Author: Chris Anderson

Presentation Prepared By: Tony Cramond, Drew Misura, Justin Ruffing, Mona Safar, Nick Maffei, and Brad Childs

The Paradox of Free: people are making lots of money charging nothing

Recounts the past, present, and future of a “Free” Economy

The idea of “Free” is not new, but it is changing

Transition:

Change occurred over the last 75 years

Changes in human behavior and economic incentives

Free is no longer a gimmick

• Based on computer technology: Once something becomes software, it becomes free

• Now, this has been applied to all industries

• The role of technology: greater flexibility in how broadly markets can be defined, allowing them more freedom to give away some of their products or services to promote others

• The definition of free: in other languages the word free has two words to portray both sides of its meaning

• In English we only have one word: it can mean freedom or zero price.

• “Free as in beer vs. Free as in speech” explains the two definitions

– "free as in beer" = zero cost

– "free as in speech“ = liberty

• “The Three-Party Market”: a third party pays to participate in a market created by a free exchange between the first two parties.

• “Two-Sided Market”: two user groups who act synergistically—advertisers pay for media to reach consumers, who in turn support the advertisers.

• “Freemium”: base version given for free in hope that costumers buy the premium version ($36 Million Dollar Industry)

If something is free we don’t think about it, we just take it

Prices make us turn away

Free makes us try it without thinking

Demand for 0 is high

If you buy $25 worth of goods shipping is free

France was an exception (shipping 1 frank=.20 cents)

People did not buy as many 2nd books as in the other countries

Greed, waste, and gluttony

Piracy

Victimless crime

Cheaper and Lower quality

Still holds true today

Say’s Law

Supply creates its own demand

If you make a million transistors the world will find a use for them

• 1) Access to computer and anything that teaches you about the world should be unlimited and total

• 2) Always yield to the hands on imperative

• 3) All information should be free

• 4) Mistrust authority

• 5) Hackers should be judged on their hacking not on other areas of information

• 6) You can create art and beauty on a computer

• 7) Computers can change your life for the better

Google and the Birth of a Twenty-First-Century Economic Model

Google offers nearly a hundred products, from photo editing software to word processors and spreadsheets mostly are free of charge.

Google makes money with search results and ads with other sites

Google had $22 billion in revenue in 2008 Google asks questions like “Would it be

cool?,” “Do people want it?,” “Does it use our technology well?” rather than “Will it make money?”

Advertising revolutionized radio, television, and the Internet

Media model of Free: a third party (the advertiser) subsidizes content so that the second party (the listener or viewer) can get it at no charge

Six reasons for the migration to free 1) Supply and demand 2) Loss of physical form 3) Ease of access 4) shift to ad-supported content 5) The computer industry wants content to be

free 6) Generation free

Videogames are moving to being free

Going from “atoms to bits”

Games like Second Life are free to play but have economies in them

Bands make most of their money off of concerts

Free music=more exposure=more ticket sales

• The Free economy is a “country-sized economy, and not a little one, either” (Anderson 168)– $560 billion globally

• Not easily measured– Most don’t have dollar values

• Marketing Gimmick– More “free” a company offers, the more you

are willing to spend with that company.

Not measured in dollars and cents

Whopper Sacrifice Shows people how much they “love”

Whoppers gave value to Facebook

Reputational currency

• Price on attention– Cost to reach a certain amount of listeners

• Internet has enhanced it• Ad-supported free media (paying for content

to be free to consumers)– $45 billion in revenues• Radio• TV

– $21-25 billion• Online

– Total revenues for offline and online• $80-$100 billion

Getting things for free Impossible to quantify

MySpace $65 billion estimated

value How much is due to the

free bands?

Apple iPod $4 billion in annual sales

How much is due to free music downloads

• $560 billion annually– Ads and Freemium (in the US)• Approximately $80 billion• w/Traditional ad-supported media –$116- $150 billion

• Globally–$300 billion

• Labor costs– Internet• $260 billion annually

Google Competes with

Microsoft Free Google Docs

Facebook Competes with

other networking sites Charges very little for

ad-space

• Marketing– Sounds better

• Most people don’t use the service– Gym• Buy membership:

Don’t go to gym– Netflix• Order Movie: Don’t

send them back– Buffet• Pay for food: Don’t

eat much

Free-riding People do the work, while others use it

People work for audience Wikipedia

Millions of users Some add to it Others free ride

Free works well online

• In a competitive market, price falls to the marginal cost.

• Marginal Cost – price is just above cost of production.

• Online – Information is a commodity and sharing information is easy

• Price falling to marginal cost is law, then Free is inevitable.

Make money off products that should be free

Benefit from network effects. Most popular operating systems will

attract most programmers. People use Microsoft products to share

files because everyone else is. (compatibility)

In this winner-take-all market, Microsoft created a Monopoly.

Maslow’s Hierarchy of needs.

People have always been creating and contributing for free

Professionals and amateurs in competition Web technology has allowed amateurs the

opportunity to voice themselves

“Enlightened self interest is most powerful force in humanity” – Adam Smith

Long distance calls used to be costly, now its free. Older generation do not spend much time on

long distance calls because they are used to short conversations due to price.

Waste is in the eye of the beholder

Youtube videos are more popular than Hollywood films

“There ain’t no such thing as a free lunch”

“The Internet really isn’t free because you are paying for access”

“No Cost = No Value” “Free Undermines Innovation” “Free is breeding a generation that

doesn’t value anything” “You can’t compete with free” “Free is only good if someone else is

paying for it”

• Free become increasingly more appealing in an economic crisis. People are losing money, so $0.00 is sometimes all they can afford.

• Websites such as YouTube and Facebook are struggling to make enough revenue to support the bandwidth they use since they are so popular.

• In a down economy, free is the best price, but it can’t be the only price, companies still need to be paid.

1. If it’s digital, sooner or later it’s going to be free.

2. Atoms would like to be free, too, but they’re not so pushy about it.

3. You can’t stop free.4. You CAN make money from free.5. Redefine your market.6. Round down.7. Sooner or later you will compete with free.8. Embrace waste.9. Free makes other things more valuable10. Manage for abundance, not scarcity.