David W Parker - Developer

books

Book: Free

published on
  • Read: February 2012
  • Rating: 8.5/10

Free by Chris Anderson provides a lot of interesting thoughts on the ‘free’ economy and its interactions with current and past business models. Chris does a great job at showing the history of free and the why of free. The book shows how to use free in order to make money and does a fantastic job at sparking the imagination of how free can best be used for the reader.

My Notes

You can have unlimited shelf space if the shelf space costs nothing. This is the digital world.

The critics of free are in two opposite camps: “it’s totally wrong” and “it’s so obvious”

Free is a word with an extraordinary ability to reset consumer psychology, create new markets, break old ones, and make almost any product more attractive. It doesn’t mean profitless.

Four broad kinds of free:

  1. Direct Cross-Subsidy
    • What’s free: Any product that entices you to pay for something else
    • Free to whom: Everyone willing to pay eventually, one way or another
  2. The Three-Party Market
    • What’s free: Content, services, software, and more
    • Free to whom: Everyone
  3. Freemium
    • What’s free: Anything that’s matched with a premium paid version
    • Free to whom: Basic users
  4. Nonmonetary Markets
    • What’s free: Anything that people choose to give away with no expectation of payment
    • Free to whom: Everyone

In China, some doctors are paid monthly when their patients are healthy

Free is hard to grasp because it is the absence of a thing

Best way to enter a market: vaporize economics of existing business models

Once something becomes abundant, we tend to ignore it

Computers made information abundant

If you pay a price, any price, we are forced to ask ourselves if we really want to open our wallets

Mental transaction costs = the toll of thinking

Two markets: free and anything else

The enemy of free is waste

Free can encourage gluttony, hoarding, thoughtless consumption, waste, guilt, and greed

With digital goods, pirates don’t take anything- the reproduce it. It isn’t a loss, but a lesser gain

In a digital marketplace, free is almost always a choice

Ideas are the ultimate abundance commodity, which propagates at zero marginal cost

Seven principles of the hacker ethic (Steven Levy):

  1. Access to computers- and anything that might teach you something about the way the world works should be unlimited and total
  2. Always yield to the hands-on imperative
  3. All information should be free
  4. Mistrust authority- promote decentralization
  5. Hackers should be judged by their hacking, not bogus criteria such as degrees, age, race, or position
  6. You can create art and beauty on a computer
  7. Computers can change your life for the better

“as long as they’re going to steal it, we want them to steal ours” - Bill Gates

Default to free to achieve mass adoption

Free turns billion-dollar industries into million-dollar industries

Medial model of free: third party (advertiser) subsidizes content so that the second party (listener/viewer) can get it at no charge

Fighting digital economics isn’t going to work- free will win

Advertising can’t support everything

Is the global supply of attention fixed?

In a competitive market, price falls to the marginal cost

Increasing returns: high fixed cost of development, low marginal costs = the more you make, the higher the profit margin

Free is just another version

Free riders:

  • consume more than fair share of a resource
  • shoulder less than a fair share of the costs of resources’ production

Every abundance creates a new scarcity

Online economies: attention and reputation

  • reputation = Google’s PageRank algorithm
  • attention = Traffic to a given site, app, etc

There is one ultimate scarcity = time

Morality of waste: we feel bad about unloved toy or uneaten food

Nature wastes life in search of better life

Crap is in the eye of the beholder

A little artificial scarcity is the best way to make money

Scarcity

  • Rules: Everything is forbidden unless it is permitted
  • Social model: Paternalism (we know what’s best)
  • Profit plan: Business model
  • Decision process: Top-down
  • Management style: Command and control

Abundance

  • Rules: Everything is permitted unless it is forbidden
  • Social model: Egalitarianism (you know what’s best)
  • Profit plan: We’ll figure it out
  • Decision process: Bottom-up
  • Management style: Out of control

Piracy is a for of zero-cost marketing, which brings their work to largest possible audience

Pirates are you best marketers

“China will become a model for the world music industry” - Shen Lihui

Replacement effect: pirated versions take demand that authentic version might have tapped (keyword “might”)

Stimulus effect: pirated versions create brand awareness that can be tapped elsewhere

Pirated dgital products are as good as the originals. But pirated physical products usually aren’t

When the machines do all the work, what motivates us?

Is it inevitable that the end of scarcity also means the end of discipline and drive?

Our minds are wired for scarcity: we are motivated by what we don’t have, not what we do have

Objections to the notion of free:

  1. There ain’t no such thing as a free lunch
  2. Free always has hidden costs/free is a trick
  3. The Internet isn’t really free because you’re paying for access
    • People forget/don’t know the difference between content and carriage
  4. Free is just about advertising
  5. Free means more ads, and that means less privacy
    • Privacy is a moving target
  6. No cost = no value
    • Fallacy: the only way to measure value is with money
  7. Free undermines innovation
  8. Depleted oceans, filthy public toilets, and global warming are the real costs of free
    • Tragedy of the commons: if we don’t have to pay for things, we tend to consume them to excess
    • Free can lead to gorging, and thus ruin the party for everyone
  9. Free encourages piracy
  10. Free is breeding a generation that doesn’t value anything
    • They value different things
    • The question is not “what does it cost?” but “why should I pay?”
  11. You can’t compete with free
  12. I gave away my stuff and didn’t make much money
    • Free is not a magic bullet
  13. Free is only good if someone else is paying for it
  14. Free drives out professionals in favor of amateurs, at a cost of quality

The standard business model for web companies without a business model is advertising

Free rules:

  1. If it’s digital, sooner or later it’s going to be free
  2. Atoms would like to be free, too, but they’re not so pushy about it
  3. You can’t stop free
  4. You can make money from free
  5. Redefine your market
  6. Round down
  7. Sooner or later you will compete with free
  8. Embrace waste
  9. Free makes other things more valuable
  10. Manage for abundance, not scarcity

Freemium tactics:

  1. Time limited
  2. Feature limited
  3. Seat limited
  4. Customer type limited

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