Chris Anderson is Editor-in-Chief of Wired and was named in the Time 100, the news magazine’s list of the 100 people whose power, talent or moral example is transforming the world.
He’s best known for coming up with The Long Tail – the theory that our economy is shifting from a focus on a relatively small number of mainstream products towards a huge number of niches in the ‘tail’.
I managed to track Chris down for the first in a series of interviews with industry experts. I asked him about his latest idea: the concept of ‘free’, social networks and where he thinks the internet might be headed next.
Here’s what he had to say.
Can you explain the idea of ‘free’?
“The internet has enabled lots of businesses and business models to go digital. And one of the economic advantages of digital is that the marginal costs of manufacturing and distribution are zero, or close to it. This means that you can now experiment with giving away one thing to sell something else.
“It’s no surprise that virtually all businesses on the internet are based on ‘free’ in one way or another.
“It can be just advertising-supported – where you give away one product to sell attention to advertisers. Or it can be an inversion of the traditional sample model. Rather than giving away 1% of the products as samples to sell 99%, you give away 99% of the product as free samples to sell 1%. This is what’s called the ‘freemium’ model.”
Which websites are leading the way in exploiting this idea?
“Well obviously Google is built entirely on ‘free’. Every product Google releases is free, or at least comes in a free version, and they monetise this almost entirely with advertising. What’s interesting is that there is no limit so far as to what Google will include as one of their products.
“It started with search and then software and services of various sorts and now they’re rolling out telephony and communications. They’re a sort of tsunami of ‘free’, which disrupts every industry it touches.”
But someone always has to pay somewhere, don’t they?
“‘Free’ doesn’t mean that no money is made. It just means that there’s the flexibility to make a product available free to an end user as long as a third party is paying.
“Sometimes there really is a third party, like in the case of an advertiser, and sometimes it’s a cross-subsidy by which a small number of premium users subsidise a large number of free users.”
Does this devalue things?
“In the media business we’ve always been free. Radio’s free-to-air, TV’s free-to-air, most websites are free. Does it devalue them? I don’t know.
“I think that if you consider attention to be a real measure of value, then free sites are not devalued. The fact that you give them your time is the ultimate gift in digital economics. Just simply being part of someone’s routine, being something that people choose to spend time with is a measure of value.”
When something is ‘free’, do people just end up paying for it in other ways? Perhaps they exchange something for it, like their personal data.
“Typically you’re paying with your time and regard. If you link to something, you’re paying by giving some of your own reputation to that site. If you’re spending time with it, you’re exchanging some of your scarce attention for that free product.
“Sometimes you do pay directly. Advertising, ultimately, is paid for by consumers in the form of higher prices for the products being advertised. It’s just not a direct shelling out of cash for products as in the traditional economy.”
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