I’m still mired in reading Chris Anderson’s latest book; “Free”. I doubt I’ll finish it. 130+ pages in, I havn’t discovered anything illuminating. In fact, I’d argue that by combining a number of very different applications of free under one umbrella, Anderson does not clarify free, but rather makes it more confusing. For example, a business model that includes giving media access away for free to a consumer so that an advertiser can pay to reach an audience is very different than giving away a product to capture sales of a related product. The first is a classic two-sided business model. The latter is a classic complements business model; razor/razor blade. These two business models are fundamentally different as is the appliation and effect of free. Perhaps the only thing they have in common is that someone gets something for free.
Neither is an obscure business model that the Internet has managed to invent. And both are well studied by economists. As David Evans, a scholar and consultant I admire, and co-author of The Catalyst Code – one of the finest books on two-sided business models – highlights in a recent blog post:
Most of the kinds of business models that Anderson talks about have been around for centuries if not longer. Google’s search business model isn’t fundamentally different than yellow pages. The yellow page companies charged the advertisers and give the search mechanism away for free. The only business model that Anderson points to that is really new is open source.
Evans and his colleagues at Market Platform Dynamics get free, particularly its application in two-sided businesses better than anyone I’ve met. Not surprisingly, they work in sectors like payments and media where free is a prominently used tool. Evans goes on to say:
The two-sided literature and other economic theories emphasize that free is a special case and that it doesn’t necessarily or always lead to a profitable business.
Yes, frictionless distribution enables more companies to give something away for free in the hopes of getting someone to pay for something else. But getting someone to pay for something is the hard part and is largely ignored in “Free”. This is all too “if you build it someone will pay” for me. For my part, I’d like to know what and when someone is going to pay for before I start giving a component of my offering away for free. Anything short of that is gambling.
Some smart entrepreneurs are fighting the urge to “go free” as well. For a humorous look at making money on-line without giving something away for free, check out this video of David Heinemeier-Hanson presenting at Startup School ’08. His conclusion; don’t give what you do away for free; have a price!
While all free is not equal, free as a price has its place. But it is not an elixir for all.