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Is the ‘Free’ Model the Smart Way to Do Business Digitally?

Is the ‘Free’ Model the Smart Way to Do Business Digitally?

Scott Canon | The Kansas City Star

Anderson’s book argues that free is rapidly becoming the default price of virtually anything that can be reduced to 1s and 0s in a computer and replicated endlessly on the Internet.

Old-school folks talk derisively of a mostly younger set that insists, in the words of “Whole Earth Catalog” creator Stewart Brand, “information wants to be free.”

The right-to-free argument sometimes boils down to two points.

First, it would be undemocratic to let money determine who can read or listen to or play with the products of the mind.

Second, people are bound to pirate digital goods and services anyway, so better to use free to lure customers to things that you can coax them to pay for.

Snapfish will let you use space on its computer banks for your photographs because it thinks you’ll turn to it when you want prints. Adobe gives away free picture-editing software in hopes you’ll buy its more sophisticated version of Photoshop. So-called netbook computers are given away for 99 cents — not quite free, yet — if you’ll just sign up for a $60-a-month wireless Internet service. Virtually every newspaper posts its work on an open-access Web site so it can sell ads.

“It’s relevant in a digital world because it’s easier to distribute things for free and make them available to everyone,” said Ethan Whitehill of the Kansas City branding and communications firm Two West Inc.

The push toward free, inevitably, has brought up worries about whether it can cover the payroll.

Are newspaper subscriptions hurt because the Internet is free? Will product placements ever be lucrative enough to finance a Judd Apatow movie if someday all films are hijacked by pirates? Will large numbers of music groups ever be able to trigger enough concert and T-shirt sales that they’ll be able to give away their songs for free, like Radiohead or Nine Inch Nails?

Traditionalists note that when customers can’t be forced to pay for such things, then it will quickly prove harder for producers to churn out quality or make a living.

“When things were the cheapest, men were the poorest,” said future presidential candidate William McKinley 120 years ago. “Cheap merchandise means cheap men, and cheap men mean a cheap country.”

We’ve, um, advanced from spats to Twitter and from cheap to free. Yet the same anxieties about how to earn a wage vex us.

In studying media firms, analyst Sarah Rotman Epps of Forrester Research has found deep divisions within companies about what to do. Should they keep their Web sites free to give advertisers a bigger audience, or tuck their content behind pay walls to make readers into subscribers?

“The digital environment makes it more difficult to support large businesses” and the polished content they’re accustomed to providing, Epps said. “Consumers aren’t willing to pay as much for content that’s divorced from a physical environment” — a printed magazine or DVD. “And advertisers aren’t willing to pay as much for advertising online. … Media companies are going to continue to get smaller.”

She also notes that while things are moving toward free, others have moved away. Few thought decades ago that people would pay for cable TV when they could watch network shows for free. After Napster showed how file sharing meant access to almost unlimited music, Apple persuaded people to pay 99 cents a song.

Sometimes free flat out doesn’t make money.

Malcolm Gladwell, who chronicles trends in his books and in the magazine The New Yorker, noted in a critique of Free that YouTube is wildly popular without being profitable. The very videos that attract huge traffic — your cat using the toilet or pirated clips from movies — are also the sort that advertisers shy away from.

Yet those same popular works of amateurs and thieves also demand the most YouTube resources. Anderson argues that the cost of hosting those videos is next to nothing, while Gladwell says next to nothing “multiplied by 75 billion is still a very large number.” In fact, YouTube owner Google no longer breaks out the financials for YouTube. But in 2006, when those numbers were last public, it lost $276 million. Some speculate that number has almost doubled.

Before publishing his book “Predictably Irrational,” Duke University behavioral economist Dan Ariely was part of the all-things-should-be-free movement. He wrote at length about how, he said in an interview, “free is a fundamentally different amount of money than a penny or a dollar.”

Then his book was pirated, with both text and audio version swapped widely on the Internet.

“I don’t feel quite the same about free anymore,” he said.

But then he heard from one of his pirates, swapped thoughts on the illegality and formed a relationship. It may be fodder for a future book.

“I’d like to find some other model,” Ariely said.

Other, he said, than free.

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Copyright © 2009, The Kansas City Star, Mo.

Distributed by McClatchy-Tribune Information Services.

© 2009, YellowBrix, Inc

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