Money for nothing (and clicks for free)

Chris Anderson's big idea is to charge nothing for everything. It's good publicity for his own brand; but not necessarily good business for everyone else
July 23, 2009
Free: The Future of a Radical Price

By Chris Anderson (Random House, £18.99)

Chris Anderson is a professional exaggerator. His previous book, The Long Tail (2006), made the eminently plausible claim that online retailers can extract revenue from serving very niche tastes because they're not limited by the finite shelf space of the high street. But he exaggerated this to the point of predicting the end of the blockbuster. In an article in 2008 for Wired magazine (of which he is editor-in-chief), he gave a fascinating analysis of how the vast data sets collected by Google could be used scientifically to identify behavioural correlations and patterns. But he couldn't resist calling time on the very foundations of western thought, entitling the article "The End of Theory: The Data Deluge Makes the Scientific Method Obsolete."

Anderson's latest book has been in a state of public gestation for some time now. Like The Long Tail, it began as a Wired article in early 2008 and has been developing on a blog ever since. Anderson begins with the hunch that the internet is making it rapidly harder to sell things for a price, as demonstrated by free newspaper content, music and software. He also recognises that marketing has a long tradition of selling products well below cost price, by getting them cross-subsidised either by other products (such as razors that are given away in order to sell more razor blades), by other users (low cost airline tickets subsidised by business-class fares) or by advertising (carrying ads lowers newspaper cover prices).

How do we make sense of all this? he asks. The answer is that we don't. "Humans are wired to understand scarcity better than abundance." When prices disappear, we forget how to do economics. Free sets out to plug this apparently gaping hole in the history of economic thought.

This turns out to be a little disingenuous. For, as the bulk of the book makes plain, there are already plenty of theories and business models available with which to understand what is going on.

First, take the theories. On closer inspection, much of Anderson's argument comes down to a combination of two famous tools of economic modelling, both of which he acknowledges. One is Moore's Law, the prediction made by Gordon E Moore in 1965 that the cost of computer processing power will halve every two years. This assumption has informed the business planning of almost every industry affected by processing power ever since. One very simple way of distilling Free would be to say that, as more of our economy becomes digitally mediated, the reach of Moore's law grows.

The other is the principle at the heart of neoclassical economics that, in a competitive market, the price of a good will fall to the "marginal" cost of producing one additional unit. The marginal cost of one additional user of Google or YouTube­—mainly the cost of the electricity—is so close to zero that the price inevitably falls to that level also. Not only that, but there is value in growing the number of users, thanks to advertising and opportunities to sell less abundant goods and services. This is why free products open up new revenue streams.

Then there are the business models. From the piracy industries of China to the toys that can be sold on the back of free online games to the pioneers of free media such as radio, Anderson certainly knows his business models. But he knows nothing as well as Google. That other American tech apostle, Jeff Jarvis, was more explicit in his own paean to those lovable west coast megalomaniacs, What Would Google Do?, but Anderson is no less dazzled. He rattles off statistics and graphs showing how, the less we pay, the more money Google makes. They are a company desperately in search of the next giveaway. It's often difficult to know how many of the "laws" that Free unveils are merely consequences of one company's inexorable desire to organise the world's information. In the manner of the owl of Minerva spreading its wings at dusk, sometimes Free feels less like a glimpse of the future than a reverential analysis of a business model dreamt up 15 years ago.

Malcolm Gladwell has already levelled the charge of techno-utopianism at Free in the New Yorker. But in a sense, that's the whole point. Add Moore's law to price theory, then stir in Google, and exaggerate, extrapolate, and exaggerate a bit more. This sort of thing is Anderson's stock in trade. If he didn't deliver a hefty dose of Californian libertarianism, his fans would be asking for their­—ahem—money back.

For those who are not used to airport books­—whose primary function is, after all, to secure vast speaking fees for the author—the style and format of Free will be somewhat grating. It is split into sections of a few hundred words and littered with hyperbolic subheadings of the "why what used to exist no longer does (and probably never did)" variety. It jumps around as if cobbled together from a collection of blog postings, as much of it has been. And that's quite aside from the allegations made by the Virginia Quarterly Review that the book contains chunks lifted from Wikipedia.

But still this misses the point. Anderson is a specimen of something intriguing, and that something is not literary greatness. The challenge he poses is to work out which elements of his exaggerations are worth taking seriously. We can argue endlessly about exactly how far Moore's law will permeate or how long it can continue into the future. We can argue about how close to zero marginal cost production needs to be before zero price is possible. It is up to businesses themselves to work out where to draw the line. But one has to accept that Anderson has a point, even if he doesn't know when to stop making it.