Some thoughts on FREE
1 July 2009 — Comments (View)
This is a collection and rewrite of some of my tweets on the issues of free in an economic sense as well as the lacklustre debate surrounding Free (the book).
Apologies for the incoherent nature of the post. Twitter isn’t an ideal writing platform.
One of the most frequently cited argument in the favour of everything digital being free is an abstract economic theory that states that the prices of products in a competitive market will stabilise at the marginal cost.
Without getting into a discussion on the validity of said theory there is a lot to be said on how that theory applies to media.
What’s missing is that in this context a product is thought to be a fungible commodity, that it can be replaced with another good that serves the same function to the buyer. The theory does not apply to all economic goods.
Using digital for the direct sales of content is actually a way to make it completely non-fungible.
In DVD sales there is a good which has its price driven down by retail competition (DVD copies between stores are identical = fungible).
If you can create demand for specific digital content and sell it yourself, that demand cannot satiated by any other good, digital or not.
The problem of course is in the initial stage of finding content that you can create demand for.
Another problem is in customer backlash against higher prices, but in Harlequin’s case they solve that by offering something print can’t, i.e. short works that are more expensive per word – roughly 7 cents per thousand words versus 30 cents per thousand – than anything else they publish but is reasonable if not desirable as a differentiated offering.
And this is in an industry that is (mis)reported to be as close to being commodified as any content industry can.
(Aside: I’ve been reading Georgette Heyer’s fantastic regency romances recently and can’t recommend them enough.)
Most of the people taking sides in the Gladwell/Chris Anderson spat do so based on personal feelings not arguments.
NB: Free (the book) will be available for free on the day of the launch and for a while after. Chris Anderson may be a dishonest debater but he’s not a hypocrite.
Gladwell’s argument, although it uses media as an example, isn’t that media’s too important to be free but that Free (the book) ignores capital expenses and undervalues operational expenses.
Chris Anderson’s counter-argument is to accuse Gladwell of being frightened and point out a guy working for Wired for free, the tactics of a naïf. He does not address any of the substantial points of Gladwell’s review let alone other general flaws in his thesis.
Gladwell isn’t arguing that Free won’t and isn’t an important part of the economy, just that it won’t be the be all and end all.
It’s an ignorant guru trifecta with Godin in the mix saying that Chris Anderson is right because the internet is really, really cool.
He forgets that the brunt of the costs of the internet revolution are borne by each household’s connection costs.
He also forgets that almost any non-trivial use of the web as a publishing platform requires a handover of cash to somebody somewhere.
“There is no poetry shortage” according to Godin, because poets work for free.
I disagree, one of the things I learnt during my comp. lit. degree was that historically, poetry has been dead since the early 20th century.
So there is a distinct and marked shortage of good poetry.
Free labour/products can actually drive out quality in a dynamic that is similar to the akerlofian market for “lemons”.
Also, free is only an advantage for promotion and attention for first movers. It disappears quickly when everybody’s using it.
Godin’s point about attention deserves some special attention. By offering a product for free when everybody else does not is a remarkably effective way of getting and holding attention that can then be leveraged for love or money.
When everybody’s offering stuff for free, like in the blogosphere, the lack of a price ceases to become an attentional advantage and merely becomes the price the producer pays to participate – a marketplace entrance-fee, if you will.
Market dynamics are a complex and unpredictable thing, governed by several factors. By offering products for free you have to offset that cost somewhere because otherwise you’re just shrinking the overall market.
Another factor is average quality. According to Akerlof’s theory of a “Market for Lemons” uncertainty and asymmetrical information on quality can lead to a market where no goods are sold for any price.
The media industry is being crushed between these two forces. On one hand the market is shrinking as they are forced to offer their products for free to keep the attention playing field level. On the other hand uncertainty, asymmetrical information and often blatant dishonesty means that advertising inventory can’t be sold at any price. You can’t even give it away.
I work in web marketing and so a large part of my job is to analyse and study advertising opportunities on the web and I, like most of my colleagues, have ended with the only advertising venue that has even a shred of trust remaining (and not much at that), namely search engine advertising with name-brand search engines.
The analytics and statistical methods used to measure traffic across media sites are meaningless and have absolutely no value to an advertiser. The only thing you can do is buy ad impressions and measure yourself, you can’t rely on any stats other than those generated on your site and measured using your tools.
What many companies in this situation have found out is that it is cheaper to start publications/blogs/video series of their own. You spend less money at the outset on content production than you would on advertising with an external publication and there is absolutely no information asymmetry.
Free isn’t a solution. Free isn’t a business model. It isn’t a force of nature. It’s a symptom of human psychology that can sometimes be (ab)used for the benefit of corporations. When the problems of an industry are endemic and implicit in its structure, free does little but escalate the decline.
Last minute Addendum. For further reading on free in new media my best recommendation is to start of with Alan Patrick’s three part series on Freeconomics:
There’s a lot more on the subject out there, of course, but that’s a start.
