I just finished reading Chris Anderson’s book Free: The Future of a Radical Price. It is a fascinating read, following in the footsteps of Freakonomics, the book that a few years ago taught us that a subject as dry and technical as economics could be entertaining if used to explain why ordinary things around us turn out the way they do.
Free has generated a lively debate in the blogosphere, with some questioning the validity of its conclusions, others finding some merit to them but hoping that we can find a way out, and others fully embracing them as the inevitable way things will be from now on.
The book is full of interesting examples of how companies and entire industries have been build around giving away stuff. There is a comprehensive chapter on Google (probably the best known company that has been able to build a business around a wide array of free services).
There is also a very good example that I think summarizes the main point of the book: that as previously scarce things become abundant, new scarcities are created, and with them, new ways of making money. Anderson goes back in time to remind us how in the early days of radio, musicians got paid for life on-air performances. That business model was killed by records, which became the new way to make money. Nowadays, of course, the recorded music industry is being challenged by the zero marginal cost of distributing music over the Internet, which has forced musicians to embrace other ways to make money, like live performances and licensing.
My impression after reading this book is that we are not necessarily doomed by the economics of free, but we do need to work on creating business models where we can turn giving away stuff to our advantage (for example, to build an audience faster) and then find related products and services where money can be made.
The main importance of this book for small business owners, in my opinion, is that it will open our eyes and minds to new ways of charging for products and services, and will help us understand the complicated dynamics of pricing in an Internet economy.
As we internalize the concepts discussed in this book, we will come to accept that some of the things that made us money in the past may need to become a marketing cost, as we strive to create multiple, new streams of income that feed each other.