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Chris Anderson on the emerging economics of Free

Free: The Future of a Radical Price, Anderson, Chris

 

"Free" is an excellent hook for Chris Anderson’s newest book from a sales and marketing perspective; whether it holds up as a core intellectual hook is less clear. I got my copy of  Free for free, of course, in exchange for a promise to review it. Nothing new about review copies, although the numbers may be skewing a bit with the proliferation of potential outlets for reviews. As the editor of Wired and the author of a previous successful book, The Long Tail, Anderson probably doesn’t have to worry about getting attention for his books. Free easily warranted reviews from Virginia Postrel in the New York Times and from Malcolm Gladwell at the New Yorker.

Anderson’s book represents one more attempt to extract appropriate business lessons for the emerging internet/information/flat economy. Choosing free as an organizing principle offers him the latitude to explore a wide range of phenomena and gather up a provocative collection of historical and contemporary tales. What it doesn’t do is provide enough of an organizing framework.

Zero has always been an interesting number beyond its use as a price. But it gains in power from the way it operates within a broader system, whether that system is mathematics, psychology, or economics. It’s the interaction between free and the rest of the system that is interesting. Focusing on free by itself detracts from understanding the system within which free is embedded.

Anderson summarizes the essential argument for free as follows "price has fallen to the marginal cost, and the marginal cost of everything online is close enough to zero that it pays to round down." This is the essential economic theory of perfectly competitive markets coupled with the long term economic trend of digital technologies driven by Moore’s Law. The problem of focusing solely on price is that it encourages shortchanging the more complete economic analysis that needs to be done to design a sustainable business in this evolving economic environment.

There’s a big problem and a little problem to address in this emerging environment that Anderson chronicles. The little problem comes in doing the necessary complete economic analysis that fully incorporates fixed and variable costs and the relevant cost trends over time. Whether "free" is a relevant part of the pricing strategy must be embedded in this more comprehensive analytic framework.

The  big problem is understanding whether we’ve reached or passed boundary conditions that make conventional economic guidance suspect.The reason zero is an interesting number in so many systems is that certain equations fall apart when variables hit zero. The answers are undefined. This is the question that Anderson skates up to but ultimately doesn’t address.

Free is a useful and relevant entry in this ongoing exploration. However, if you expect it to supply the answers, you have yet to understand the questions. You had  better be prepared for a more extensive reading, thinking, and action program if you hope to prosper in this evolving environment. Here’s one cut at an initial reading list: