Your guide to a successful online business!

Chris AndersonChris 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.”

Your new book’s going to be all about ‘free’. Will you be giving it away?

“Of course. The digital forms we’ll make free in as many ways as possible. For example, the audio book, as an MP3 will be a free download for people who buy the physical book.

“We’ll try to make the ebook free. There’ll probably be a way to have a web-based advertising-supported version, much like a magazine. And we’re talking about possibly making one version of the physical book free and sponsored as well.”

Have you considered the Radiohead model, of inviting to pay people what they think it’s worth?

“I’m going one step further. I’m saying the answer is: I’m not going to make you pay anything, because it doesn’t cost me anything to distribute it digitally. I’m not in the bookselling business; I’m in the idea promotion business. And I’m trying to maximise my reach.

“Radiohead is the same: they use digital distribution to maximise their celebrity, then they monetise that primarily with concerts.

“I want to get the widest possible reach for my ideas and my writings, and how I make a living off that is a very good problem to have.”

Ok, let’s cover The Long Tail briefly. Is there anything new you can say about it?

“There’s absolutely nothing I haven’t been asked before.”

In that case, what’re the main misunderstandings about The Long Tail?

“The two big misunderstandings are:

“One, it’s the end of the hit, which it is not. It’s the end of the monopoly of the hit. You’re continuing to see blockbusters and best-sellers but they now serve roughly half the market, depending on the market. The other half of the market is this sort of aggregation of millions of niches.

“Two, being a niche player means you’re going to get rich. This couldn’t be further from the truth. You may have many psychic rewards, but the individual niches are not necessarily going to be lucrative.

“The aggregators of many niches are the ones who make the money. The niches themselves tend to get attention and reputation and how they turn that into money is a question that each one of them has to answer for themselves.”

We’re seeing the rise of social networking online now. Where do you think that’s going?

“I think we’re in the very early days of this. We’ve been focusing on social networks as a place you go to – you know, Facebook or MySpace or something. I think that is the first, somewhat immature stage of the social media era.

“Fundamentally, social networking is going to be something that every site has. You’re going to go from having one place for social networking to it being devolved to a very granular scale, where your social network is not a subset of Facebook, but instead something that you expect to find as a feature in every site you visit.”

Facebook and other social networks are ‘free’. But have they figured out how to make money yet?

“Not really. ‘Advertising’ is not a sufficient answer for almost anybody except for a few traditional media sites with a big sales force and the Googles and Yahoos of the world.

“It’s all work in progress. Obviously advertising’s part of the mix, but the Facebooks and the YouTubes of the world have not cracked that nut yet.”

What are the websites you keep coming back to?

“Well, on a social networking front, I’m not a fan of the one-size-fits-all Facebook approach. Instead, I’ve been spending a lot of time building sites on Ning, which is a platform for The Long Tail social networks.

“Ning has about 40,000 very niche, narrowly focused social networks. I think that is the right model going forward, with social networks being extremely granular, laser-focused on small, intensely narrow communities. They can perfectly serve those communities rather than forcing them to try and conform to a one-size-fits-all model.”

Thanks for taking the time to talk to us.

You can read Chris’s blog over at What do you think of his ideas? Leave a comment and let us know. And don’t forget to subscribe to our news feed or check back soon for more interviews. We’ve got people from Microsoft and Google lined up, as well as the British founders of some hot internet companies.

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