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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?
Well, I started using Linux a while back, and now I'm addicted... I don't want to use anything else ever again... every time there's a new kernel, I must have it... a thousand curses on Linus, who has enslaved me to his operating system... I have learned so much since I started, that I am no longer ignorant - Linux isn't free - it costs you your bliss.
The sheer elation that you get from the freedom provided is definitely not worth the ignorance lost. So remember folks, don't use free stuff because you might learn something, and that would be terrible.
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.
The amount of knowledge in the world is essentially infinite.
It's best to stop trying to learn everything after you figure out that Grimace is the big purple dude.
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.
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.
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.
and support.. you are relying on the continued interest of a bunch of nerds. wtf happens when they discover girls?
Their hearts are broken. Their spirits are crushed. They retreat to their parent's basements to bask in the comforting glow of boxen and resume coding free software to numb the pain.
Because then normal people don't know what you're talking about.
(Yes, contrary to what NERD RAAAAAGE will tell you, this is important. If normal people can't understand you, they'll write you off.)
"You can either have software quality or you can have pointer arithmetic, but you cannot have both at the same time."
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.
Yeah, see... Most people don't use computers to learn more about them any more than they (sorry in advance) drive cars to learn about them. They do both to solve problems in their lives. Linux solves basically none of my problems and meets none of my requirements of a computer.
I respect playing with things to learn. I play with Linux, too. But I work with OSX and Windows.
You're not better than people who don't care to learn about computers; you just have different interests. I know a lot about tuning 50cc scooters to go way faster than they should (and have, unfortunately, the 30-day suspension on my license to prove it). But I don't denigrate people who just want to hop on one and go to the store and back. They're not dumb or lazy; they just don't care.
So, while I'm glad you enjoy editing .conf files, I encourage you to explore the possibility that people who don't just... don't.
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
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Yeah, you're right. GOOG isn't worth anything anymore and doesn't make any money.
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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.
Google SMS is much better, almost as good as having an active internet connection.
"Nothing excites jaded grandmasters like a Theoretical Novelty" - Dominic Lawson
You're not better than people who don't care to learn about computers; you just have different interests.
:-)
This statement needs a bit of clarification before I can argue with it. As it would be too slow to ask for clarification I'm going to assume the following:
- stuff the people don't care to learn is stuff like intermediate and advanced levels of configuration, programming, CLI and the like, but also set theory, theory of data, theory of communication etc.
- the better you are referring to is not ethical, but mainly economical, societal and utilitarian.
First off, I would want to agree with you that people do need to make decisions about what to learn. Even though you will spread that learning throughout your whole life there's just too much stuff to know. However, it a dangerous self-deception to think that you can ignore computers and not have negative consequences to yourself in terms of your economic prospects, your fitness to society and your personal happiness.
It is really hard say what level of knowledge with computer should be considered a citizen skill(*), but it is more than basic OS usage and knowledge of specific applications. I think people should be able to command their computers. To this logic and set theory are most important, although any specific formalism unimportant and those used by experts of the particular fields are probably counterproductive. A working knowledge of a general command language is probably a must, although you may be able to get by with GUIs. A general command language is of course also a programming language, but don't let that fool you. Programming (i.e. building computational systems) isn't part of the operational ability to command a computer.
For better or worse, computer skills aren't just another technical skill that might be fun to have. Computers are the foundations of our current and future prosperity. They are the means of production and communication of our societies. Computer knowledge is power. Computers can't be just a purview of engineers.
(*) A skill nearly every citizen has or is expected to acquire. I know this is a very Finnish concept, but I'm not ashamed of that.
Computers are useless. They can only give you answers - Pablo Picasso
Linux is number one OS in science, in algorithms, in calculating stuff that matters. On Linux I verify genomic annotations, find distant relationships, parse scientific texts for data mining (extracting scientific facts). I code all of it too.
On Windows I submit weekly reports about hours and answer emails of people who are lazy enough to lift their behinds and walk 10 feet into my office, I write documentation that nobody reads, I waste my time browsing websites.
Linux makes me think. Windows makes me a slob.
I do not believe in karma. "Funny"=-6. Do good and forbid evil. Yours, Oft-Offtopic Flamebaiting Troll.
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
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
Actually, market value is 100% subjectively extrinsic for absolutely every single good and service. Cost of production is completely immaterial to value. Example: an original Pablo Picasso painting consisting of canvass and paint costing less than $10 may be 100% subjectively extrinsically valued at ten million dollars while the public works ditch dug by 100 laborers during the day shift and filled back in by 100 laborers during the night shift for 1 year straight may be subjectively extrinsically valued at zero dollars.
"From DNA to P2P, we are all Copycats now. Go Go Copycat Power! Copycat Powers activate! Form of, a Copycat." --monxrtr