I got this as a free audiobook. I don't really know much about economics so I can't speak as to how accurate this guy's predictions will be, but the historical anecdotes about companies giving things away for free as a marketing strategy (free razors + expensive razor blades, for example) were pretty interesting. (Irrelevant thought: It sort of bothers me that "free-conomics" sounds so much like "Freakonomics".) ( )

Got bored after about three chapters. Can I have my money back? ( )

Providing goods and services free is not just an innovative business model, but a revolution. Chris from his close and years of experience brilliantly captures the essence of this revolution. The book interested me, because I was working a articulating a very similar Business Model for a new “Managed Network Service”, and wanted to hear Chris views on the same. I must admit that for most examples provided in the book, I had this “I already know this!” kind of feeling, but it did help me to structure my thoughts. I am great believer of the fact that the next generation disruptive innovations would in business models, and service delivery to dramatically change the way customers feel and use the product, far moved from discoveries of disruptive basic sciences. May be the day is not far, when I can just order a refrigerator for free and would get charged based on what and how much I stock, and how much beer I drink. ( )

Colin Campbell's article Is the Web's 'Free' Ride Over? (MacLean's 09/07/21), does not really review Chris Anderson's latest, aptly titled book Free; rather, it describes the controversy surrounding the book's release.

For More See Orato Review Below ( )

This is a great book on the analysis of free and how things become free. How free is offered? And what companies need to do in order to deal with free. Most of the book is based on digital concepts, but it doesn't answer the question of how to moneytize something. It always depends and there are different techniques to go there if you have a plan. I think what's missing from a book like this is the cost. How do things cost what they do? I pay someone to do work for me, but who determines that salary? It's compared to what everybody else who does something similar makes. Who determined that? It's really the basis of our economy. What are things worth and who determines that? That's an interesting process and missing from this book. Good partsSometimes people are paying indirectly for products. That free news-paper you’re reading is supported by advertising, which is part of a re-tailer’s marketing budget, which is built into its profit margin, which you (or someone around you) will ultimately pay for in the form of more expensive goods. You’re also paying with a bit of your time and, by being seen reading that newspaper, your reputation. The free parking in the supermarket is paid for by the markup on the produce, and the free samples are subsidized by those who shell out for the paid versions.p. 20Cross- subsidies can work in several different ways: • Paid products subsidizing free products. Loss leaders are a sta-ple of business, from the popcorn that subsidizes the loss- making movie to the expensive wine subsidizing the cheap meal in a restau-rant. Free just takes that further, with one item being not just sold at a fraction of its cost but given away entirely. This can be as gim-micky as a “free gift inside” or as common as free samples. This form of Free is ancient, familiar, and relatively straightforward as an economic model, so we won’t focus on it much here.Paying later subsidizing free now. The free cell phone with a two- year-subscription contract is a classic example of the subsidy over time. It’s just shifting phone ser vice from a point- of- sale revenue stream to an ongoing annuity. In this case, your future self is subsi-dizing your present self. The hope of the carrier is that you won’t think about what you’ll be paying each year for the phone ser vice but instead will be dazzled by the free phone you get todayPaying people subsidizing free people From the men who pay to get into nightclubs where the women get in free, to “kids get in free,” to progressive taxation where the wealthy pay more so the less wealthy pay less (and sometimes nothing), the tactic of seg-menting a market into groups based on their willingness or ability to pay is a conventional part of pricing theory. Free takes that to the extreme, extending the concept to a class of consumers who will get the product or ser vice for nothing. The hope is that the free consumers will attract (in the case of the women) or bring with them (in the case of the kids) paying consumers or that some frac-tion of the free consumers will convert to paying consumers. When you walk through the striking interiors of Las Vegas attractions, you get the view for free; in exchange the own ers are expecting some people to stop and gamble or shop (or, ideally, both).p. 22Also, government services are a special class of cross- subsidy, since the link between your taxes and the services you receive is indirect and diffuse.p. 29“reversible business models.” A real- world instance of this is the music clubs in Los Angeles that are charging bands to play in the club, rather than paying them as usual. The bands value the exposure more than the cash, and if they’re good they can graduate to the usual sort of gigs.p. 32The prob-lem is that once something becomes abundant, we tend to ignore it, just like we ignore the air that we breathe. There is a reason why eco-nomics is def ned as the science of “choice under scarcity”: In abun-dance you don’t have to make choices, which means that you don’t have to think about it at allp. 50Why do people think “free” means diminished quality in one in-stance, and not in another? It turns out that our feelings about “free” are relative, not absolute. If something used to cost money and now doesn’t, we tend to correlate that with a decline in quality. But if some-thing never cost money, we don’t feel the same way. A free bagel is probably stale, but free ketchup in a restaurant is f ne. Nobody thinks that Google is an inferior search engine because it doesn’t charge.p. 56But how did they arrive at $10? That price is all about perception. It is the lowest sum that is not too low to devalue the product. Lower is better for subscribers, since the less they have to pay, the more likely they are to sign up. But higher is better for advertisers, because the more a consumer pays for a product, the more they value it. So $10 is low enough to get a lot of people to subscribe, while not being so low that it discredits the product in the eyes of the advertisers. (That same devalua-tion of something very cheap can also affect how subscribers feel, but we can’t mea sure it as well as we can the advertiser reaction.)p. 58The biggest gap in any venture is that between a ser vice that is free and one that costs a pennySo from the consumer’s perspective, there is a huge difference be-tween cheap and free. Give a product away and it can go viral. Charge a single cent for it and you’re in an entirely different business, one of clawing and scratching for every customer. The truth is that zero is one market and any other price is another. In many cases, that’s the differ-ence between a great market and none at all.Kopelman p. 62I think it’s because humans are intrinsically afraid of loss. The real allure of FREE! is tied to this fear. There’s no visible possibility of loss when we choose a FREE! item (it’s free). But suppose we choose the item that’s not free. Uh- oh, now there’s a risk of having made a poor decision— the possibility of loss. And so, given the choice, we go for what is free.p. 64This is one of the negative implications of Free. People often don’t care as much about things they don’t pay for, and as a result they don’t think as much about how they consume them. Free can encourage glut-tony, hoarding, thoughtless consumption, waste, guilt, and greed. We take stuff because it’s there, not necessarily because we want it. Charg-ing a price, even a very low price, can encourage much more responsible behavior.p. 67Remember Steve Jobs’s assertion that you’re not even paying yourself minimum wage if you choose to take the time to wade through all the messy metadata that comes with f le trading? Jobs was saying that the case for paying $0.99 for a song is that it’s a time saver (aside from all the other arguments about legality and fairness).p. 70He found patterns in the replies that surprised him. Chief among them was the common feeling that his games (and games in gen-eral) were overpriced for what buyers got— even at $20. Secondly, anything that made purchasing and starting to play diff cult— copy protection, digital rights management (DRM), or compli-cated online purchasing routines— anything at all standing between the impulse to play and playing in the game itself was seen as a legitimate signal to take the free route. Harris also noted that ideological reasons (rants against capitalism, intellectual property, and “the man,” or simply liking being an outlaw) were a decided minority.Much to his credit, the sincere responses to his question changed Harris’s mind. He decided to alter his business model. He reduced the price of his games in half (to $10). He removed the little copy protection he had been using. He promised to make his Web store easier to use, maybe even with one- click checkout. He decided to increase the length of his free demos. Most importantly, he had the revelation that he needed to in-crease the quality of his games.In a sense, the people in the marketplace were telling him that they valued his games at less than he thought they were worth. He realized any efforts to f ght this would be fruitless unless people thought the games were worth more.The lesson from Harris’s experience is that in a digital marketplace, Free is almost always a choice. If you don’t offer it explicitly, others will typically f nd a way to introduce it themselves. When the marginal cost of reproduction is zero, the barriers to Free are mostly psychological— fear of breaking the law, a sense of fairness, an individual’s calculation on the value of his or her time, perhaps a habit of paying or ignorance that a free version can be obtained. Sooner or later, most producers in the digital realm will f nd themselves competing with Free. Harris un-derstood that and f gured out how to do it better. With his survey, he llooked into the mind of the pirate and saw a paying customer looking for a reason to come out.p. 72Never 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 ( com-puter pro cessing power, digital storage, and bandwidth) will al-ways go down. And keep going down, until it is as close to zero as possible.p. 78 Indeed, it was Thomas Jefferson, father of the patent system (and a lot more), who put it better than anyone:He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, re-ceives light without darkening me.The point: Ideas are the ultimate abundance commodity, which propa-gates at zero marginal cost. Once created, ideas want to spread far and wide, enriching everything they touch. (In society, such spreading ideas are called “memes.”)p. 83Abundant information wants to be free. Scarce information wants to be expensive.In this case we’re using the marginal cost construction of “abundant” and “scarce”: Information that can be replicated and distributed at low marginal cost wants to be free; information with high marginal costs wants to be expensive. So you can read a copy of this book online (abundant, commodity information) for free, but if you want me to f y to your city and prepare a custom talk on Free as it applies to your busi-ness, I’ll be happy to, but you’re going to have to pay me for my (scarce) time. I’ve got a lot of kids and college isn’t getting any cheaperp. 98 The market has de-cided that there’s a place for all three models: totally free, free software and paid support, and good old pay for everything.p.111As a result, every eigh teen months the cost to Google of providing you with your Gmail inbox falls by about half. It was only pennies to begin with, but every year it’s fewer pennies. Likewise for your directions in Google Maps, your headlines in Google News, and your three- minute entertainment f xes on YouTube. Google keeps building these data cen-ters at the cost of hundreds of millions of dollars, but because the traff c each handles grows even faster than the infrastructure spending, on a per- byte basis the cost to the company of serving your needs falls every dayp. 122In the case of classif eds, newspaper own ers, employees, and share-holders lost a lot while the rest of us gained a little. But there are a lot more of us than there are of them. And it’s entirely possible that the lost $30 billion in newspaper market capitalization will eventually show up as far more than that in increased GDP, although we’ll never be able to make that connection explicitly.Companies that embrace this strategy aren’t necessarily calculating the totals of winners and losers. Instead, they’re just doing what’s easi-est: giving people what they want for free and dealing with a business model only when they have to. But from the outside, it looks like a revolutionary act. As Sarah Lacy put it in BusinessWeek, “Think Robin Hood, taking riches from the elite and distributing them to everyone else, including the customers who get to keep more of their money and the upstarts that can more easily build competing alternatives.”You see this all around you. Cell phones, with their free national long distance, have de- monetized the long-distance business. Do you see anyone (other than long- distance providers) complaining? Expedia de- monetized the travel agent business, and E*TRADE de- monetized the stockbroker business (and paved the way for other for other free-trading companies, including Zecco— see the sidebar on page 113). In each case the winners far outnumber the losers. Free is disruptive, to be sure, but it tends to leave more eff cient markets in its wake. The trick is to ensure you’ve bet on the winning side.p.132So Google would very much like the newspapers to stay in business, even as the success of its own advertising model in taking market share away from them is making that more diff cult. This is the paradox that worries Schmidt. We could be at a moment where the short- term nega-tive consequences of de- monetization are felt before the long- term posi-tive effects. Could Free, rather than making us all richer, instead make just a few of us superrich?p. 133 Jonathan Handel, an entertainment lawyer (and former computer scientist) in Los Angeles, gives six reasons for the migration to Free, which I’ll paraphrase as follows: 1. Supply and demand. The supply of content has grown by factors of million, but demand has not: We still only have two eyes, two ears, and twenty- four hours in the day. Of course, all content is not created equal and Facebook pages can’t compare to the New York Times— unless that Facebook page is your friend’s, in which case it may be far more interesting than the Times (for you). The difference is that there are a lot more Facebook pages than there are Times pages, and they’re created with no expectation of pay. 2. Loss of physical form. We can’t help it: We value atoms more than bits. As content moved from disks in boxes to f les f ying through wires, it became intangible, even abstract. Plus stealing a physical thing deprives someone else of it and costs somebody real money— not so for a digital f le. 3. Ease of access. It’s often easier to download content than it is to f nd it and buy it in stores. As such “search costs” decline, so does our willingness to pay for having content made available. 4. The shift to ad- supported content. Habits set on the Web carry over into the rest of life. If content is free online, shouldn’t it become free elsewhere, too?5. The computer industry wants content to be free. Apple doesn’t make its billions selling music f les, it makes it selling iPods. Free content makes the devices it plays on more valuable, as the radio industry knew back in 1920. 6. Generation Free. The generation that has grown up with broadband has digital economics somehow wired into their DNA. Whether they’ve ever heard of “near- zero marginal cost” or not, they intuitively understand it. That’s why they’re either indifferent or hostile to copyright. They just don’t see the point.p. 142Importantly, you can’t buy a superweapon, be-cause that would be unfair— the company doesn’t want people to be able to buy their way to power, creating a two- tiered society. Instead, money is used to save time, look cooler, or otherwise do more with less effort. The opportunities to pay are “non punitive,” says former Nexon North America boss Alex Garden. You don’t have to pay, but you may want to. The people who choose to pay are, by def nition, the most en-gaged, most committed users, and as a result the least price- sensitive and the happiest about paying.p. 149 “the enemy of the author is not piracy, but obscurity.” Free is the lowest-cost way to reach the largest number of people, and if the sam-ple does its job, some will buy the “superior” version. As long as read-ers continue to want their books in atoms form, they’ll continue to pay for them.p. 161Then how do they make their billions? Scale. Not quite the old joke about losing money with each sale but making it up with volume, but instead losing money with a lot of people and making it back with a relative few. Because these companies pursue the max strategy, that relative few can still amount to thousands or millions of people. That’s great news for consumers, who are getting products and ser vices cheaply, but what about companies that can’t go max? After all, for every Google and Facebook, there are hundreds of thousands of com-panies that never get beyond niche markets.p. 176Or, to mangle Marx, to each according to her needs, from each according to her ability to open her wallet. p. 177 ( )