In both cases, ‘freebie’ products were used as a lure to bait customers into spending more than they intended.
The popularity and subsequent public awareness of the practise has shaped common, sceptical attitudes towards ‘free’ that endure to this day – further proof that, as the economist Milton Friedman liked to say, “there’s no such thing as a free lunch.” But, Anderson contends, that was then.
“We have a complicated relationship with free: we’re drawn to it, but we’re also repelled by it,” he says. “But twenty-first century free is different from twentieth century free. If your supermarket has a sign that says ‘free beer tomorrow’ you should be suspicious that tomorrow will never come, but when Google says, ‘Gmail is free’, I don’t think you need to be suspicious. In the atoms economy -we understand there must be real costs, and those costs must be paid directly – so there can’t be a free lunch. But in the digital economy the costs are manageable, and there can be a free lunch. Someone is paying, but it’s not you.”
And it’s not just in the digital world: in the ‘atoms economy’ many companies have taken a page from digital ‘twenty-first century free’ and reinvented their industries by offering loss leader products and services to profit from indirect revenue streams – what is known as a ‘cross subsidy’. In analysing this topic, Free isolates a popular new business trend; in aviation, Ryanair has rapidly grown into the largest largest airline in Europe by selling its flights for next to nothing. How? A healthy margin is made via ancillary revenues: charging for baggage, check-in fees, credit card handling fees, shares of car rentals, hotel bookings, and so on. Anderson lists other companies who are making money by giving away TV set top recorders, stocks, directory phone assistance, CDs, secondhand goods – even a general store of free products (respectively: Comcast, E*Trade, GOOG-411, Prince and The Mail on Sunday, Freecycle, and Japan’s SampleLab). A particular Anderson favourite is the Portuguese media company Controlinveste, who gave away a 60-piece silverware set, day by day, with the purchase of a newspaper. The boost in revenue from newsstand and advertising sales far exceeded the cost of the Chinese-made cutlery, and the company made a healthy profit.
“Essentially, they found a way to put advertising on spoons,” he says, triumphantly. However, mindful that advertising is no safe bet in a recession, Anderson proposes the most interesting businesses today employ a ‘freemium’ template: that is, free products that upsell premium services. This is the model used with varying degrees of success by online applications like Flickr, Skype, Spotify, Vimeo and others, marrying the reach benefits of digital free with the direct profit of paid.
“The old model for business was ‘make something people will pay for’. The new model is ‘make something people will want and something they’ll pay for’,” he says.
As Free notes, some of the most interesting new applications of the ‘freemium’ model can be found in the video games industry, particularly in free-to-play online multiplayer games, where virtual goods and subscription features generate huge revenues. Originally developed by New Horizon Interactive, the Club Penguin website hosts a ‘massively multiplayer online game’ (MMOG) that became a playground craze in the U.S. after its launch in 2005. By late 2007, there were 700,000 subscribers paying for ‘igloo upgrades’ on the Club Penguin site, and New Horizon Interactive was purchased by Disney in a deal that would be worth a total of US $700 million.
Many modern applications of the tiered pricing model are highly imaginative, and none more so than Radiohead’s 2007 ‘honesty box’ experiment. Fans of the Oxford band were invited to pay what they perceived their new album In Rainbows to be worth before downloading it from Inrainbows.com. According to Anderson, In Rainbows sold more than 3 million copies via direct downloads, CD’s, a deluxe CD/vinyl box set and mp3 sales via digital retailers, and the album proved the band’s biggest commercial success, with 100,000 sales of the £40 box set and 1.2 million tickets sold for a subsequent tour.
But it’s hard to deny that for every music industry innovator like Radiohead, there are ten independent record labels that have ceased trading, and few can convincingly make a case for the digital revolution leaving the music industry in a healthier condition. While few consumers will shed a tear at the decline of large record companies, in an increasingly fragmented market a small number of highly commercial acts – and the companies backing them – disproportionately harvest the income from emerging revenue streams. The Sony-owned entertainment company Syco is currently demonstrating this in the UK with its X-Factor TV show, which has leveraged its commercial worth to the ITV network into an unprecedented dominance of the national music charts.
On a grander scale, Google’s revolutionary free-centric business model, which is heavily reliant on selling search advertising against indexed Internet content, has been accused of contributing to the ‘demonitisation’ of entire industries – from news media to software and telecoms. Thanks to the “network effects” that take hold in digital markets, Internet brands combining a clear niche in their specific field with mass distribution strategies that harness the power of ‘free’ tend to dominate global market share, creating virtual monopolies that can be extremely difficult for competitors to challenge. Google CEO Eric Schmidt describes this approach to achieving mass adoptions as the “max strategy.”
For those who work in industries that have been disrupted by such technological and business innovation though, the ultimate cost is unemployment – a process that can be traumatic. What happens to workers when expensive people businesses become inexpensive software businesses? And is this process really so beneficial for a nation and its communities? Anderson addresses this topic in Free, but never wholly convincingly.
“You either move upstream or you don’t,” he says. “It’s really simple: 10 years ago, I had a travel agent, a stockbroker and a personal tax accountant. They’re all software now, they’re all free. So what happened to my travel agent, stockbroker and my tax accountant? Well, some of them are driving cabs, and some of them moved upstream: my stockbroker became a financial advisor, my personal tax accountant became a corporate tax accountant. They moved upstream to where specialised skills were required – and they got paid more for it, by the way. It’s exactly what you saw with the coal miners in Wales. What happened to them?”
The answer is that the majority (or rather their progeny) work in taxpayer funded local council jobs, while many do not work at all. In 2008, approximately 25% of the potential working population of Wales was economically inactive, with close to 30% working in the public sector. It is not a picture of economic health.
“Well it’s a lost generation,” says Anderson. “For most of them, there’s really nowhere to go upstream. If you’re a coal miner, you can’t be a gold miner… That’s hopefully not the case for most industries. But this is not new; the hot type pressmen, the guys who shoveled coal into boats – all these people have been displaced, and it happens time and time again; software is just the second wave of outsourcing. The first time your job was replaced, it was by an Indian, and then his job was replaced by software.
“There is no simple answer to what happens to the displaced. Some land on their feet and find a better job. Some don’t.”
As the questions come to an end, Anderson droops in his chair and massages his temples with both hands. He ushers me out of the Wired office, past posters of magazine covers that trail lead features about secret Wall Street formulas, groundbreaking technological innovations and the like, and I can’t help but reflect on the throwaway line about coalminers and goldminers: perhaps now he travels business, Anderson doesn’t meet many of the twenty-first century ‘coal miners’ for whom his economically upturned future is a source of profound anxiety? He is an extremely bright man but can seem emotionally detached at times.
I can’t help but wonder whether his rosy view of the world – where digital economics spreads the wealth around, entrepreneurial innovation trumps state incompetence, and the economically displaced saunter “upstream” into better paid jobs – will have dark consequences. It’s easy to imagine a future following such trends where dying ‘demonitised’ industries are not adequately replaced, millions are dispossessed of a stable income, economic inequality accelerates towards a form of globalised plutocracy and violent social upheaval follows. Some might argue this is an unavoidable staging post in the post-industrial evolution of capitalist nations (Karl Marx might sympathise). But while the democratisation of information in the digital age can be intoxicating, the rise of hegemonic forces like Google and the fragmentation of an economic base that once provided jobs on a mass scale suggests the Internet’s promise of individual empowerment and untrammelled opportunity is chimeric.
Anderson appears uninterested in exploring the juicier political implications of his economic theories, presumably because it might make his business and tech industry clients uncomfortable. Optimism is never in short supply amongst those who identify with Silicon Valley’s ethos of pro-active evolution, after all. Nevertheless, while Anderson must be applauded for bringing the story of our collective drift to digital economics into the public sphere, until he convincingly addresses the wider political and societal problems that will be created by this outcome, his enthusiastic claim that ‘free is the best price’ should be qualified with an acknowledgment that it is not necessarily one without a cost.
Illustration: Jim O’Raw