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The Economics of Free
Wired's editor-in-chief Chris Anderson is working on a new book, to be published next year, about the idea of "free" in the old and new economies. Wired is running a long excerpt from the book and some sidebars about the economics of giving away, e.g., CDs and directory assistance. Techdirt has a few quibbles about Anderson's ideas — mostly areas in which he may be shading the argument to sell more books — but mostly buys that the equations of economics continue to work when zeros are plugged in in judicious places.
Free, eh?
Lets see what he says when his book ends up on Piratebay. He is giving away the book for free, right?
I've always found them to be the same thing.
Mandatory comment!
FiRST pOST!FiRST pOST!FiRST pOST!
Too lazy to RTFL (link,) because I've already RTFDTA (dead-tree article.)
The DTA mentions that you can get the dead-tree edition of the mag for free by going to www.wired.com/free. First 10,000 only, though, so better get crackin'!
Another non-functioning site was "uncertainty.microsoft.com."
The purpose of that site was not known.
Just like the /. article today about Microsoft saying that several ad impressions work together to persuade a consumer to part with some of his money, this Wired article points to the same phenomena. Someone selling a product will spend money on marketing... he can buy ads on radio or TV or the web, he can get posters and go around stapling them to telephone poles, or he can give out freebies of his product so the potential purchaser can experience the product for himself. All of the above will work together to try to get consumers to buy. Just marketing...
I really don't see the big statement he is trying to make.
Silicon Valley has and continues to derive the vast majority of its income from intellectual property protections for its software. I pointed this out on Techdirt, so the commenters there hemmed and hawed with their red herring arguments about how Microsoft does not make money from software written 14 years ago. Regardless, Microsoft (which is no longer a Silicon Valley firm, I know) would make no money today if XP and Vista were free. Intel would make no money if anybody could just copy Intel chips. If they were free, nobody would bother with Linux. Where are the linux billionaires? Nor would biotech companies make any money if anybody could just copy their inventions. Sun, AIX, etc. all made fortunes in their time from selling proprietary flavors of Unix. SAS and SPSS are the industry standards for statistical computing, and they are proprietary, intellectually protected, for-profit firms.
it's free... free of support, stability or security. I mean anyone could just put code into an OSS project and you'd be running it, it happened with the debian repositry not so long ago.
and anyone that has run gnome knows how bug riddled it is, how often it crashes or has conflicting libs.
and support.. you are relying on the continued interest of a bunch of nerds. wtf happens when they discover girls?
I love my iPhone, but it did'nt come for free. In fact it cost alot. iTunes is free but you have to have a computer to run it. To get my phone unlocked so it would work in Australia cost money. But I still prefere it over a free equally as good phone on a big contract. Alot of things that are 'free' actually cost you money in the long run. I think in the near future there will be an anti free backlash of people paying the big sum up front and foregoing all the greif of continuing cost. I can also see certain manufacturers catering for them by actually creating products to last and be well designed for their job. But of course making money is where businesses put all their efforts to. So you will have to spend money to forgo continuing cost or in other words, It will cost alot (but still be cheaper) to not get things for free which actually are not really free....um, yeah.
"Persistance is Fertile" - Me. I can quote myself if I want to.
I called my wireless carrier's 411 directory assistance and I got the right number on the first try. Yes, it cost me an exorbitant $1.50, but at least it was quick and accurate. I do hope Google's 411 directory assistance improves. If nothing else, I hope Google's service prompts wireless carriers to lower the cost of their 411 service.
If you reply, do so only to what I explicitly wrote. If I didn't write it, don't assume or infer it.
Free = marketing. Just like you give away free commercials - you pay a million dollar for making a good commercial, another million to air it, but you do not charge your potential costumers any money. They get to enjoy the commercial for free. Wohooo. /. , I get to enjoy content. Because this content is delivered to me assuming a certain CPM value, which makes having a site like /. profitable. But thing is, end of the day, the economics of "free" is just the market of marketing and advertisement. Giving things away in order to get the people to get other things for money.
When I come to
To remind you all, advertising is not where the money is at. NewEgg, priceline, travelocity, amazon , each make more than x4 the money facebook/myspace digg/youtube/ or any large advertising space makes. Money is in the products, not advertising. Giving away things for free, be it CDs or letting you watch 0:30 commercials, are just marketing tools, and are not part of the "real" economy, meaning the actualy products we are expected to consume eventually.
My Starcraft 2 Blog
It all boils down to:
- give some X for free so they buy more X later
- give X for free and sell supplies for X
- give X for free and sell advertising on X
All done for many years by such a diverse group as drug dealers, razor manufacturers and magazine publishers. There is not a single example in the article that doesn't fall into one of those three categories.
It may be true that the Internet is a making that kind of marketing much easier and more common, and it may be an interesting subject for a book. However his approach is needlessly sensationalist: "$0.00 is the future of business", "free changes everything", "freeconomics" etc. It's worth remembering that the same laws of economics (and laws of nature) still apply as they always have. A business can only survive if it sells its products for more money than they cost to produce. The rest is just marketing tactics.
Negative moral value of force outweighs the positive value of good intentions.
you really don't get it? "I really don't see the big statement he is trying to make.". Tech advances get some good or service down to the ridiculously cheap to free level, so it, in fact, can be given away, quite literally. Our economies and societies are complex now, they change all the time, what used to cost tons can oftentimes be brought down in price in a fast fashion, "freeing" us up to spend money elsewhere, which garners more interest and research there, that in turn tends to drop prices, eventually that "thing" gets really cheap or free, and so on. Technology works. It ain't hard to grok that.
The original example in the article, the free razor, was only possible because steel manufacturing and mining and so on for iron ore, etc, got so cheap and efficient and technologically advanced that the razor could be made and given away for free, and the dude's profit was from selling blades, still really cheap, but still a great profit for the maker. Everyone wins there! What's not to get?
Look at FOSS, look at the huge savings in real work everyone in every sort of business can get with free or dang close to it computer tools now. It was a transition stage, we are at the nearly totally free place now. Look at computer hardware, how tech advances are dropping prices down so much that if you are content enough with just a few years old stuff, it's free, right from the dumpster, still functional and useful, and within a couple of years now you *will* be seeing the proverbial "hundred dollars in a blisterpack" laptop hanging on the shelf at the checkout lines as an impulse buy. It's coming, eventually that will be ten bucks. Heck, it's only been a decade since I have been buying LED flashlights, what used to cost 60 bucks is now three bucks! Getting closer to "free", and that is another one of his points, when things get so cheap, like with the transitor, from dollars apiece to tiny fractions of a penny apiece, you can almost think of them as "free" and use in in that context.. lather, rinse repeat across the entire economy, all based on knowledge sharing (not keeping it locked up), working hard and not being greedy and *tech advances*.
We can't do it all at once, but the long term trends are clear, we no longer have to work 16 hours a day down to the mines both ways uphill in the snow just to have a bowl of gruel and a potato. We have a lot more "free" time now.
Look at the example in there where "free" is making bands money, they go out of their way to let people freely copy and share their work, it builds interest, they get to go do what they like the best, play live music, and have enthusiastic supporters. (tough $hit for the RIAA goons or the drunk and stoned clueless bands who sign with those members who refuse to get this concept, they are being routed around as a business buggywhip bottleneck, they are dinosaurs)
Free works *when it is applied at the correct technological point in time*, as a segue to the next advance, then the next one, and the next one. That's the key, the state of tech advance, the timing in the business climate, and the application thereof.
To get it, you must live in the USA. That's a heavy burden to get a 'free' magazine.
Hope you guys can fix everything with your election.
I think you should create a new word for free (as in speech). Free is too ambiguous and may be pejorative (as in no value).
Why not use the French word "libre". It is already well known.
Lawrence Lessig has made his Free Culture book available for free. Chris Anderson is not very credible unless he does the same with his book.
Im typing this on a freelaptop, with free internet, eating free food. Aint life grand? and now, how much does the book cost? Hmm.. Yea DTA-Dead Tree article. I read the first four Potter books from a text archive, and would have never bought and read the last 3, had I not gotten the free ones. I have since bought the whole set, and donated it to a library. ( I also found two other sets, 1~4, and sent those off to a library too! ).
I used to edit wikipedia, until they deleted my article on the 'aerodynamics of fruit.' "If they spent half the energy creating articles as they spend arguing about deleteing them, they would grow at a phenominal pace." - A 'free' quote from slashdot. (but I did actually ask the writer if I could quote him ).
Freecycle.org ROCKS!
Now, Im going to sleep on my free matress, and put my head on a free soft-jell pillow, and weep for anyone that actually pays retail.
I wonder if RIAA will buy this argument.
Silicon Valley has and continues to derive the vast majority of its income from intellectual property protections for its software.
It could be true. Do you have numbers backing up that claim, or are you just assuming it must be true because that is how your world looks like?
Regardless, Microsoft (which is no longer a Silicon Valley firm, I know) would make no money today if XP and Vista were free.
I believe Microsoft Office would continue to sell well even if XP and Vista were free. I also believe that the vast majority of businesses and many home users would pay for a subscription to "Windows Update", even if the underlying operating system is free.
Intel would make no money if anybody could just copy Intel chips.
You mean, if anyone had a billion dollar fab in their backyard? Technically true, as you can interfer anything from a false premise.
If they were free, nobody would bother with Linux.
They? The people? Intel? Linux? XP and Vista? Well, if SunOS had been free when Linus started, Linux has probably not existed. But XP and Vista is hardly relevant. Even if we only look at commercial Linux applications today. Linux exists basically in two domains, servers and embedded. For servers, Linux has a huge advantage of being similar to the "old" dominating technology, namely Unix. This is probably at least as important as being free. For the embedded market, XP and Vista is not even relevant. Wince (or whatever it is called today) is the Microsoft entry on that market, and is, unlike XP and Linux, widely regarded as crap.
Where are the linux billionaires?
The existence of billionaires is a sign that the market forces are not working efficiently. One of the premises behind open source is that it is a more efficient way of producing code. If so, we would not expect billionaires.
Nor would biotech companies make any money if anybody could just copy their inventions.
Actually, many does already. Namely those that produce "patent expired" commodities. What you meant to say is that private medicine research would no longer be viable, and we thus would have to make do with the 70% of health research that public financed. The short immediate effect would be that new medicine would be produced at a slightly slower rate, but be much more affordable. It would probably cost the lives of hundred of thousands of rich people, and save the lives of hundred of millions of poor people, worldwide. Of course, we could use some of the money we save on medicine to finance more public research, and thus save the hundred of thousands of rich people as well.
Sun, AIX, etc. all made fortunes in their time from selling proprietary flavors of Unix.
Actually, Sun made its fortune selling good hardware with stock BSD sofwtare. The software they developed themselves they made the specs free, and sold a reference implementation for a nominal (or no) fee. This made them the standard leader on the workstation market.
AIX in this context is not a company but a family of operating system from IBM, which also made its fortune selling hardware (especially high quality typewriters).
SAS and SPSS are the industry standards for statistical computing, and they are proprietary, intellectually protected, for-profit firms.
We use and teach our students "R" instead, life is so much easier when we can just point partners to a free software website, rather than worry about their financial situation. The value of a product drops drastically when a price is placed on it, there is just so much less you use it for.
In general, you seem to suffer from bad case of "political correctness". That is, you "know" the "correct" answer, and deduce the supporting facts from that. (Or, you may just be trolling, but it was fun to answer).
You also seem to suffer from the delusion that the purpose of the economy i
Comment removed based on user account deletion
You knowledge of scooters mean you can do your "work" (moving from point A to point B) faster than I can. Similarly, someone knowing a computer well can do his work with the computer faster than someone who don't.
I have spend years playing with Emacs, and as a result, I can do stuff in seconds that others spends hours on with lesser tools. Seconds compared to hours sounds like a great win, but only if you ignore the years mentioned earlier in the sentence.
Basically, learning your tools does wonders for productivity, but has to be hold up with the cost of the investment. If your primary tools is the computer, investing in learning it is likely to pay off.
yes, lets work on making that happen please, what are we waiting for, you know its coming, lets do it NOW http://roboeco.com/ROBOTIC-WAGELESS-ECONOMY-NOW
The Future is already here, just unevenly distributed... THE ROBOTIC WAGELESS ECONOMY NOW! http://RoboEco.com/slash
"Frankly, I don't expect him to care the slightest."
Why indeed when it's the middleman taking all the risks.
"A good author will manage to get paid no matter how rampant piracy gets. JK Rowling sold a handwritten book for 1.95 million pounds."
There's always a "maybe" attached to this argument because piracy is always about the "maybe". And in fact even more so because "maybe" when it comes to physical goods is weaker than the anonymity and consequencelessness of digital "borrowing". Maybe I'll buy it? Maybe I'll contribute to open source? As long as the number of paying customers exceedes his expenses then why should he care? Now why should the paying customers care that they're subsidizing the freeloaders is the unanswered issue in the piracy debate?*
*We get upset because corporations avoid carrying their "fair share" but don't see a problem with freeloaders not carrying their "fair share" even though it's obvious they're benefitting from the efforts of society. We even justify it as "I'm getting mine from those fat cats" even though in a "karmic" world there's no such thing.
logic and set theory? um, yeah...the average person really has a use for that. fuck off.
NiN may be giving away the raw audiomixes for Year Zero, but that's in a format that 99% of customers don't want to dork around with. It generates some buzz from those who think it's neat, and is "free" to those very few who actually use it, but most just shell out the $18.99 for the CD anyway. Those who go the literal "free" route with Year Zero "pay" by creating buzz often, to a non-trivial degree, by using the raw tracks to remix into other material that raises more awareness; NiN is buying advertising by giving away samples instead of $$$.
Goes to show that "free" hey-here's-the-whole-shebang-and-more doesn't work the way people claim they want it to. Most want FUN, NOW and are willing to pay for it.
Can we get a "-1 Wrong" moderation option?
If you read the article, or even remotely follow the argument, he isn't saying that people should give things away, he is saying that there are new ways to profit in an environment where distribution is as good as free.
He also wrote the book The Long Tail, which was a New York Times best seller. He made a lot of money from that, despite the fact that he wrote the book in public view and with public input on his blog thelongtail.com. In fact if you go to that blog right now you will see him discussing the monetary benefits of giving away books.
I don't think it hurts his credibility that he sells the book, actually I think it helps him. Lawrence Lessig's book has a higher purpose of promoting free culture, while Chris Anderson's book is simply observing the changing state of economy. Mr. Anderson is already using the techniques he outlines by giving a long excerpt, and blogging about the contents of his book.
"how can they call it a MINE if everything here is THEIRS?!?!" -Straight Jacket
Ubiquitous Pinky and the Brain reference: in one episode Brain builds "Papier-mâché Earth" from magazine inserts then lures the population of Earth to Chia-Earth by offering free t-shirts. (The actual earth is then subsequently destroyed by an asteroid.) Never under-estimate the power of the free t-shirt!
"UNIX is very simple, it just needs a genius to understand its simplicity." -Dennis Ritchie
I'm not sure it's possible to roll my eyes hard enough for that statement. Oh yeah, I'm sure when he was writing his book, he specifically said to himself "Hmmm... I'll bet wording it this way could sell more books!".
These guys need to stop denying reality. When you have a FREE operating system, you have to start asking yourself why in ten years you can only capture less than 2% of the market. The answer isn't Microsoft, the answer isn't FUD, the answer isn't a vast conspiracy. The answer IS consumers- so start looking into why a person would rather STEAL Windows than use Teh Lunix for FREE.
They might also want to stop talking about "vendor lock-in", since realistically speaking that's the biggest case against FOSS: people don't want to be locked in to software which has so much uncertainty attached to it. When you are using free software, your continued use of that software is completely bound to the continuing good will of the person or persons working on that software. If they decide tomorrow that they want to move out of their parent's basement, get a job and a girlfriend, all of a sudden your company no longer has it's database app supported. Yeah, you can hire somebody to keep working on it... but how many companies want to become their own software vendor? Not many, and that's a fact.
Commercial software has a lot of positives, and it's those positives specifically which address issues of concern for businesses and many consumers. Keeping one's head in the sand does not make those issues disappear.
I heard a story on NPR a week ago about a new book by MIT Professor, Dan Ariely, talking about what happens to our "rationality" when we are offered something for free. From the interview, it sounds like the rules of economics break down when we are offered something free.
http://www.predictablyirrational.com/http://www.npr.org/templates/story/story.php?storyId=19231906&ft=1&f=2
I think I'd argue that most "goods" are not free. Nor are they likely to become so, as the marginal cost of distributing, say, a hamburger or a Ford F150, are never going to approach zero. Costs will fall, prices will fall, but physical goods are constrained in ways that bits are not (until we have TNGs replicator technology). Sure advances in technology improve our lives. But the idea that somehow we're approaching a utopia where everything, including physical goods, is "free" is an unproven one at best.
I bring this up because the conflation of "goods" and software (which is not a "good" in the sense of a physical item) is what drives the notion that copying bits is somehow "theft" in the same way that stealing a burger or truck is. Since copying the bits has no real cost, and since the original "owner" of the bits doesn't lose the use of them, it's pretty clear that these are two different things. When a FOSS advocate, as you appear to be, makes this same mistake (saying that software is somehow equal to "goods") even while denigrating RIAA, it's clear that RIAA has started winning the PR war.
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SO, no dogs in your WAGLESS society, eh?