(Originally written in late 2010; some sections have been updated or removed.)
Table of Contents:
1 Summary of key concepts in Free: The future of a radical price
1.1 Atoms vs. bits
1.2 Value is no longer determined by price
1.3 Making money from Free
1.5 Economics of abundance
1.6 “You can’t stop Free.”
2 Free in context: Relation to other ideas and theories
2.1 Chris Anderson’s qualifications
2.2 Building on past work
2.3 New Rules for a New Economy by Kevin Kelly
2.4 Related theories
2.5 Karl Marx’s alienated labor
2.6 Responses to Free
2.7 Free in practice
2.8 Chris Anderson, technological determinist?
Summary of key concepts in Free: The future of a radical price
The reigning logic of the 20th century has been that “there’s no such thing as a free lunch.” Essentially, even if you’re not paying directly, there’s always an associated cost. In Free: The future of a radical price (2009), Chris Anderson challenges this assumption, claiming that this economic maxim is no longer true: with zero as the prevailing base price and economic models of Free revolutionizing various markets, there is such a thing as something for nothing1.
In the 21st century, there are things that are genuinely free, as opposed to being merely samples, promotions or products that require continued investment (like razors or game systems). Free went from a marketing method to a new economic model, asserts Anderson, and Free has now become the default.
Atoms vs. bits
A key factor behind this transformation is the distinction between atoms, i.e. what’s physically real, versus bits, i.e. what’s virtual and digital (the distinction is also presented as offline versus online). Free is driven by this transition from atoms to bits, and the underlying technologies behind it: computer processors, bandwidth and digital storage, which are continually decreasing in price, to the point where they become “too cheap to meter” (Anderson 77). Prices inevitably fall to to the marginal cost in a competitive market, and as “the most competitive market the world has ever seen,” the Internet creates a situation where “Free becomes not just an option but an inevitability” (172-173, 241).
Anderson takes the oft-repeated maxim “Information wants to be free” (which he covers in the book, 94-100) one step further: “Bits want to be Free”2 (241). He explains the significance of the decreasing costs of the technologies that power the Internet thusly:
Never in the course of human history have the primary inputs to an industrial economy fallen in price so fast and for so long. This is the engine behind the new Free, the one that goes beyond a marketing gimmick or a cross-subsidy. In a world where prices always seem to go up, the cost of anything built on these three technologies will always go down. And keep going down, until it is as close to zero as possible. (78)
“It’s a consumers paradise,” he writes, “The Web has become the biggest store in history and everything is 100 percent off” (238).
However, it’s not just digital that’s drawn towards Free: “Atoms would like to be free, too,” he says, but the marginal costs are rarely so low (241). Nonetheless, the Free phenomenon is hardly unique to the digital world. A thriving economy based on many Free concepts exists in China, where “piracy has won” (199), and is accepted as normal and commonplace3 (203). Many of the effects of Free seen online (in the world of bits) can be seen offline in China and Brazil (in the world of atoms).
Anderson acknowledges that “Free sometimes comes with strings attached,” like advertising, limits and bait and switch. But this is mostly 20th century thinking, with atoms. With 21st century Free — digital bits — “there is no need for hidden costs” (although they may still exist) (219).
Value is no longer determined by price
The advent of genuine Free has shifted the determination of value from price to other factors, and created new nonmonetary economies. It is also driven by nonmonetary incentives, like reputation, attention, expression, recognition, trust, and knowledge. Herbert Simon notes that “in an information-rich world… a wealth of information creates a poverty of attention” (Simon). Scarcity of money normally regulates what we purchase, but online, with the abundance of Free, Anderson says that two nonmonetary factors replace money as the primary currency: reputation and attention (creating the “attention economy” and the “reputation economy”) (181).
While the value of these is not new, online they are easily measurable and “becoming more like a real economy every day” (181). With the hyperlink came “a formal language for the exchange of attention and reputation, and currencies for both” (182). An example of this is Google, which has created a “real marketplace of reputation,” with PageRank (the system that determines website ranking in Google results) as the “gold standard of reputation” (183-184). But Google is just one economy and one currency — the Internet is filled with others, each with their own systems and currencies, like Facebook (friends), Twitter (followers), eBay (buyer and seller ratings), reddit (karma), etc. “The quantification of attention and reputation is now a global endeavor,” writes Anderson, “reputation that was once intangible is now increasingly concrete” (184). Anderson says that it’s not difficult to convert attention and reputation into money.
The explanation for this shift away from monetary value builds off of Abraham Maslow’s hierarchy of needs, which Anderson applies in the context of information. Once our need for basic information, knowledge and entertainment is fulfilled, we move to the next level and become more discriminatory, even ourselves creating. Furthermore, when basic tangible needs are met (as they often are today), we find ourselves with extra time, energy and knowledge not fully utilized by our work, and emotional and intellectual needs not satisfied.
“What ‘free labor’ in an area that we value grants us is respect, attention, expression, and an audience,” writes Anderson, “doing things we like without pay often makes us happier than the work we do for a salary” (189). On Maslow’s hierarchy, this would be the highest level, self-actualization. The Web provides an unprecedented opportunity for such nonmonetary exchanges:
No wonder the Web exploded, driven by volunteer labor—it made people happy to be creative, to contribute, to have an impact, and to be recognized as an expert in something. The potential for such a nonmonetary production economy has been in our society for centuries, waiting for the social systems and tools to emerge to fully realize it. The Web provided those tools, and suddenly a market of free exchange arose. (189)
Making money from Free
While Free represents a de-monetization of the digital economy (a shift from direct monetary gains to those of reputation, attention, etc.) and of many traditional businesses as well (Anderson 131), that doesn’t mean that there aren’t plenty of opportunities to make money, even in a Free economy4.
The entire thesis of the book, according to Anderson, is that “making money around Free will be the future of business” (230). The key to this is finding the adjacent scarcity (to what’s Free), like selling support for free software. “Free makes other things more valuable,” writes Anderson, “Every abundance creates a new scarcity” (243). Another obvious way to compete with Free is to offer something better or different.
Anderson says there are hundreds of business models built on Free, all of which “are based on the notion that free stuff does have value and the way we measure that is through people’s actions. There is no greater test of what people value than what they choose to spend their time on” (224).
While estimating exactly how much money Free generates is difficult, especially considering that there’s so much nonmonetary value involved, Anderson does attempt to quantify the extensive Free economy. Noting, however, that there are a lot of Free economies: “from the formal economy of business to the informal economy of volunteerism,” as well as the gift economy and economies that can’t be measured by dollars and cents, like those of attention and reputation (162-164). Nonetheless, in terms of what can be defined in dollars and cents, Anderson roughly estimates the worldwide Free economy to be at least $300 billion, and likely more. That’s an extrapolation of his estimate of $116-150 billion in the United States, which is made up of mostly $80-100 billion in advertising-supported content and services (online and offline), and $36 billion in freemium (including the online video game market and the open source software market, of which the “Linux ecosystem” accounts for around $30 billion).
However, his numbers are based on a lot of guesswork and equivocal estimation, and serve more as an example of the scale of Free rather than concrete statistics. Nonetheless, Anderson concludes that Free is a country-sized economy, and it’s clear from these numbers and the rest of the book that Free has serious business potential. Already, some form of Free has reached nearly every major industry.
But far from being merely an aside to Free, Anderson says that some form of monetization is necessary for industries to continue to thrive. Examining businesses that have been de-monetized, Anderson concludes that, “the winners far outnumber the losers” (131). However, there needs to be some money involved: “if digital Free de-monetizes industries before new models can re-monetize them, then everyone loses” (132). Free is not enough by itself, and works well in conjunction with Paid.
In many cases, products and services are provided free because a few paying subscribers or users subsidize a much larger percentage who don’t pay. This is called “freemium,” where a free version with certain limitations is provided and a better, more advanced or less limited version can be purchased (“versioning” in traditional economics). Anderson says that online, generally only 5 percent of customers need to pay to support the rest. This works because the number of users is so high and the marginal costs are so low, making 5 percent a significant number of customers.
Furthermore, a large number of “free riders,” or passive consumers, is actually good: a large audience is an incentive for people to contribute (just look at Wikipedia) (178-179). The freemium model is one of the most important and most popular of the modern Web. Another is advertising, which has supported content far longer than the Internet has even been around. While there may be a limit to what the advertising market can support, Anderson says it has yet to be reached (222).
The effect Free has on markets goes beyond how money is made. One effect Free (or simply lower cost) has on established markets is that it shrinks the market and redistributes the wealth (sometimes in ways that may be hard to measure, like knowledge — see Wikipedia). New people make money, but less money than the old people made. Much of the previous value (wealth) reappears in nonmonetary resources like information or knowledge (Anderson 130-131).
One worrying (short-term) effect of Free is that a few people or companies become “superrich,” instead of the market being divided equally. As former Google CEO Eric Schmidt explains it (quoted in Anderson, 133), with Free the traditional market segmentation created by varying price levels is eliminated, creating a situation where “rather than a range of products at different prices, it tends to be winner-take-all.” However, Anderson characterizes this as one of the “short-term negative consequences of de-monetization,” while the long-term effects will be positive (133).
In any discussion of getting something for nothing, piracy (unauthorized duplication and distribution of copyrighted material) inevitably makes an appearance. Piracy is important in the context of the Free economy as the ultimate source of free content, where anything (digital) can be had for the (almost) unbeatable price of zero, whether the producer intended so or not. “If you don’t offer it [free] explicitly, others will typically find a way to introduce it themselves,” explains Anderson, “The economic incentives to pirate digital goods… are so great that it can be assumed that anything of value in digital form will eventually be pirated and then freely distributed” (72, 229).
While some argue that Free encourages piracy, Anderson says it’s actually the opposite: piracy encourages Free, because the cost of reproduction and distribution is so low compared to the price generally being asked. Anderson equates piracy to the force of gravity, naturally bringing the price down. And “it is almost impossible to stop” (229). In China, piracy even affects the price of physical products, due to an offline form of piracy where imitation products are sold much cheaper than the originals (sometimes before they even hit the market — an advantage of digital piracy as well).
Piracy is both a large chunk of the Free economy, and one of its motivators.
Economics of abundance
I briefly mentioned Anderson’s thoughts on abundance in the section on making money from Free, in that one successful way to compete with free is to find the adjacent scarcity. But abundance is important for another reason: it’s part of how digital Free works. The root of Free in the digital world is an abundance of ideas and information. Products and industries based on ideas and information (what Anderson calls “more brains than brawn”) can expand exponentially while prices continuously decline (84). When material barriers are removed, ideas and information can spread quickly, effortlessly and without costing anything. This is the age of abundance (45), and digital Free is the economics of abundance.
Anderson says abundance is a concept that can be difficult for us to imagine and comprehend, because “our brains are wired for scarcity” (213). We focus on and are motivated by the things we lack. That’s why abundance isn’t always recognized immediately, and it must be properly understood before it can be used to its fullest potential. But once it’s recognized, Anderson says the best way to exploit abundance is to relinquish control — to embrace waste. Because waste is “relative to your sense of scarcity” (191). Certain new abundances — like hard drive capacity and storage — can be wasted, so as to preserve other scarcities, like the time that would be spent organizing and managing5. By letting go, abundance can be used advantageously. “One generation’s scarcity is another’s abundance,” writes Anderson, like talking long distance on the phone (which was expensive once but is now free on cell phones, and used liberally) (191).
Another way to exploit abundance is to spread and expand through waste. By maximizing diversity and possible opportunities, there will inevitably be a few cases of success. A lot of “wasted” attempts will eventually pay off (192-193). Anderson says waste is a common occurrence in nature — we humans are unique in our aversion to it. Anderson quotes science fiction writer Cory Doctorow’s analogy of a dandelion. Dandelions spread their seeds everywhere, even if many may not grow. The important thing is that “every single opportunity for reproduction is exploited” (Doctorow, 2008)6.
Anderson gives YouTube as an example of this embrace of waste in action, where the staggering amount of video uploaded7 maximizes the potential for relevance. Even if some argue that YouTube is “full of crap,” “crap is in the eye of the beholder.” Traditional definitions of quality don’t matter, because “the most important thing is relevance” (194). All these YouTube videos are just “dandelion seeds in search of fertile ground” (195).
When there is no scarcity of space (as with YouTube), there’s no need for quality determination or discrimination8. This is the essence of the difference between abundance thinking and scarcity thinking. “If you’re controlling scarce resources you have to be discriminating,” writes Anderson (195). But when resources are abundant, risks can be taken, because the cost of failure is so low (even nonexistent).
Another example of the difference can be seen by comparing print and online content, which Anderson knows first hand. While with print, space is scarce, online, it’s “an abundance economy.” Explains Anderson: “Successes rise to the top, while failures fall to the bottom. Everything can get out there and compete for attention, winning or losing on its merits,” not a manager’s arbitrary decision (although reputation and brand are still important to maintain) (197).
We’re entering a “hybrid world,” “where scarcity and abundance exist side by side” (198).
“You can’t stop Free.”
While the concepts and background in the book help to understand Free, they mainly serve as foundation for Anderson’s key argument: that Free is inevitable and unstoppable, that Free is ultimately good, and that Free is the future. And online, Free has already won, even if the transition and evolution is not yet over. “The Web has become the land of the free, not because of ideology but because of economics,” writes Anderson, “the marginal cost of everything online is close enough to zero that it pays to round down” (92).
Whether we agree or disagree with the implications or causes of Free is irrelevant in the grand scope of Anderson’s vision, because Free is the future whether we like it or not (Godin).
Free in context: Relation to other ideas and theories
Chris Anderson’s qualifications
Chris Anderson has a background in science, having studied physics, done research and written for two science journals for six years9. He also wrote for The Economist for seven years, and has served as the editor-in-chief of Wired since 2001, which gives him a frontline view of the differences between print and online, as Wired includes both a thriving online portal and a magazine that has remained strong even while many print publications have closed shop. He previously wrote the New York Times bestselling book The Long Tail. He was listed in The TIME 100 in 2007, praised for his long tail idea by Malcolm Gladwell (who went on to criticize Free two years later; see the section on responses to Free).
He has first-hand experience with Free business models, not just from Wired.com (which is supported by advertising) but from a company he founded called DIYDrones (Anderson 68-69), based on the concept of open source hardware — information about the hardware, like instructions, is made available free, so anyone can build their own, but the finished product is also sold for those who don’t want to do it themselves. Anderson also made Free available to read online gratis, but only for a limited time. The unabridged audiobook is free, while the abridged version costs (for those with more money than time).
Building on past work
Anderson’s book builds on an array of past theories, research, and ideas. Some are merely integrated into his argument, but some are re-interpreted or applied in the context of the information age and the Internet. He looks at Joseph Bertrand’s theory that “in a competitive market, price falls to the marginal cost” (Anderson 172). According to Anderson, the Internet is a realization of Bertrand’s concept of “a truly competitive market” (175). Geoffrey Parker and Marshall W. Van Alstyne created a model of how free products can be supported in “two-sided markets,” where advertisers support content distribution, through which consumers support advertisers (Anderson 25). Anderson uses this to explore what he calls “The Three-Party Market”10 (24-25). Anderson explores and interprets Steward Brand’s maxim that “information wants to be free” (expanded from Steven Levy’s Hackers: Heroes of the Computer Revolution), and its importance in the context of his own ideas (Anderson 94-100). For the gift economy, Anderson builds off of Lewis Hyde’s The Gift: Creativity and the Artist in the Modern World. Anderson also cites economic theories like “versioning” (176), as well as people like Timothy Lee (179), Herbert Simon (180), George Gilder (13-14, 83), and others, both to support his theories and to explain their origins.
New Rules for a New Economy by Kevin Kelly
Much of Anderson’s thinking draws from that of Kevin Kelly a decade earlier, specifically New Rules for a New Economy (a fact which Anderson mentions in the acknowledgements). Concepts in New Rules for a New Economy like utilizing the “swarm,” value in increased numbers, the benefits of maximization of opportunities, scarcity and abundance, and letting go at the top can certainly be found in Anderson’s work. Kelly writes, “The only factor becoming scarce in a world of abundance is human attention” (59), an observation that shows up throughout Free, especially in relation to the attention economy. But the most important intellectual debt, of course, comes from Kelly’s ideas about Free11, set down in Chapter 4 of New Rules for a New Economy, “Follow the Free” (50-64).
Kelly notes a trend that began with the industrial age, where price would decrease at the same time quality increased, which is key to Anderson’s Free economy. This is even more pronounced with the microprocessor, says Kelly. He also observes that today’s consumers expect quality to increase while products still get cheaper over time. Furthermore, he says that computer chips create this quality and price effect on anything they touch. Anderson expands this to any industry built on ideas and information (of which the microprocessor industry is). Kelly also observes that the more of something that is produced, the faster the price goes down (sometimes called the “learning curve,” as the process of production is continuously refined and improved).
The effect microprocessors experienced is even more pronounced with bandwidth, and the price of transmitting bits drops toward zero, or “the free.” It will never actually be free — the price “forever nears zero without ever reaching it” — but “it so closely parallels the bottom limit of free that it behaves as if it is free” (52). In the words of Anderson, “close enough to free to round down” (195). Kelly lays out the implications: “Because prices move inexorably toward the free, the best move in the network economy is to anticipate this cheapness” (53). Anderson again agrees, even using the same maxim of “anticipate the cheap” (79). Like Anderson, Kelly also makes large scale predictions about Free (or cheap) in the future: “All items that can be copied, both tangible and intangible, adhere to the law of inverted pricing and become cheaper as they improve” (54).
Kelly also says that supply and demand are now both driven by technology, and as prices are being pushed down, demand is increasing even faster. “The extent of human needs and desires is limited only by human imagination,” he writes, so “in practical terms, there is no limit” (56). A strategy, then, is “to invent items and services faster than they are commoditized” (57). As Anderson says, every abundance creates a new scarcity. So one must find those scarcities before they become abundant (i.e., commoditized).
A key idea about Free comes from Kelly’s opinion on ubiquity. Ubiquity is valuable in the network economy, says Kelly, and making things free is the most efficient way to achieve ubiquity. “We see many innovative companies in the new economy following the free” (57), he says, and gives some examples that precede Anderson’s staple 21st century examples. Kelly also notes that the marginal cost of reproduction is almost nothing — the first copy is the only one with a significant cost. It costs almost nothing to establish users, and the value goes up with the number of users. “Once the product’s worth and indispensability is established, the company sells auxiliary services or upgrades, continuing its generosity to involve more customers in a virtuous circle,” writes Kelly (58). This works even offline: “‘following the free’ is a universal law” (58). Kelly makes the expansive prediction that “in the distant future nearly everything we make will (at least for a short while) be given away free—refrigerators, skis, laser projectors, clothes, you name it. This will only make sense when these items are pumped full of chips and network nodes, and thus capable of delivering network value” (58).
Kelly says that the “gift economy” of free labor, with the aspects of “attention, community, standards, and shared intelligence,” is “a rehearsal for the radical dynamics of the network economy” (62). “The main event of the emerging World Wide Web is its current absence of a business model in the midst of astounding abundance,” writes Kelly (61). In Free, Anderson attempts to provide this missing model (or models), and explain the models that have emerged since New Rules for a New Economy.
Kelly wrote about Free with technology and networking clearly in mind but before the explosion of the Internet that led to its ubiquity and growth today, and in some ways Anderson is updating Kelly’s ideas for the current digital landscape.
Other links between their works likely exist, and Anderson uses many of the same references (“learning curve,” Moore’s Law, etc.), even using some of the same examples. Kelly’s concept of “the free” foreshadowed Anderson’s ten years later.
From the work of Kelly and others, it’s obvious that Free is not new (a fact Anderson acknowledges), it’s merely the scope and shape of it that’s expanding. A large aspect of Anderson’s work is bringing various separate theories, ideas and principles together under the common heading of “Free.” While many of his ideas are new, many others are merely old ideas repurposed, re-organized or re-interpreted.
The greatest divergence is the scope and scale of Anderson’s ideas. His predictions are expansive and presented as inevitable. In his re-interpretation of past theories for the modern, interconnected digital age, he often expands their scope and expects them to be the norm.
Since much of Anderson’s work is based on a variety of earlier theories and ideas (some acknowledged and some perhaps coincidental), there are numerous examples of similar and related theories. Audun Jøsang, Roslan Ismail and Colin Boyd provide an overview of trust and reputation systems online; Mikhail I. Melnik and James Alm, and Paul Resnick, Richard Zeckhauser, John Swanson, and Kate Lockwood examine reputation on eBay.
Others like Scott Allen, Jay T. Deragon, Margaret G. Orem and Carter F. Smith have characterized commerce driven by the social Web (the foundation of many reputation and attention economies) as a “relationship economy,” with people as the most important component, and where relationships have intrinsic value (40-41). Allen et al. define the relationship economy as “the people and things we are connected with in our personal networks who or that distribute or consume our capital, which in turn influences our individual production outputs” (15). They explain the significance thusly: “Combine the influence of the human elements [of the social Web] with the economic power of relationship driven commerce and you have a scenario that will create further changes unforeseen, unpredictable, and unimaginable” (7). Allen et al., like Anderson, reference Maslow’s hierarchy of needs, writing that using online social networks and surfing the Internet fit under the heading of self-actualization (17-18). Carter F. Smith observes the advent of a “knowledge-sharing culture” with blogs, wikis and social networks, which fits with Anderson’s concept of the Internet (Allen et al. 32-33).
In The Friction-Free Economy: Marketing Strategies for a Wired World, T.G. Lewis shares many of the same ideas as Anderson in his claim that the rules of marketing are changing radically (Bill Gates also explores what he calls “friction-free capitalism” in his book The Road Ahead, among other interesting predictions12). A “friction-free economy,” says Lewis (paraphrased by Amazon.com), is “one that assumes a zero production and distribution cost, with no competitors and infinite resources.”
A strategy in this new economy is “mainstreaming,” which is gaining a significant market share very quickly, often by giving the product or service away (which can even work for offline companies), which works since supply creates demand (an inversion of the traditional principle). Once a company is dominant, or mainstream, Lewis says, it tends to remain there and becomes difficult to unseat. In Lewis’s friction-free economy, market share is key. A friction-free economy also entails consumers getting things directly from the source; removing the middlemen.13 Lewis also notes the effect of quality increasing while prices decrease.
John Case of Inc. Magazine argues that “low-friction” has affected almost every sector of the marketplace, and two of his rules for responding are eerily reminiscent of Anderson’s: offer something different, and offer something better.
In Cognitive surplus: creativity and generosity in a connected age, Clay Shirky takes a negative view of abundance in the short term, but says in the long term the effects are still positive. “The low-quality material that comes with increased freedom accompanies the experimentation that creates the stuff we will end up prizing,” he writes, “In comparison with a previous age’s scarcity, abundance brings a rapid fall in average quality, but over time experimentation pays off, diversity expands the range of the possible, and the best work becomes better than what went before.” As Anderson says, a maximization of opportunities will eventually yield returns.
Shirky says it would seem that aggregators like YouTube and Facebook making money off of content provided free by creators is unfair. But the people providing the content don’t seem to expect payment. Perhaps they are contributors, not workers — “intending their contributions to be acts of sharing rather than production…labors of love.” Shirky likens this to a bar, where people prefer being in the social environment of the bar, even if the owners are profiting from this “content.”
With the traditional effort required removed, amateurs are opting for the visibility once reserved for professionals. “We have always wanted to be autonomous, competent and connected; it’s just now that social media has become an environment for enacting those desires, rather than suppressing them,” writes Shirky. Social media has created a situation where, as Anderson observed, money is no longer the primary motivator. Shirky examines fan fiction communities, where people often work in the “world of affection,” where recognition is important, instead of the “world of money.”
Shirky looks at the popular Apache server, which is free. Because Apache relies on collaboration, its noncommercial nature is important: “it has to be noncommercial in order to be able to take in contributions from as many people as it can as cheaply as it can.” This could apply to various free projects.
Evan I. Schwartz talks about Internet abundance and the attention scarcity in Webonomics. “Traditional economics is based on the notion of scarcity – that human desires will always exceed available resources such as food, clothing and shelter” (1), whereas on the web, there’s an abundance of resources and a scarcity of demand.14 “On the Web, the main commodity in limited supply is the attention of the busy people using it,” writes Schwartz, “The underlying battle in the Web economy is the ability to command and sustain that attention” (2). Following from this, quality of information is one of the most important elements in the Web economy.
A concept related to the increased participation of individuals instead of corporations comes from Charlene Li and Josh Bernoff’s concept of the “groundswell” and the power of social networking, media and technology. They define the groundswell as, “A social trend in which people use technologies to get the things they need from each other, rather than from traditional institutions like corporations” (9). The groundswell was brought about by the collision of people, technologies and economics.
The economics aspect is simple: “on the Internet, traffic equals money” (primarily due to advertising, they note) (Li and Bernoff 11). If we replace “traffic” with “attention,” it’s easy to see how this fits with Anderson’s ideas. Just as Anderson says that the Internet has changed the balance of economics, Li and Bernoff say that “the groundswell has changed the balance of power.” Anyone can create a site that “connects people with people,” even marginalizing traditional institutions that used to serve the same purpose as the new site (13). While Li and Bernoff explore how to conduct business not in the world of Free but in the world of social technologies, they are often overlapping, and linked closely through the common technology that’s driving them, the Internet.
An interesting alternative view focused more on the financial and directly monetary aspects of the Internet can be found in the Cato Institute’s The Future of Money in the Information Age. William Melton comes to the same conclusion as Anderson that the Internet creates more liquidity, but for a very different reason: whereas Anderson calls the Internet a “liquidity machine” because of scale (128), Melton says it’s because the Internet creates increased trust with technology like digital signatures and certificates (Dorn 26). Melton believes this will actually expand the financial prospects of the Internet: “The liquidity (in all of its various forms) provided by these evolving systems will stimulate sales, not only of existing goods and services, but more importantly this more efficient electronic liquidity will stimulate production of new goods and services, services that cannot today be economically provided” (Dorn 26; this was written in 1997, and it seems to have come true, with sites like Lulu and Kickstarter).
He also argues there are no limits to the number of goods and services available in the marketplace (similar to Kelly), that there is “an infinite progression, and therefore potentially an infinite supply” (Dorn 26). He says that with the marketplace created by the Internet, the combination of increased speed, removal of the boundaries of geography and “increasing efficiency and convenience in payment systems and in the granting of liquidity” will “bring society a new age of plenty and opportunity” (Dorn 27).
In the same book (in relation to government regulation of commerce but nonetheless relevant), Lawrence Gasman observes that, “Ultimately, [the Web] has a physical reality rooted in hardware, software, and human organizations, much like the human organizations we have always known and with the same weaknesses” (Dorn 42).
Bill Frezza writes that “Perhaps, for the first time, sovereign individuals will have the tools to construct a practical realization of laissez-faire capitalism… At the root of this system will be new monetary institutions that must inherently rest on the consent of the participants” (Dorn 33).
Karl Marx’s alienated labor
Karl Marx’s ideas (outlined in Chapter 2 of Paddy Scannell’s Media and Communication, “Mass culture”) seem relevant to the subject of Anderson’s book. Marx writes of non-alienated labor, focused on the individual — individual expression, pleasure, and personality. This is the kind of labor that Anderson says people do free, to fulfill something for themselves that their job fails to satisfy. It may not be in the sector that Marx envisioned, but the Internet has nonetheless created an avenue for non-alienated labor for all.
“In your use or enjoyment of my product I would have the immediate satisfaction and knowledge that in my labour I had gratified a human need,” wrote Marx (quoted in Scannell 38). The Internet provides the opportunity for sharing easily for the benefit of others (for example, with Wikipedia), with recognition and satisfaction in return. The Internet allows for these connections, and for immediacy.
Scannell writes that “Alienated labour shows up first in the fact that the labourer, even before he starts to work has already sold himself for a wage” (38). When one works not for a wage, as in the genuinely Free economy, this alienation does not have the same opportunity to begin. It could be argued that one instead sells oneself for attention or reputation, but these are more benign, and Doctorow (2009) shows that free labor goes even beyond that. Where commodified labor is “the denial of social existence” (Scannell 39), the Internet reinforces social connections in many ways, particularly with interactions involving free labor (like personally motivated social media). Everyone involved can benefit and contribute, of their own will, donating time, attention and effort for the reasons they deem worthy.
Marx says that hidden in the commodity is the rate of exploitation, i.e. the difference between what the capitalist makes and what the worker makes. If money is removed from the equation, or if the worker provides what he makes directly, it seems that this effect could be erased.
The labor conditions outlined by Marx still exist, but the free labor economy described by Anderson and Doctorow (2009) provides a way for people to labor for themselves and for a common good, with control over the process and their involvement, and the possibility of satisfaction and self-expression.
Responses to Free
One of the most notable objections to Anderson’s thesis came shortly after the book’s release, in the form of a book review by Malcolm Gladwell. Gladwell has many questions and objections to Anderson. He wants to know how a business could actually re-organize around incentives of “non-monetary rewards.” He says it’s companies like Amazon that want information to be free (not the information itself), because they can make money off of it. “Why are the self-interested motives of powerful companies being elevated to a philosophical principle?” he asks.
He says that “Close enough to free to round down,” on a large scale (which the Internet provides), is not free. Gladwell says that Anderson makes the incorrect assumption “that if you change the fuel you change the whole system.” Instead, the infrastructure and other physical aspects that don’t follow the rules of Free remain.15 For example, the costs behind the development of drugs lie not in the information aspect but in what comes after, like testing. He says there are many instances where information is definitely not free, and yet still popular — like premium cable and iPhone downloads. Finally, Gladwell concludes that Anderson is trying to prove universal principles where none exist: “The only iron law here is the one too obvious to write a book about, which is that the digital age has so transformed the ways in which things are made and sold that there are no iron laws.”
One of the most high-profile responses to Gladwell came from author Seth Godin, with a blog post succinctly titled “Malcolm is wrong.”16 While not directly addressing Gladwell’s concerns, he explains why two commons arguments against Free are wrong. The first is, “should we want free to be the future?,” which is irrelevant, because “it is.” The second is, “how will this new business model support the world as we know it today?,” which doesn’t matter, because “It’s happening,” and “The world will change around it, because the world has no choice.” He predicts paper newspapers will disappear in the not-too-distant future. “In a world of free, everyone can play,” he writes, creating a surplus of people writing, many doing it for free (and some doing it well).
Another response comes from a review by Cory Doctorow (2009), who interestingly enough is cited by Anderson in Free. While much of Doctorow’s review is positive, he believes that Free suffers from “an unwillingness to consider the wider implications of a world centred on a commodity that can be infinitely reproduced at no marginal cost.” While speaking of an economy based on the price of zero, Anderson nonetheless retains a capitalist view, while Doctorow says that “There’s a pretty strong case to be made that ‘free’ has some inherent antipathy to capitalism.” It’s not necessary for Free to always act in the context of markets.
“Though Anderson celebrates the best of non-commercial and anti-commercial net-culture,” writes Doctorow, “he also goes through a series of tortured (and ultimately less than convincing) exercises to put a dollar value on this activity.” Some of this activity is related to the monetary economy, or a mix of free and non-free, but a large amount was created not for any reason related to money, or expectations of future benefit, but “for joy, or love, or compulsion, or conversation, [and] it is just wrong to say that the ‘price’ of the material is ‘free’. The material, is, instead, literally priceless. It represents a large and increasing segment of our public life that is conducted entirely for reasons outside the marketplace.” Throughout the industrial era, the majority of life has been “outside the marketplace,” after all. As for abundance, “do abundant goods really need organising [by a market]?”
Doctorow also notes that Anderson fails to address the implications for the many practitioners who will be displaced by digital technologies. “Anderson paints a rosy picture of free, even noting the gains we all experienced as a result of the creative destruction of travel agents and stockbrokers thanks to Expedia and Etrade,” while failing to compassionately explore the negative implications and the value that will be lost, says Doctorow. While Doctorow finds Gladwell’s analysis “hollow,” one of Doctorow’s final observations seems similar: that Free “describes a business-climate that no longer exists.”
Free in practice
As for evidence of the trends described in Free, certain prominent examples are now even more relevant. Anderson notes that YouTube has yet to make money (195-196), and it’s one of the examples Gladwell cites for why Anderson is wrong.17 However, the New York Times reported in September 2010 that YouTube was expected to make a profit for the year, with $450 million in revenue (which had more than doubled each year for the preceding three years). In March 2011, Citi analyst Mark Mahaney predicted revenues of $1.33 billion for 2011 and $1.7 billion for 2012 (he estimated $825 for 2010). In June 2012, he updated his estimates for 2012 to $3.6 billion ($2.4 billion after paying partners). And it’s working well for users, who can make money from YouTube’s Partner Program (the Internet created new opportunities for free labor, but many individuals are also harnessing it to make money from their efforts).
Facebook, another Internet company Anderson cites as having yet to find a profitable business model (164), had revenues of $3.71 billion in 2011, with $1 billion in profit (83% from advertising, and the rest from Facebook’s virtual currency, used for virtual goods in games).
A report by the Inside Network predicts the virtual goods market, which Anderson mentions (as supporting free to play games), will reach $2.9 billion in the United States in 2012. “Virtual goods, and the companies that distribute them, are continuing to bring about one of the largest disruptions entertainment, communication, and e-commerce infrastructure businesses have seen in years,” wrote report co-author Justin Smith. SuperData Research predicts the virtual goods market will reach $14.8 billion worldwide in 2012. By 2015, it’s predicted to pass $20 billion. Of the aforementioned Facebook revenues, $557 million came from virtual goods; 12% of all revenue came through Zynga, a social gaming company. With casual games, free to play has become the default.
Companies like Dropbox and Evernote have been very sucessful with freemium models, while other entrepreneurs have argued against the merit of such approaches, calling for creators to charge and users to pay. A popular adage from those critical of Free business models is if you’re not paying, you’re not the customer, you’re the product.
A plethora of anecdotes can be found to support either approach, but to call one the incontestable winner or decry the other as ineffective is naive; both work for some and not for others. It depends on a variety of factors, both controllable and unpredictable. Free has proven its viability and staying power — but so has Paid. The Internet has created an ecosystem where multifarious business models can co-exist and thrive.
Chris Anderson, technological determinist?
In Media and Communication, Scannell explores the of idea technological determinism, that “machines make history” (140). That is, technological advancements define society and affect social change, as opposed to technology’s invention and use being a result of society. “The technology of a society imposes a determinate pattern on the social relations of that society,” explains Scannell (140). Using the distinctions put forth by Raymond Williams, there’s the deterministic view and the symptomatic view, the latter being where technological innovation follows “already existing social processes” (Scannell 140).
Looking at Anderson, it would seem that he’s somewhat of a technological determinist. He sees Free as being driven not primarily by individual agency but by the inherent characteristics of the Internet. It’s the progress and price decline of processors, storage and bandwidth that has led to much of today’s innovation. The objective aspects of technology make Free inevitable, and individuals — as much as some may protest, like those of the traditional media — cannot stop it.
Anderson does not see Free as a result of human ingenuity or drive (participation for pleasure, or love, or conversation, a complaint of Doctorow, as covered above). In his view, the explosion of innovation and creativity on the Internet is largely due to the nature of the underlying technology, and aspects like reputation and attention being easily measurable. However, what the Internet has been used for is not what it was intended for, and its utility is constantly changing and evolving. It’s undeniable that much of what happens on the Internet is socially-driven. But as far as Free is concerned, Anderson seems to present its origins not in society but in technology.
Perhaps Anderson would be more accurately defined as an economic determinist, in the sense that he points to the economic realities of digital technology as leading to Free. As Frederick Engels wrote in Socialism: Utopian and Scientific: “the final causes of all social changes and political revolutions are to be sought, not in men’s brains, not in men’s better insights into eternal truth and justice, but in changes in the modes of production and exchange. They are to be sought, not in the philosophy, but in the economics of each particular epoch” (54). Engels says “that in every society that has appeared in history, the manner in which wealth is distributed and society divided into classes or orders is dependent upon what is produced, how it is produced, and how the products are exchanged” (54). In Free, Anderson shows how all three of these factors of production have radically changed, along with the distribution of wealth.
If we are to believe Anderson that Free is the future and Engels that social change and political revolutions are caused by the economics of each epoch, would Free not be the defining characteristic of our generation?
(Links to books are Amazon.com affiliate links. It does seems appropriate…)
Allen, Scott, Jay T. Deragon, Margaret G. Orem, and Carter F. Smith. The Emergence of The Relationship Economy: The New Order of Things to Come. California: Happy About, 2008.
Anderson, Chris. Free: the Future of a Radical Price. London: Random House Business, 2009.
Case, John. “The Friction-Free Economy.” Inc. Magazine. Mansueto Ventures LLC, 1 Jun. 1996.
Doctorow, Cory. “Think Like a Dandelion.” Locus Online. Locus Publications, 6 May 2008.
Doctorow, Cory. “Chris Anderson’s Free adds much to The Long Tail, but falls short.” guardian.co.uk. Guardian News and Media Limited, 28 July 2009.
Dorn, James A., ed. The Future of Money in the Information Age (full text). Washington, D.C.: Cato Institute, 1997.
Engels, Friedrich. Socialism: Utopian and Scientific. Trans. Edward Aveling. 1970.
Gladwell, Malcolm. “Priced to Sell – Is Free the Future?” The New Yorker. Condé Nast Digital, 6 July 2009.
Godin, Seth. “Malcolm is wrong.” Seth’s Blog. 30 June 2009.
Jøsang, Audun, Roslan Ismail, and Colin Boyd. “A Survey of Trust and Reputation Systems for Online Service Provision.” Decision Support Systems 43.2 (2007): 618-44.
Kelly, Kevin. New Rules for the New Economy: 10 Radical Strategies for a Connected World. New York, NY: Viking, 1998. New Rules for a New Economy is available in its entirety on Kelly’s website, along with selected maxims.
Lewis, T. G. The Friction-free Economy: Marketing Strategies for a Wired World. New York: HarperBusiness, 1997.
Li, Charlene, and Josh Bernoff. Groundswell: Winning in a World Transformed by Social Technologies. Boston, MA: Harvard Business Press, 2008.
Melnik, Mikhail I., and James Alm. “Does a Seller’s Ecommerce Reputation Matter? Evidence from Ebay Auctions.” The Journal of Industrial Economics 50.3 (2002): 337-49.
Parker, Geoffrey, and Marshall W. Van Alstyne. “Two-Sided Network Effects: A Theory of Information Product Design.” Management Science 51.10 (2005): 1494-1504.
Resnick, Paul, Richard Zeckhauser, John Swanson, and Kate Lockwood. “The Value of Reputation on EBay: A Controlled Experiment.” Experimental Economics 9.2 (2006): 79-101.
Scannell, Paddy. Media and Communication. Los Angeles, CA: SAGE Publications, 2009.
Schwartz, Evan I. Webonomics: Nine Essential Principles for Growing Your Business on the World Wide Web. New York, NY: Broadway, 1998.
Shirky, Clay. Cognitive Surplus: Creativity and Generosity in a Connected Age. New York: Penguin, 2010.
Simon, Herbert A. “Designing Organizations for an Information-Rich World.” Computers, Communications, and the Public Interest. By Martin Greenberger. Baltimore: Johns Hopkins Press, 1971.
TCI Management Consultants. “The Friction-Free Economy: Book Review from TCI Management Consultants.” TCI Management Consultants. A great overview of The Friction-Free Economy.
Free is capitalized throughout the book, indicating that to Anderson, it’s as much an idea, a concept, as an actual “price” — “Free” represents the cumulative concepts and model presented in the book; that is, zero price in practice. ↩
He also notes that information in today’s context usually refers to digital bits (99). ↩
Whether to buy the official version of a product is not a question of morality, but of economic and social factors. ↩
Although money is not many people’s primary motivator. ↩
One reservation I had was with Anderson’s idea of waste being good. While the concept itself may not be wrong, there are many cases where embracing waste is not preserving time but merely delaying its use and exacerbating the problem in the process. Take the example Anderson gave of storage space. Not worrying about space — like letting old, unused files stay on hard drives — may save time in the short term, but in the long term, it wastes time by creating clutter and more to search through later. Even with advanced search, it will eventually lead to information overload, which is a problem. It seems better, at least to me, to keep the system curated, relevant and organized, deleting old stuff along the way. Essentially, this is solving the problem of information overload at the root, before it even begins.
(I first published these thoughts on abundance as a separate post: Why embracing waste and exploiting abundance is not always good) ↩
Doctorow explains this in the context of the Web, sharing many of Anderson’s ideas: “Dandelions and artists have a lot in common in the age of the Internet. This is, of course, the age of unlimited, zero-marginal-cost copying. If you blow your works into the net like a dandelion clock on the breeze, the net itself will take care of the copying costs… What’s more, the winds of the Internet will toss your works to every corner of the globe, seeking out every fertile home that they may have — given enough time and the right work, your stuff could someday find its way over the transom of every reader who would find it good and pleasing.” (Doctorow, 2008) ↩
In November 2010, Hunter Walk shared on the Official YouTube Blog that 35 hours of video is uploaded every minute, which has been steadily increasing, having more than doubled in the two years before that, while the size and time limits increased as well. Compared to traditional video media, that’s “the equivalent of over 176,000 full-length Hollywood releases every week,” and “if three of the major US networks were broadcasting 24 hours a day, 7 days a week, 365 days a year for the last 60 years, they still wouldn’t have broadcast as much content as is uploaded to YouTube every 30 days.” In May 2012, YouTube hit 72 hours of video uploaded every minute. And people are paying attention: every month, 800 million people watch over 4 billion hours. That’s an average of five hours per person, and that’s just one website (and it’s surely brought down by people who watch only a couple videos a month). ↩
The three parties are advertisers, consumers, and publishers or providers (Anderson 25). ↩
While Anderson distinguishes Free with a capital F, Kelly calls it simply “the free.” ↩
This article by Geoff Richards looks at how some of Gates’ predictions fared in 2006, and some of the ones that were mostly right then have become even more accurate today, like video on demand, DVR, smartphones (what Gates called a “Wallet PC”), digital music lockers, and spam. Tom McNichol at TheAtlantic.com looked at some more predictions in 2010. ↩
Chapman, Gary. “‘Friction-Free’ Economy Rhetoric Holds a Time Bomb.” Los Angeles Times. Los Angeles Times, 11 Jan. 1996. ↩
TCI Management Consultants. “Webonomics: Book Review from TCI Management Consultants.” TCI Management Consultants. ↩
This is a concern I had as well. While Anderson discounts the negative costs of Free (like consuming to excess) by arguing that digital costs are not the same (227), he fails to address that much of the Free economy — even the examples in his own book — are not constrained to the digital world. Free certainly exists in the world of atoms, and the costs, while perhaps balanced out by the benefits, are not accounted for in any price. ↩
Gladwell says that the very principles of Free cause YouTube to lose money, because the opportunity YouTube provides is taken up by so many that YouTube loses money on the enormous amount of bandwidth required to support this. ↩